LONDON MARKET MIDDAY: Fed Comes Into Focus As Brexit Takes Back Seat

LONDON (Alliance News) - Investors were taking a welcome break from focusing on Brexit, with both stocks and sterling rebounding midday Wednesday ahead of the US Federal Reserve's monetary policy decision after the London equities market close.

The week so far has seen stocks in London and sterling hammered amid recent polls indicating a lead for the Leave campaign ahead of the UK's vote on European Union membership next week. On Wednesday, both were catching some respite as focus switched to the Fed and Chair Janet Yellen, who will deliver their monetary policy decision at 1900 BST, followed by a press conference at 1930 BST.

"After yesterday's frenzy of activity surrounding Brexit, the picture for global markets looks a little calmer. In part this is due to the hope that Janet Yellen's appearance this evening will provide some comfortable words, even as the Fed looks to hold fire on a rate move yet again," said Chris Beauchamp, senior market analyst at IG.

The Federal Open Market Committee is widely expected to leave the central bank's target for Fed Funds rate unchanged at between 0.25% and 0.50%, but the focus will be on the accompanying statement and Yellen's subsequent press conference.

The US jobs report for May derailed any hope for a rate increase in June, and now Societe Generale expects the Fed to strike a balanced stance, offsetting a modest downgrading of the labour market with a somewhat more upbeat assessment of household spending.

The FTSE 100 was up 0.9%, or 53.09 points, to 5,976.62. The FTSE 250 was up 0.4% at 16,294.90, and the AIM All-Share was up 0.4% at 718.06.

In Europe, the CAC 40 in Paris was up 1.3%, and the DAX 30 in Frankfurt was up 1.0%.

Futures indicated a higher open on Wall Street. The Dow 30 was pointed up 0.3%, while the S&P 500 and Nasdaq 100 were both indicated up 0.2%.

In UK economic news, the ILO jobless rate came in at 5.0% in the three months to April, below the expected rate of 5.1% and its lowest level since October 2005. In the same period of last year, the rate stood at 5.5%. At the same time, the employment rate was 74.2%, the joint highest since comparable records began in 1971.

In the three months to April, average earnings including bonus increased 2.0%, and excluding bonuses climbed 2.3%.

"Overall, the solid labour market figures should allay fears that uncertainty ahead of the referendum has significantly weighed on the economy in Q2. If wage growth continues to pick up, and the UK votes to stay in the EU, a rate hike [from the Bank of England] may well come back on the agenda before too long," said Ruth Miller, UK economist at Capital Economics.

The pound, which had already rebounded slightly before the data, took another leap higher after the jobs report. At midday sterling traded the dollar at USD1.4202, which was higher than the USD1.4108 seen at the London close on Tuesday.

There was a fair amount of merger and acquisition news in London Wednesday. AVEVA Group shares sunk 13% after the engineering software developer said preliminary talks with Schneider Electric about a potential reverse takeover of AVEVA have been terminated, just two days after confirming it had renewed talks with the French industrials group.

Shares in AVEVA were suspended from trading Monday after it said it had received a conditional proposal from Schneider for a reverse takeover, following a previous reverse takeover deal between the two which collapsed in December last year.

Meanwhile, South African furniture retailer Steinhoff International Holdings said it is considering a possible offer for discount store chain Poundland Group, which would be Steinhoff's third run at a London-listed company in 2016 so far.

Poundland responded, noting Steinhoff's announcement and "strongly" advising shareholders to take no action. "The company will issue a further statement if and when appropriate," Poundland said. "There can be no certainty that a firm offer will be made, nor as to the terms on which any firm offer might be made."

Steinhoff earlier had been involved in bidding unsuccessfully for Home Retail Group, the owner of Argos which was sold to supermarket chain J Sainsbury, and for electricals retailer Darty, which is being acquired by France's Groupe Fnac.

Poundland shares were up 2.2% at midday, having risen 24% on Tuesday.

Berkeley Group was one of the worst performers in the FTSE 100, down 1.8%. The housebuilder said both its revenue and pretax profit dipped in its recent financial year, after it sold more homes but at a lower average selling price, due to the higher-end market in the UK being hit by increased transaction taxes, and uncertainty surrounding the impending EU referendum.

The company posted revenue of GBP2.05 billion for the year ended April 30, down from GBP2.12 billion the year earlier. Berkeley's pretax profit slipped to GBP530.9 million for the year from GBP539.7 million the year earlier.

Berkeley said it was offering a dividend of 190 pence per share for the recent financial year, compared to GBP180p per share for the year earlier.

Jimmy Choo was the best performer in the FTSE 250, up 14%. The high-end shoemaker and luxury goods retailer said it has made a good start to 2016 and is trading in line with its expectations, in a statement ahead of its annual general meeting on Wednesday.

The company acknowledged "headwinds facing the majority of the sector in 2016", but said its "successful growth strategy continues to deliver". Liberum, which upgraded the stock to Buy from Hold, said Jimmy Choo's trading statement showed the retailer is showing resilience in a difficult market.

Software firm Servelec Group said its operating profit for 2016 is set to significantly miss its expectations amid contract delays in some of its divisions.

Servelec said its Social Care and Nuclear & Power businesses have both continued to trade in line, but market challenges facing its Healthcare, Technologies and Oil & Gas divisions will result in operating profit in 2016 being significantly lower year-on-year. The stock was the biggest faller in the FTSE All-Share, down 33%.

Aside from the Fed, still ahead in the economic calendar, the New York manufacturing index is at 1330 BST, as well as the US producer price index. US industrial production is due at 1415 BST, while EIA crude oil stocks are due at 1530 BST.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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