LONDON MARKET CLOSE: Stocks Mixed As Market Awaits Dovish Fed Decision

(Alliance News) - Stocks in London ended mixed on Wednesday as investors look ahead to an interest rate decision from the US Federal Reserve, expecting the central bank to remain dovish and acknowledge a downbeat economic outlook.

The FTSE 100 index closed up just 2.20 points at 6,131.46. The FTSE 250 ended down 30.57 points, or 0.2%, at 17,247.66, and the AIM All-Share closed up 4.73 points, or 0.5%, at 896.07.

The Cboe UK 100 ended flat at 611.66, the Cboe UK 250 closed down 0.3% at 14,645.67, and the Cboe Small Companies ended up 0.2% at 9,133.65.

In Paris the CAC 40 ended up 0.8%, while the DAX 30 in Frankfurt ended down 0.1%.

CMC Markets analyst David Madden said: "The major equity benchmarks in Europe are largely flat on the session as traders await the update from the Federal Reserve... Rates are expected to remain on hold, and there has been a lot of speculation that Jerome Powell, the Fed chair, will hammer home the point that rates will stay ultra-low for years to come.

"The US central bank is expected to maintain an extremely loose monetary policy in an effort to assist the economic recovery, anything less than that in terms of promises, could spark a bearish move. The pandemic hasn't been forgotten about, but for now the Fed is in focus. Fears of another wave of Covid-19 are doing the rounds."

On the London Stock Exchange, Next ended the best blue-chip performer, up 7.7% after the clothing retailer said its second-quarter sales were "much better than expected".

Next said its online warehouse picking and dispatch capacity returned to normal levels quicker than expected and UK and Ireland stores are now open for business. As a result, full price sales including interest income for the second quarter ended July 25 were were "significantly" ahead of expectations, down 28% compared to the year prior. Online sales were up 9%, while retail store sales were down 32% on a like-for-like basis.

Next expects full-year pretax profit to be GBP195 million, following the central scenario. This is a stark contrast to the GBP734 million expected in pretax profit in January earlier this year and the GBP748.5 million recorded in financial 2020.

Smurfit Kappa closed up 4.8% after the packaging firm resumed dividend payments and hailed its "strong" interim performance, despite posting an earnings fall. In the six months to June 30, revenue fell 9.1% to EUR4.20 billion from EUR4.62 billion in the year prior.

The Irish firm proposed an interim dividend of 80.9 cents per share, more than double the 27.9 cents it paid a year ago and equal to the 2019 final dividend it had pulled due to the virus crisis.

At the other end of the large caps, Taylor Wimpey ended the worst performer, down 8.1% after the housebuilder swung to a loss in the first half of its current financial year as its income plummeted.

For the six months to June 28, Taylor Wimpey posted revenue of GBP754.6 million, down 56% year-on-year from GBP1.73 billion. Pretax loss was GBP39.8 million, swung from a profit of GBP299.8 million a year prior. The deterioration in its performance was blamed on the closing of construction sites and sales centres from March 23 for the Covid-19 lockdown in the UK.

The first half net private sales rate of 0.70 homes per outlet per week was down on 1.00 a year ago. The sales rate was 0.97 prior to the UK's Covid-19 shutdown, when it then reduced to 0.30. In the nine weeks since sales centres reopened in England, the sales rate has increased to 0.70.

Barclays ended down 6.1% after the bank reported a sharp drop in interim profit, as the lender was forced to up its credit impairment charges dramatically to deal the fallout of the Covid-19 pandemic.

For the six months to June 30, Barclays's pretax profit dropped 58% year on year to GBP1.27 billion from GBP3.01 billion. Total income improved 8% to GBP11.62 billion from GBP10.79 billion, but Barclays was forced to up its credit impairment charges to GBP3.74 billion from GBP928 million the year before.

Barclays said the provision increase was largely due to "revised IFRS 9 scenarios" driven by Covid-19.

GlaxoSmithKline ended down 3.2% after the drugmaker posted first-half earnings growth despite seeing a slight slip in second-quarter revenue as its Vaccines business was disrupted by Covid-19.

Revenue in the six months to June 30 was 8.0% higher year-on-year at USD16.71 billion from USD15.47 billion. This helped push pretax profit up 75% to GBP4.48 billion from GBP2.56 billion for the half.

Second-quarter revenue slipped 2.4% to GBP7.62 billion but quarterly pretax profit more than doubled to GBP2.64 billion. This was helped by GSK booking GBP1.61 billion in other operating income, compared to expenses of GBP63 million a year ago.

Earlier Wednesday, French pharmaceutical company Sanofi and Glaxo said they reached an agreement - subject to final contract - with the UK government for the supply of up to 60 million doses of a Covid-19 vaccine.

The pound was quoted at USD1.2968 at the London equities close, up from USD1.2930 at the close Tuesday.

The euro stood at USD1.1767 at the European equities close, up from USD1.1731 late Tuesday.

Against the yen, the dollar was trading at JPY105.08, flat from JPY105.10 late Tuesday.

"Attentions are fixed on the upcoming Fed policy meeting. While we do not expect the FOMC will employ any new policy measures there could be a change to forward guidance, with average inflation targets possibly lifted to counter rising prices and make up for a decade of undershooting. An increase to the inflation target will likely weigh further on real yield returns as interest rates will remain lower for longer, dampening demand for the USD," said analysts at OFX.

Stocks in New York were higher at the London equities close ahead of the US Federal Reserve's interest rate decision at 1900 BST and amid a congressional hearing by 'Big Tech' executives.

The DJIA was up 0.3%, the S&P 500 index up 0.8% and the Nasdaq Composite up 1.1%.

The Fed expected to keep the benchmark lending rate at zero but may offer more explicit reassurance to markets about its intention to continue to stimulate the economy. Investors will also be paying attention to comments from Chair Jerome Powell on his outlook for the economy.

The central bank dropped interest rates to zero in the early days of the pandemic, and said they will stay there until the recovery is firmly in place. The Fed has also flooded the financial system with cash and constructed a web of loan programmes for businesses, as well as state and local governments.

Top executives underscored their firms' American roots and values as they faced a grilling in Congress over their extraordinary economic power and influence.

The CEOs of Amazon.com, Apple, Facebook and Alphabet offered an upbeat assessment of the tech landscape as they prepared for an onslaught of criticism at a House of Representatives hearing expected to be a rare political spectacle.

The hearing is part of a probe into the competitive market landscape and antitrust law, but questioning is likely to veer into other areas such as hate speech and content moderation, economic inequality, privacy and data protection and even claims of political "bias" from President Donald Trump and his allies.

The unprecedented joint appearance - remotely by video - before the House Judiciary Committee features Tim Cook of Apple, Jeff Bezos of Amazon, Mark Zuckerberg of Facebook and Sundar Pichai of Google and its parent firm Alphabet Inc.

Cook said Apple is "a uniquely American company whose success is only possible in this country," and that the California giant is "motivated by the mission to put things into the world that enrich people's lives."

While the world's richest man Bezos - making his debut before a congressional committee - spoke of his modest upbringing and initial backing from his parents to start Amazon and its early losses of billions of dollars.

In addition, Zuckerberg called social media giant Facebook a "proudly American company" and added that "our story would not have been possible without US laws that encourage competition and innovation."

On the corporate front, aerospace giant Boeing said its earnings continued to feel the bite from Covid-19 and the grounding of its 737 MAX aircraft during the second quarter.

The Chicago, Illinois-based company also unveiled plans to reduce aircraft production and said it may be forced to cut staff numbers again.

In the three months ended June 30, revenue fell 25% to USD11.81 billion from USD15.75 billion in the year prior. Its net loss to shrink slightly to USD2.40 billion, however, from USD2.94 billion.

The stock was down 5.0% on Wall Street.

Brent oil was quoted at USD43.42 a barrel at the London close, up from USD43.09 at the close Tuesday.

US crude oil inventories shed 10.6 million barrels in the week to July 24, the Energy Information Administration reported. This compared with a build of 4.9 million barrels for the previous week.

"Oil is also benefiting from optimism that hospitalizations are peaking in the US, despite strong rises in new cases across many states. Coronavirus deaths are expected to peak by mid-August and that could suggest reopening of the economy will continue as summer winds down," explained OANDA analyst Edward Moya.

Gold was quoted at USD1,955.22 an ounce at the London equities close, flat USD1,953.15 late Tuesday.

The economic events calendar on Thursday has Germany GDP readings at 0900 BST, eurozone unemployment at 1000 BST and US GDP and jobless claims figures at 1330 BST.

The UK corporate calendar on Thursday has interim results from pest control firm Rentokil Initial, lender Lloyds Banking Group, fund manager Schroders and from defence contractor BAE Systems.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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