LONDON MARKET MIDDAY: US Futures Point Lower As Fed Decision Digested

LONDON (Alliance News) - UK main indices were lower Friday midday, while Wall Street was called for a negative open, as investors digested the decision from the US Federal Reserve to keep interest rates on hold in its last monetary policy meeting, citing global economic headwinds and volatility in the stock market.

The FTSE 100 was down 1.1% at 6,119.19, the FTSE 250 was off 0.4% at 16,975.75 and the AIM All-Share was flat at 740.57. European major indices were also lower, with the CAC 40 in Paris and the DAX 30 in Frankfurt both down 2.5%.

Asian stocks ended mixed, with the Japanese Nikkei 225 down 2.0%, while in China, Hong Kong's Hang Seng index closed up 0.3% and the Shanghai Composite up 0.4%.

US stocks were called for a lower open, with the Dow 30 and the S&P 500 seen both down 0.7%, and the Nasdaq 100 pointed down 0.8%.

The Fed's decision to leave interest rates unchanged at 0-0.25% followed last month's Chinese stock market correction, which played havoc on global financial markets and drove up the dollar as panicked investors fled to US assets.

The Federal Open Market Committee decided to wait for more evidence of US economic strength "in light of the heightened uncertainties abroad and a slightly softer expected path for inflation," Fed Chair Janet Yellen said. "We want to take a little bit more time to evaluate the likely impacts on the US," she added.

The decision to keep rates on hold was not unanimous, as Richmond Fed President Jeffrey Lacker voted to raise rates by 25 basis points. The vote was 9-1. However, the Fed's 'dot-plot' showed 13 members still expect an interest-rate hike this year, down from 15 of 17 members in the Fed's last survey in June.

"Yes, October remains a possibility," Fed Chair Janet Yellen said in a press conference after the Fed decision was announced. The bank has two more scheduled 2015 policy statements: October 28 and December 16.

However, analysts at Morgan Stanley said the window for a rate hike this year has narrowed, and said they feel the FOMC has "completely" taken October off the table. Morgan Stanley added that while December remains in play, a rate hike this year "is not a foregone conclusion".

"We maintain our view for a December hike, but acknowledge that global growth concerns will need to ease for the Fed to judge the US outlook will not be damaged," said Morgan Stanley.

Credit Suisse US Economics analyst Dana Saporta said the bank expects the Fed to tighten by year-end, also looking for a rate hike to come in December.

"We do not believe that Fed officials are worried at this point about being behind the curve on inflation," said Saporta. "But issues of financial stability probably still are a concern, with the prospect of future asset bubbles rising the longer policy remains geared toward "emergency" conditions."

Meanwhile, Nick Gartside, chief investment officer for fixed income at JPMorgan Asset Management, said investors should closely watch the level of volatility in global markets and the growth picture in emerging markets.

"If both of these stabilise, and if their respective impact on the US economy remains limited, there?s no reason the Fed can?t hit the lift-off button this year," said JPMorgan's Gartside.

The dollar sunk following the Fed's decision, with the pound standing midday at USD1.5644 against the greenback, and the euro at USD1.1432.

Gold prices spiked following the Fed's decision as the dollar tumbled. The metal was standing at USD1,137.64 an ounce on Friday, and gold miners Fresnillo, up 5.0%, and Randgold Resources, up 4.4%, were the top gainers in the FTSE 100.

Trading in the opposite direction in the blue-chip index were banking stocks.

"Having rallied leading into the FOMC meeting in expectation of the beginning of a rising rate environment, which is supportive of margins on lending, banks were top fallers across Europe," said CMC Markets analyst Jasper Lawler.

Barclays, HSBC Holdings and Standard Chartered were especially hit, down 2.3%, 2.2% and 2.1%, respectively. Shares in Lloyds Banking Group were down 1.5%.

Also in the red was Weir Group, down 2.6% at 1,251.00 pence, after Goldman Sachs cut the engineering company price target to 1,550p from 1,950p, though keeping a Buy recommendation on the stock. Weir was also hit by another slash in its price target by Panmure Gordon, which cut it to 1,047p after ,160p.

In the FTSE 250, UDG Healthcare is leading the mid-cap gainers, up 6.4%. The healthcare services company said it has entered into a conditional agreement to sell its United Drug Supply Chain Services and its MASTA unit for EUR407.5 million to McKesson Corp, the US drug distribution company.

UDG said it will sell the businesses to McKesson in cash and said the sale is in line with its plan to focus on higher growth, higher margin international healthcare services businesses. The net proceeds from the sale will be used to develop and strengthen its Ashfield Commercial and Medical Services division, its Aquilant laboratory distribution arm and its Sharp Packaging Services unit.

Poundland Group was up 1.6%. The UK Competition and Markets Authority said it has cleared Poundland's acquisition of 99p Stores. The antitrust regulator said it has concluded that the merger will not result in a substantial lessening of competition and consequently customers would not face a reduction in choice, value or quality of a service as a result.

Among mid-cap fallers, Rotork was down 3.3%. The actuators and flow control products manufacturer had its price target cut by Goldman Sachs, UBS, Citigroup and Liberum and was cut to Reduce from Neutral by Nomura, which also cut its target price.

On Thursday, shares in Rotork plummeted after it said tough trading conditions in the third quarter had resulted in project delays and cancellations which meant its profit for the full year will miss expectations.

In AIM, Applied Graphene Materials was up 15%. The graphene materials producer said that its overall trading performance in its full financial year was slightly ahead of company expectations. The graphene materials producer said that during the year ended July 31, it significantly broadened the pipeline of identified collaboration opportunities, and provided over 120 evaluation samples to customers in more than 20 countries, with more evaluation quantities provided in the final quarter than in the previous nine months combined.

Still in the corporate calendar, US Conference Board leading indicators are due at 1500 BST. Investors will also be keeping an eye on developments in Greece over the weekend as the country prepares for elections on Sunday.

By Daniel Ruiz; danielruiz@alliancenews.com

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