LONDON MARKET CLOSE: Stocks fall as caution sets in ahead of Fed

Wed, 17th Mar 2021 16:51

(Alliance News) - Stock prices in London ended lower on Wednesday, with investors showing trepidation before the US Federal Reserve reveals its latest interest rate decision, amid a backdrop of rising bond yields and inflationary worries.

The FTSE 100 index closed down 40.94 points, or 0.6%, at 6,762.67.

"A 30 point drop for the FTSE 100 chimes with the overall atmosphere in markets, which remain cautious as traders look to the FOMC meeting," IG analyst Chris Beauchamp commented.

The FTSE 250 ended down 205.94 points, or 1.0%, at 21,558.55. The The AIM All-Share fell 5.69 points, or 0.5%, at 1,201.28.

The Cboe UK 100 ended down 0.4% at 674.84, the Cboe UK 250 closed down 0.8% at 19,219.16, and the Cboe Small Companies lost 0.1% at 13,945.03.

In Paris, the CAC 40 ended marginally lower, while Frankfurt's DAX 30 climbed 0.3%.

"Investor attention is focused on the conclusion of the Federal Reserve's meeting, which comes amid noisy economic data and rising inflation concerns," analysts at UBS commented.

The Fed is expected to keep interest rates unchanged. UBS said investors will pay particular attention to how the central bank addresses rising bond yields.

The 10-year US Treasury yield topped 1.67% on Wednesday, its highest level for more than a year.

"So far the Fed has not explicitly pushed back on this sharp rise, but this meeting is another opportunity to do so. The Fed's asset purchases are currently running at USD120 billion per month and up until now Powell has been saying that it's too soon for the Fed to start thinking about tapering its buying. We expect him to maintain that stance, but a change in messaging could trigger a market reaction," UBS said.

Rising bond yields boosted the dollar, meaning sterling lost ground. The pound was trading at USD1.3873 at the time of the London equity market close, down from USD1.3886 on Tuesday. The euro fetched USD1.1900, up from USD1.1894, but down from intraday highs of USD1.1916.

Against the yen, the dollar was trading at JPY109.29 at the London market close Wednesday, up from JPY109.02 on Tuesday.

In London, Intertek and British American Tobacco, two of the FTSE 100's dollar earners, were among the better performers. The duo rose 2.4% and 2.3%, on the back of a weaker pound.

BT Group jumped 6.5%. The telecommunication firm's EE mobile unit has secured new 700 megahertz and 3.6 to 3.8 gigahertz band spectrum for GBP452 million, following the principal stage of UK telecoms regulator Ofcom's 5G auction.

"Meanwhile, reflation and pro-cyclical stocks have helped ease the FTSE's decline," IG analyst Joshua Mahony said.

Lenders NatWest and Standard Chartered rose 1.0% and 1.9%. In addition, HSBC lifted StanChart to Buy from Hold.

"The FTSE 350 gainers highlight the ongoing ascent for reflation stocks, with banks, airlines, train operators, and high-street names gaining ground," Mahony added.

Blue-chip high street stalwart JD Sports Fashion and mid-cap retailer Dixons Carphone rose 0.5% and 1.3%.

Miners weighed on the FTSE 100, Rio Tinto fell 2.4%, Anglo American shed 3.9% and BHP ended down 2.4%.

"Metals have struggled to find clear direction in the last few weeks thanks to macro market jitters and the bond market tantrum which caused consternation in cross-asset markets," analysts at ING said.

An ounce of gold fetched USD1,727.63 at the London market close on Wednesday, down from USD1,729.46 late Tuesday.

ING added: "Clearly, gold is standing at a crossroads and is awaiting guidance from the upcoming FOMC meeting.

"Meanwhile, cryptocurrencies do appear to have stolen goldâ€™s thunder, and it's particularly true given cryptocurrencies' possible wider acceptance from institutional investors."

Stock prices in New York were mixed ahead of the Fed interest rates decision.

The Dow Jones Industrial Average was up 0.3%, but the S&P 500 and Nasdaq Composite were down 0.4% and 1.0%.

Uber shares were down 4.6% in New York after it acquiesced and reclassified its UK riders, a fate it has previously warned investors about.

Uber on Tuesday said it is granting its UK drivers worker status, with benefits including a minimum wage - a world first for the US ride-hailing firm.

Brent oil was quoted at USD67.64 a barrel at the London market close on Wednesday, down from USD68.28 on Tuesday.

Thursday's local corporate calendar has annual results from bookmaker 888 Holdings and tonic water maker Fevertree Drinks. Online-only grocer Ocado Group posts a trading statement.

Thursday's economic calendar has the latest US jobless claims data at 1230 GMT. Before that, focus will be on the latest Bank of England interest rate decision at 1200 GMT.

The BoE is expected to leave interest rates unchanged.

BoE Governor Andrew Bailey at the start of this week said Britain's economic activity will return to its pre-coronavirus level at the end of this year following the country's vaccine rollout.

The BoE's optimism should be bolstered this week by developments since February's meeting, including the vaccine rollout and also stimulus announced in the UK budget earlier in March.

By Eric Cunha; ericcunha@alliancenews.com