LONDON MARKET MIDDAY: Stocks Down Amid US Rate Hike Dread

LONDON (Alliance News) - UK stocks were lower Tuesday midday, while shares in the US were called for a negative open, as increased expectations for a US interest rate hike continued to worry investors, even as peers such as the European Central Bank and the Bank of England appeared to be holding tight or even going in the opposite direction.

"Clearly the prospect of a Federal Reserve rate hike in December is worrying markets, despite a more dovish tone being struck by the European Central Bank and Bank of England", said IG analyst Joshua Mahony.

"However, reports that the ECB will cut the deposit rate in December rather than expanding or extending its Quantitative Easing [programme] are also somewhat of a let-down, as markets have failed to respond well to any action aside from ECB QE in the past," added Mahony.

Reuters reported on Monday that the ECB is set to take its deposit interest rate deeper into negative territory in December, citing four policymakers. Three of the ECB's policymakers said debate is now about the size of the rate cut with some arguing that a 10 basis point reduction, already priced in by markets, would have little impact. The ECB's deposit rate is currently -0.2%.

Meanwhile, in last week's "Super Thursday", a dovish economic outlook from the BoE dimmed the prospect of a UK interest rate hike in the near term and suggested that interest rates are unlikely to rise until late 2016 at the earliest, as inflation is expected to remain low.

The FTSE 100 index was down 0.4% at 6,267.16 points, the mid-cap FTSE 250 was down 0.6% at 17,013.74, and the AIM All-Share was down 0.1% at 743.67.

IG's Mahony highlighted that, despite futures pointing towards gains overnight, the FTSE 100 has seen yet another significant move lower, "compounding the problems faced by bulls after the index came perilously close to sparking yet another big selloff for stocks."

The analyst said that, having touched a three-week low on Monday, the FTSE 100 now stands just above the "crucial technical support level" of 6,252 points, "which if broken could see short-sellers come out in force".

Wall Street was called for a flat to lower open, adding to the losses seen on Monday, when the Dow 30 index, the S&P 500 and the Nasdaq Composite all lost 1.0%. The Dow was seen flat Tuesday, while the S&P 500 and the Nasdaq 100 were seen down 0.1% and 0.2%, respectively.

In the US economic calendar, import and export price indices are at 1330 GMT and the Redbook index is at 1355 GMT.

Analysts at Lloyds Bank said that Friday's October US employment report, which showed much stronger-than-expected rises in nonfarm payrolls and pay growth, alongside a further fall in the US unemployment rate, lent support to recent statements by Fed Chair Janet Yellen, Vice-Chair Fischer and New York Fed President Dudley that a rise in the policy rate at the December Federal Open Market Committee meeting remains firmly on the table.

The Fed is scheduled to announce its next monetary policy decision following its next two-day meeting concluding on December 16. No meeting will be held this month.

China's inflation slowed by more than expected in October largely reflecting a slowdown in food inflation, while producer prices continued their downward trend giving room for the People's Bank of China to ease monetary policy further.

Consumer prices rose 1.3% year-on-year in October, slower than the 1.6% increase seen in September. Inflation was forecast to slow marginally to 1.5%. CPI slowed for a second month in a row and stayed well below the government's full year target of around 3%.

Another report showed that producer prices fell 5.9% year-on-year in October, the same rate of decline as seen a month ago and in line with expectations.

The data could have prompted concern among investors that the health of China's economy is far from improved, but also could have sent to the markets the message that more stimulus from the Chinese central bank could be on its way.

In the event, the Shanghai Composite ended down 0.2% Wednesday, while the Hang Seng index in Hong Kong finished down 1.4%. The Japanese Nikkei 225 index edged up 0.2%.

In Europe, the French CAC 40 was down 0.3% at midday and the German DAX 30 was down 0.2%.

Information services company Experian was the best blue-chip performer in London, up 5.8%, after it said foreign exchange will continue to exert an unwelcome pressure on the business at the full year, but it expects to see organic revenue growth at constant currency.

Experian said that, as well as organic revenue growth in the mid-single digit range, it anticipates "stable" margins and further progress in its closely-watched benchmark earnings per share in its full 2016 financial year, all at constant currency.

Vodafone Group was up 4.8%. A strong underlying performance ahead of market expectations helped shares in telecommunications giant move higher and prompted the group to edge up its guidance, despite its revenue and profit taking a hit from currency effects.

Vodafone said its pretax profit for the half to the end of September was GBP232.0 million, down from GBP406.0 million, thanks to slightly higher financing costs and lower investment income in the half. Earnings before interest, taxation, depreciation and amortisation fell to GBP5.79 billion, down 1.7% year-on-year, but rose 1.9% on an organic basis, which strips out currency effects and merger and acquisitions.

Thanks to the robust underlying performance, the group firmed up its guidance for the full year, raising the low-end of its Ebitda expectations to GBP11.7 billion from GBP11.5 billion, as the top end estimate of GBP12.0 billion remained in place.

Meanwhile, National Grid was up 1.8% after beating consensus earnings estimates by 14% in its half-year update, Jefferies said, while the company also confirmed media speculation that it is looking to sell its UK gas distribution business in order to rebalance its portfolio, with the proceeds being returned to shareholders.

"Effectively National Grid is monetising these assets. The sale of a majority stake in gas distribution assets will no doubt excite the market," said Jefferies. "We currently value the gas distribution business at GBP11.00 billion, representing a 28% premium to the regulated asset base of GBP8.5 billion."

Shares in Wolseley were down 4.9%. Davy Research felt disappointed by the building materials comany's update, as the broker said trading profit for the first quarter came in below its expectations. The company said revenue for the three months to the end of October rose to GBP3.56 billion, up from GBP3.38 billion a year earlier.

Davy called these results "disappointing", as in the broker's view, this 5.3% year-on-year lift seems a "meaningful moderation" in the pace of like-for-like sales growth that "has been confirmed".

In the FTSE 250, distribution and logistics company DCC was the top gainer. It said its revenue dipped in the first half but said pretax profit increased thanks to an improvement in its gross margin.

DCC said it expects its operating profit and earnings will be "very significantly" ahead year-on-year for the full year to the end of March 2016 and "modestly" ahead of market expectations assuming normal winter weather conditions prevail for the remainder of the financial year.

In AIM, high-pressure engineering company Pressure Technologies was up 23% after it said it expects its adjusted earnings to beat market forecasts for the full year despite the tough conditions in its key markets.

By Daniel Ruiz; danielruiz@alliancenews.com

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