LONDON MARKET CLOSE: Focus On Fed; Pound Surges On Raised Brexit Hope

(Alliance News) - Stocks in London, and Europe, limped into the finishing line on Wednesday, with the latest US interest rate decision due after the European close overshadowing press reports of the UK and EU moving closer to a Brext deal.

The FTSE 100 index closed down 27.06 points, or 0.4%, at 6,078.48 on Wednesday. The mid-cap FTSE 250 index ended down 20.12 points, or 0.1%, at 17,795.26. The AIM All-Share index closed up 0.5% at 973.84.

The Cboe UK 100 index closed down 0.6% at 605.42. The Cboe 250 ended slightly higher at 15,189.10, and the Cboe Small Companies closed down 0.6% at 9,469.98.

In mainland Europe, the CAC 40 in Paris ended up 0.1% and the DAX 30 in Frankfurt added 0.3%.

IG Chief Market Analyst Chris Beauchamp said: "From a glance at price action today it is easy to tell that the Fed issues its latest decision tonight. While US markets have opened up with modest gains, European stocks have shed some ground, with the FTSE 100 dropping back below 6,100."

Wall Street was green at the equities close in London on Wednesday, with the Dow Jones up 0.8%, the S&P 500 up 0.6% and the Nasdaq was up 0.2%.

Adding further pressure to London's blue chip benchmark was a surging pound.

Sterling was quoted at USD1.2996 on Wednesday, sharply higher than USD1.2858 at the London equities close on Tuesday.

"Reports in The Telegraph of a 'tentative, modest' concession from the UK regarding the fisheries dispute with the EU, as David Frost travels to Brussels for an earlier than expected tete-a-tete with Michel Barnier, has raised hopes that a Brexit deal isn't off the table, despite public tensions following the announcement of the UK Internal Market Bill," SpreadEx analyst Connor Campbell said.

He continued: "Now, there have been plenty of negative headlines to go alongside that rumour. But, willing to cling onto any sign that a no deal exit can be avoided, the pound surged on the news, climbing 0.5% against the dollar and 0.9% against the euro. This put a bullet in the need of the FTSE's rebound, sending the index 0.9% lower."

The euro traded at USD1.1843 on Wednesday, down against USD1.1847 late Tuesday. Against the yen, the dollar fell to JPY104.85 from JPY105.48.

In London, Wm Morrison Supermarkets shed 3.9% after being cut to Underweight from Neutral by JPMorgan.

Rolls-Royce gave back 5.5% after aviation partner Boeing said it has cooperated "fully and extensively" with the inquiry into its troubled 737 Max aircraft by Transportation Committee of the US House of Representatives since it began in early 2019.

The probe followed the crash of Lion Air Flight 610 and Ethiopian Airlines Flight 302 and the subsequent global grounding of the 737 Max jet.

The committee's investigation concluded that Boeing failed in its design and development of the 737 MAX and that the Federal Aviation Administration failed in its oversight of Boeing and its certification of the aircraft.

Boeing was 1.5% higher in New York.

At the top of the FTSE 250 was Energean, gaining 20%. The gas producer, which has operations in Israel, Greece and the Adriatic region, said its 70%-owned Energean Israel has signed two new gas sales & purchase agreements, which increases the total firm contracted gas sales from Karish project to 7.0 billion cubic metre per year on plateau.

The majority of gas will be supplied to the Ramat Hovav Power Plant, a partnership between the Edeltech Group and Shikun & Binui. The remainder of the gas, represented by a second agreement, will be supplied to an affiliate of the RH Partnership for other existing power stations.

The gas contracts are for a term of up to 20 years and contain provisions regarding floor pricing for the main plateau period and exclusivity. The annual contract quantity reduces after the first seven years following first gas from Karish.

RSA Insurance and Hiscox added to Tuesday's gains, advancing a further 1.2% and 5.0%, respectively, on Wednesday. On Tuesday, RSA gained 4.7% and Hiscox added 17%. The insurers were enjoying the UK's financial services regulator on Tuesday said a court has ruled in favour of policyholders in a business interruption claims test case against insurers.

Hiscox and RSA Insurance, two of the eight firms that were defendants in the case, said the ruling will result in a financial hit of around GBP100 million.

TUI gave back 6.0%. The travel holiday firm will refund all customers whose trips were cancelled due to Covid-19 by the end of September, the UK's competitions regulator said on Wednesday.

The Competition & Markets Authority investigated the Anglo-German firm's UK arm after it received "thousands of complaints" from customers who said they did not receive refunds for cancelled holidays within 14 days, in line with consumer protection law.

"TUI UK has engaged constructively with the CMA throughout the investigation and while the vast majority of people have already received their refunds or rebooked during the CMA's investigation, any outstanding refund requests for people who had their package holiday cancelled as a result of coronavirus will be paid by September 30, 2020," the watchdog said.

It added that although some customers received their refund in the form of a credit note, they are entitled to ask for a cash refund instead.

Gold was quoted at USD1,969.00 an ounce on Wednesday, higher than USD1,951.10 on Tuesday. Brent oil rose to USD41.90 a barrel from USD40.16 late Tuesday.

Still to come, all focus shifts to Jerome Powell, as the US Federal Reserve will announce its latest rate decision at 1900 BST, followed by a press conference from Powell at 1930 BST.

Oanda's Craig Erlam said: "Fed Chairman Jerome Powell used his virtual Jackson Hole platform last month to announce changes to the central bank's monetary policy framework, targeting average inflation of 2%; in effect allowing for inflation overshoot after a period of falling short. Given the length of time that inflation has done just that, investors were buoyed by the prospect of an even more prolonged period of zero interest rates and perhaps even more stimulus.

"While we're not anticipating more easing today, there is an expectation that the Fed will provide further colour on the changes announced last month. What exactly does this mean for monetary policy? Can we expect more asset purchases? Negative interest rates? Yield curve control? At what stage should we factor in rate increases?"

The international events calendar on Thursday will see two major central banks announce rate decisions: the Bank of Japan's decision is due at 0400 BST and the Bank of England will announce its own decision at 1200 BST.

UK interest rates currently sit at a record low of 0.10% following two cuts by the BoE in March, which were accompanied by a GBP200 billion QE package - that was then boosted by GBP100 billion in June.

ING said: "With November action from the Bank of England looking ever-more-likely, we'll be watching closely to see if policymakers offer up any further clues on which tools they're most likely to use. The message of recent weeks suggests QE remains the preferred tool, although negative rates can't be ruled out either over the coming months."

ING's expectation of further action down the line comes as the list of challenges facing the UK central bank grows.

Elsewhere in the economics calendar, there is a eurozone consumer price index print at 1000 BST and weekly US initial jobless claims at 1330 BST.

The UK corporate calendar has blue chip retailer Next publishing half-year results, along with full-year results from housebuilder Kier, investment manager Brooks Macdonald and interim results from food packaging firm Hilton Food.

By Paul McGowan; paulmcgowan@alliancenews.com

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