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LONDON MARKET EARLY CALL: FTSE 100 seen steady heading into Fed hike

Wed, 15th Jun 2022 06:56

(Alliance News) - Stocks in London were seen opening flat on Wednesday ahead of a hotly anticipated US interest rate decision, with the Federal Reserve expected to carry out its largest US rate hike since 1994.

IG says futures indicate the FTSE 100 index of large-caps to open just 0.34 of a point higher at 7,187.80 on Wednesday. The FTSE 100 closed down 18.35 points, or 0.3%, at 7,187.46 on Tuesday.

Market expectations for the Fed have heightened over recent days, spurred by a stronger-than-expected US inflation print at the end of last week.

Up until as recently as Monday, a half-point hike this week was still seen as the most likely option. But markets now think the Fed will deviate from its forward guidance and lift interest rates by 75 basis points. This would take the key federal funds rate to a range of 1.50% to 1.75%.

Oanda's Jeffery Halley said the pause in selling appears to be "merely a consolidation" ahead of the Fed decision.

"The market has priced in at almost 100%, an FOMC hike of 75bps this evening. My two cents worth is that the Fed will not go 100bps, as that would further erode their credibility on the forward guidance front, which is already ragged," said Halley.

"They may, however, decide to upgrade their forward guidance to an even more hawkish tilt. I suspect 75bps is already built into prices now, and if the guidance is more modest in scope, I am sure the buy-the-dippers will be out in force for the rest of the week."

Sterling was quoted at USD1.2014 early Wednesday, flat against USD1.2011 at the London equities close on Tuesday, as British currency traded at levels not seen since the start of Covid lockdowns in March 2020.

The euro traded at USD1.0458 early Wednesday, higher than USD1.0414 late Tuesday.

The yen hit fresh multi-year lows, with the dollar quoted at JPY135.04, up from JPY134.88. The yen is trading at its lowest against the dollar since 1998.

In the US on Tuesday, Wall Street ended on a mixed note, with the Dow Jones Industrial Average ending down 0.5%, the S&P 500 down 0.4% and the Nasdaq Composite up 0.2%

In Asia on Wednesday, the Japanese Nikkei 225 index was down 1.0%. In China, the Shanghai Composite was up 1.8%, while the Hang Seng index in Hong Kong was up 1.5%. The S&P/ASX 200 in Sydney was down 1.4%.

China's factory output and retail sales remained weak in May, official data showed Wednesday, with tepid demand and lingering Covid restrictions putting a damper on growth in the world's second-largest economy.

Retail sales sank 6.7% on-year in May, the National Bureau of Statistics said, though that was an improvement from April's 11% drop. The figure was also slightly better than forecasts from analysts polled by Bloomberg.

Industrial production was up 0.7% after falling 2.9% in April, while the urban unemployment rate ticked down to 5.9%.

Gold was quoted at USD1,817.40 an ounce early Wednesday, firm against USD1,814.44 on Tuesday. Brent oil was trading at USD121.64 a barrel, tumbling from USD124.93 late Tuesday.

The economic events calendar on Wednesday has eurozone industrial production at 1000 BST and US retail sales at 1330 BST. The Fed interest rate decision is at 1900 BST, followed by a press conference with Fed Chair Jerome Powell at 1930 BST.

The UK corporate calendar on Wednesday has annual results from online appliances retailer AO World and trading statements from books and stationery retailer WH Smith and hospitality firm Whitbread.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2022 Alliance News Limited. All Rights Reserved.

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