LONDON MARKET CLOSE: Stocks Mixed As Powell Strikes Dovish Tone

(Alliance News) - Stocks in London ended mixed on Wednesday with the FTSE 100 hindered by the appreciating pound, as Federal Reserve Chair Jerome Powell suggested an interest rate cut could be on the cards, boosting equity markets in the US.The FTSE 100 index closed down 5.78 points, or 0.1%, at 7,530.69. The FTSE 250 ended down 47.99 points, or 0.3%, at 19,419.38, and the AIM All-Share closed up 6.18 points, or 0.7%, at 914.73.The Cboe UK 100 ended down 0.1% at 12,772.58, the Cboe UK 250 closed down 0.3% at 17,342.09, and the Cboe Small Companies ended down 0.1% at 11,235.64.In Paris the CAC 40 ended 0.1%, while the DAX 30 in Frankfurt ended 0.5%. In prepared testimony ahead of a House hearing, Powell highlighted continued uncertainty about trade as a drag on US growth, amplifying his message from recent appearances that have been widely interpreted by investors as opening the door to an interest rate cut.Powell was not explicit but in his remarks to the House Financial Services Committee he noted the Fed in June announced it "would act as appropriate to sustain the expansion."The Fed chair said the US economy has performed "reasonably well" over the first half of 2019, but inflation is running below target and trade tensions have been weighing on economic activity. The labour market remains healthy, he continued, and job openings "plentiful".Powell said the Fed's baseline outlook is for economic growth to remain solid, labor markets to stay strong, and inflation to reach target "over time". In addition, Powell took a defiant stance when questioned by Congress over his future saying he would not leave his post even if US President Donald Trump tried to fire him.Trump has repeatedly attacked Powell and the Fed for raising interest rates, calling the central bank a threat to the economy and that the central bank was undermining his efforts to boost the economy.Futures markets are pricing in that the Fed at its July 31 meeting will cut interest rates by 25 basis points although some have seen the possibility of a larger cut.Analysts at ING said: "Overall, the tone of the testimony together with Powell's previous commentary, such as his assertion that an 'ounce of precaution is worth more than a pound of cure', suggests we should prepare for rate cuts. We agree with the market that the Fed will cut rates 25 basis points in July and likely follow up with a further 25 basis points in September. Thereafter, it is down to the big unknown of what happens with trade policy, and that is something that is very firmly in President Trump's hands." "If US-China talks break down and a new round of tariff hikes are implemented this could lead to more economic weakness through disrupting supply chains, putting up costs and hurting profit margins. However, our trade team takes the view that the fear of economic weakness for both sides will lead to China and the US finalising a deal later this year that doesn't necessarily achieve all of President Trump's initial demands. A positive boost to sentiment from this would clearly reduce the need for additional Fed policy easing."Powell will continue his biannual testimony to Congress on Thursday. In addition, at 1900 BST on Wednesday, minutes from the Fed's June meeting will be released.Stocks in New York were higher at the London equities close, with the S&P 500 breaching the 3,000 mark for the first time in the wake of Powell's comments. The DJIA was up 0.4%, the S&P 500 index up 0.5% and the Nasdaq Composite up 0.6%."The Fed inspired equity rally was barely noticeable on the FTSE 100 which remained steady suffering under the strengthening pound," said City Index analyst Fiona Cincotta. The pound was quoted at USD1.2493 at the London equities close, higher than to USD1.2460 at the close Tuesday, after economic data showed the UK economy returned to growth in May amid fears of a slowdown. Sterling had slipped to a two-year low against the greenback on Tuesday as investors fretted about the state of the UK economy and the rising chance of a 'no deal' Brexit.Gross domestic product grew by 0.3% month-on-month in May, rebounding from a 0.4% monthly contraction in April, the Office for National Statistics said on Wednesday. Boosting the economy was a 1.4% rise in manufacturing, while the index of production also rose 1.4%, but the all-important services sector was flat. In April, manufacturing had tumbled 4.2% and production by 2.9% while services had gained 0.1%. In the rolling three months to May, sequential growth also was 0.3%, slowing from 0.4% in the three months to April. Phil Smeaton, chief investment officer at Sanlam UK said: "The UK economy was a welcome bright spot at the start of the year, with jobs being created and wage growth remaining strong. However, while job growth remains robust, GDP performance is underwhelming as we see the pre-Brexit stock building boost starting to wear off. Market indicators are giving cause for concern and investor optimism is experiencing a wobble."Global uncertainty is playing a notable part, with the US/ China trade dispute rumbling on. But it is the domestic political uncertainty where the real worries lie. Despite the bluster of the Conservative leadership campaign, the numbers in Parliament are unmoved when it comes to Brexit. With the opposition struggling in the polls, a pre-Christmas General Election looks to be on the cards. Only when businesses in the UK are given clarity of the future can the economy really find its feet again."In the FTSE 100, Micro Focus International ended the worst performer, down 12%. Shares in the software company continued to slide after it reported a drop in revenue and maintained its annual guidance on Tuesday. Micro Focus on Tuesday also said its high-profile acquisition of Hewlett Packard's software business was still proving difficult to integrate into its existing operations, stressing it was a "complex and significant progamme of work". The stock is down 17% since the start of the week. BT closed down 1.8% after the Financial Times, citing BT Chair Jan du Plessis' annual general meeting statement, reported the telecoms giant could cut its dividend sometime in the future to fund its fibre build programme across the UK.In the FTSE 250, oilfield service companies ended among the best performing stocks, tracking spot oil prices higher.Petrofac, Hunting and John Wood closed up 3.1%, 3.0% and 2.0%, respectively, while independent exploration and production company Premier Oil closed up 4.4%.Brent oil was quoted at USD66.10 a barrel at the London equities close, up from USD63.94 at close Tuesday. Oil prices rose after the Energy Information Administration reported a substantial oil inventory draw of 9.5 million barrels for the week to July 5, compared to analysts' expectations for a decrease of 3.1 million barrels.At the other end of the midcaps, PageGroup ended the worst performer, down 15% after the recruiter said it expects an annual operating profit at the lower end of market expectations due to "challenging" macroeconomic conditions. Hays ended down 5.8%. UBS cut the recruiter to Neutral from Buy, as it also suffered a negative read-across from PageGroup. The euro stood at USD1.1248 at the European equities close, higher than USD1.1208 late Tuesday, amid dollar weakness. Gold was quoted at USD1,407.00 an ounce at the London equities close, up from USD1,396.50 late Tuesday. "The strong inverse relationship between the commodity and the greenback continues. Gold has enjoyed a bullish run for a few months, and if the wider upward trend continues it might retest the USD1,439 area," CMC Markets analyst David Madden said. The UK corporate calendar on Thursday has trading statements from sofa retailer DFS Furniture, household goods maker McBride, fund manager Liontrust Asset Management and office space provider Workspace Group.

The economic events calendar has Germany and US inflation readings at 0700 BST and 1330 BST respectively. In addition, the Bank of England will release its financial stability report at 1030 BST. London Close is available to subscribers as an email newsletter. Contact info@alliancenews.com