LONDON MARKET MIDDAY: Fed Minutes Awaited For December Rate Hike Clues

LONDON (Alliance News) - Stocks in the UK and Europe struggled to extend their positive momentum from the past two sessions Wednesday, with investors cautious ahead of the release of US Federal Reserve meeting minutes after the London close.

Investors appear to be avoiding taking on risk ahead of the release at 1900 GMT of the Federal Open Market Committee's minutes from the October 27-28 meeting, which will be examined for any further insight pointing to an interest rate hike in the December 15-16 meeting.

Lloyds Banking Group's senior economist Rhys Herbert noted that the October meeting was before the stellar October jobs report which heightened expectations for a rate hike to December. However, Herbert said the minutes from the October meeting will be important to explain the unexpectedly hawkish post-meeting press statement.

"In particular, markets will be looking for evidence on how ready the majority of members are to raise interest rates in December and the extent of any opposition to such a move," Herbert said.

Nevertheless, many investors have already set their sights on December for a rate, with findings from the November Bank of America Merrill Lynch fund manager survey showing 81% of participants expect the Fed to raise interest rates in December, up from 47% in the October survey.

A number of Fed officials will be speaking ahead of the release of the minutes. Federal Reserve Bank of Cleveland President Loretta Mester, Federal Reserve Bank of Atlanta President Dennis Lockhart and Federal Reserve Bank of New York President William Dudley all will talk starting at 1300 GMT.

The FTSE 100 index traded down 0.1% at 6,263.17 points, the FTSE 250 was down 0.1% at 17,062.74 and the AIM All-Share also was down 0.1% at 728.28.

European stocks were underperforming London. The German DAX 30 index was down 0.5% and the French CAC 40 was down 0.7%.

Wall Street was pointed higher ahead of the open Wednesday. Futures indicate the Dow 30 index, the S&P 500 and Nasdaq 100 all up 0.1%.

Bank of England Deputy Governor Ben Broadbent told investors not to put too much emphasis on the bank's inflation forecasts and instead rely on underlying economic fundamentals.

Broadbent was attempting to correct the market's interpretation that a UK interest rate hike will happen only in early 2017, which took hold after the publication of the central bank's November inflation forecast.

Analysts at private bank Brown Brothers Harriman & Co said the comments by Broadbent were "more hawkish than his somewhat dovish reputation".

In the FTSE 100, International Consolidated Airlines Group, down 3.0% and easyJet, down 2.0% were sold after two Air France flights travelling to Paris from the US were diverted due to anonymous bomb threats. The incident adds to concerns about the impact of the terrorist attacks in Paris on airlines and travel companies.

Wealth manager St James's Place was down 1.4% and fund supermarket Hargreaves Lansdown down 0.7%. The Financial Conduct Authority, the UK's financial regulator, set out the terms of a study to investigate the UK's GBP6.6 trillion asset management industry, with competition and costs to be probed by the regulator as scrutiny of the wholesale financial markets intensifies.

The FCA will look at questions about the difficulty investors have in monitoring the performance of asset managers, the role of investment consultants and potential conflicts of interest arising from the provision of advice and asset management services, the ability of asset managers to control costs borne by investors, among other issues. Both retail and institutional investors will be considered under the study.

Upgrades from Goldman Sachs were helping to support London's mining sector. The bank upgraded Antofagasta and Anglo American to Neutral from Sell, sending shares in the companies up 4.0% and 3.7% respectively. Kaz Minerals was upgraded to Neutral from Sell and traded up 3.6%.

Hunting was another beneficiary of a Goldman Sachs note. The investment bank added the oil services company to its Conviction Buy list, saying the stock's valuation offers a very good buying opportunity. Hunting was the best FTSE 250 performer up 4.7%.

Hikma Pharmaceuticals traded up 2.5%. The drug company said it has received a letter from the US Food and Drug Administration closing out a previous warning letter it had received from the regulator. Hikma said the letter closes out the warning letter is received from the FDA in October 2014 regarding its injectables manufacturing plant in Portugal.

The company said the FDA has accepted the remedial actions it took to fix the problems at the manufacturing plant, which had centred on environmental monitoring issues.

Soco International traded down 19%, the worst FTSE All-Share performer. The oil and gas company firmed up its full-year production guidance as the group said it has been boosted by the earlier start-up of the H5 wellhead platform at the Te Giac Trang field in Vietnam.

However, it said while the H5 platform had started ahead of schedule, it was currently producing around 9,000 barrels of oil equivalent per day, slightly below the company's expectations. Soco said its production for the ten months to the end of October was 12,000 barrels of oil equivalent per day. It has revised up its production guidance for 2015 to 11,800-12,000 boepd, up from 11,000-12,000 previously.

UK Mail Group was down 10% after it said the time it will take to resolve the problems in its Parcels business will hit its outlook for its next financial year, though it affirmed is guidance for the current year despite pretax profit for the first half plunging due to higher costs and one-offs.

The postal operator said the longer-than-expected timescale for resolving the operational issues in its Parcels network and the consequential impact this will have on its earnings both in its 2016 and 2017 financial years and have forced its outlook for the year to March 2017 to be "softened slightly".

Due to the concerns about the impact the restructuring will have on its 2017 results, however, the group has cut its interim dividend payout to 5.5 pence per share, down from 7.3p. It said it considers it "prudent" to rebase the dividend given the challenges it currently faces.

Africa-focused agriculture company Agriterra said its Sierra Leone-based Tropical Farms cocoa business has signed a trading agreement with an unnamed natural, organic and specialty foods company.

Under the terms of the deal, Tropical Farms will use its organic certification and buying networks to source up to 500.0 million tonnes of Sierra Leone cocoa beans in the 2015-16 buying season. The unnamed offtaker will then provide Tropical Farms with pre-financing to cover the purchase of beans. Shares in Agiterra were up 23%.

Still ahead in the economic calendar, aside from the Fed minutes, US building permits and housing starts data for October are due at 1330 GMT.

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

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