(Alliance News) -Â Despite a strong start to share trading in London, the FTSE 100 had slipped into the red by midday as caution grew ahead of the US Federal Reserve's policy decision later on Wednesday, while the OECD warned the global economy could slump at least 6% this year.
The FTSE 100 index was down 30.12 points, or 0.5%, at 6,305.60 midday Wednesday - bringing its loss since the week started to 2.8%
The mid-cap FTSE 250 index was down 128.70 points, or 0.7%, at 17,626.55, while the AIM All-Share index was up 0.1% at 884.00.
The Cboe UK 100 index was down 0.6% at 10,664.50. The Cboe 250 was down 1.0% at 15,219.84, but the Cboe Small Companies was up 0.6% at 9,931.29.
In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were down 0.6% and 0.9% respectively in early afternoon trade.
After an "indecisive" Asian session, stocks in Europe are looking similarly wobbly, said Joshua Mahony, senior market analyst at IG.
"With the FOMC monetary policy decision there is a fear that we could see a rare backwards step for markets today given the high likeliness of a pessimistic outlook and lack of action," Mahony added.
The Federal Open Market Committee will conclude its two-day policy meeting on Wednesday and announce its decision at 1900 BST. This will be followed by a press conference with Fed Chair Jerome Powell at 1930 BST.
The CME's FedWatch tool prices in an 84% likelihood that the federal funds rate is kept on hold at 0.00% to 0.25%.
Despite the likely inaction, the Fed should give some insight into its rate path with the latest forecast summary of projections, the so-called dot plot. These will be the first set of projections published since December. They are usually published once a quarter, but were suspended in March due to the uncertainty created by Covid-19.
This week's dot plot is widely expected to show no rate hikes through the forecast horizon to 2022.
The dot-plot should be accompanied by the the Fed's latest economic projections.
Ahead of these, the OECD said the global economy will contract at least 6% this year due to shutdowns to contain the coronavirus outbreak.
In the case of a second wave of contagion later in the year, world economic output could shrink by as much as 7.6% in 2020, it said.
This would be followed in 2021 by GDP growth of between 2.8% and 5.2%.
"By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments," the Organisation for Economic Co-Operation & Development said in its latest outlook, entitled "World Economy on a Tightrope".
The US economy is expected to shrink 7.3% this year, or as much as 8.5% if there is a second Covid-19 wave. Eurozone GDP is expected to plunge over 9% this year and could fall 11% if there is a second hit.
In a single-hit Covid-19 scenario, UK GDP is expected to shrink 12%, and in the case of a double-hit, a staggering 14%.
The OECD's warning comes as Europe's most powerful countries urged the EU to better prepare for the next pandemic after chaotic responses to the coronavirus.
There should be a "common European approach" to challenges like Covid-19 in future, leaders including French President Emmanuel Macron and German Chancellor Angela Merkel wrote in a letter and policy paper to the EU's top official.
Europe has been the hardest-hit continent with nearly 185,000 people killed, and the leaders said a lack of coordination had left nations short of crucial medical equipment when the coronavirus arrived.
The US recorded 819 deaths in the past 24 hours, bringing its own grisly toll to more than 111,000 out of 1.97 million cases – leaving it the country hardest hit by the pandemic in terms of both the number of fatalities and the number of cases.
And the crisis continued to escalate in Latin America, which by late Tuesday had almost 1.4 million cases and nearly 70,000 deaths. Brazil's health ministry cited figures late Tuesday indicating the death toll had risen by 1,272 to over 38,400 killed by the virus – the third highest toll in the world after the US and Britain.
Wall Street futures had turned largely negative by midday in London. The Dow Jones was called down 0.2%, the S&P 500 down 0.1% but the tech-heavy Nasdaq seen up 0.3%.
The dollar was soft against majors ahead of the Fed announcement.
Sterling was quoted at USD1.2749 on Wednesday, up slightly on USD1.2742 at the London equities close on Tuesday. The euro traded at USD1.1364 at midday, firm against USD1.1359 late Tuesday and against the yen, the dollar was quoted at JPY107.33, down from JPY107.71.
Gold was priced at USD1,718.80 an ounce on Wednesday, flat against USD1,718.42 on Tuesday. Brent oil was trading at USD40.24 a barrel, soft versus USD40.56 late Tuesday.
In London, Rolls-Royce Holdings was the worst blue-chip performer, down 7.1% after Goldman Sachs moved the jet engine maker to Buy from its Conviction Buy List.
Other travel-exposed stocks were lower on Wednesday, with British Airways-owner International Consolidated Airlines down 5.2% and easyJet down 3.9%, as risk aversion took hold of markets.
IAG has enjoyed a share rally in recent weeks as markets look to the easing of lockdowns and international travel restrictions - the stock up 54% compared to this time a month ago - but it still remains 53% lower since the start of 2020.
Elsewhere in the FTSE 100, Whitbread was down 4.4% at 2,536.00 pence, after the Premier Inn owner raised a total of GBP1.07 billion from a rights issue and rump placing. The rights issue was priced at 1,500p, while the 9% of remaining shares were placed at 2,550p.
At the top of the FTSE 250 was Lancashire Holdings, up 9.9% after raising GBP277 million in a share placing to take advantage of an increase in insurance rates.
The insurer said it issued 39.6 million shares at a price of 700 pence each, which, based on Tuesday's closing price of 726p, represented a discount of 3.6%.
Shaftesbury shares slumped 4.2% after the London West End-focused property investor reported a fall in net asset value as Covid-19 hit visitor numbers.
EPRA NAV declined 11% to 878 pence per share at March 31 from 982p at the end of September 2019, which the company said was due to revaluation deficits. Its wholly-owned portfolio valuation fell 7.9% in the six months to the end of March on a like-for-like basis to GBP3.5 billion.
The "decisive outcome" of the December 2019 UK general election helped to boost business confidence and investment as well as consumer activity, with Shaftesbury's occupiers reporting good footfall and spending over Christmas and the New Year, as well as in the early weeks of 2020. However, Covid-19 began to hit leasing activity in February with a number of negotiations put on hold or terminated. The "collapse" in West End footfall was evident from early February in Chinatown and then spread across the rest of the area from mid-March, Shaftesbury said.
To come in the economic calendar on Wednesday is US inflation at 1330 BST.
By Lucy Heming;Â lucyheming@alliancenews.com
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