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London pre-open: Stocks to drop after Fed announcement, ahead of BoE

By Michele Maatouk

Date: Thursday 02 May 2019

London pre-open: Stocks to drop after Fed announcement, ahead of BoE

(Sharecast News) - London stocks were set to fall at the open on Thursday following losses on Wall Street after the Federal Reserve dashed hopes of a rate cut later this year and ahead of the latest policy announcement from the Bank of England.
The FTSE 100 was called to open 32 points lower at 7,353.

Overnight, the Fed stood pat on rates at between 2.25% and 2.5% as expected, while Chair Jerome Powell stuck to a neutral stance, suggesting that recent softer inflation could be due to transitory factors.

London Capital Group analyst Jasper Lawler said: "Basically, the market had gotten ahead of itself, pricing in a 65% chance of a rate cut. The Fed poured cold water on such expectations, forcing the market to reassess the likelihood of the Fed loosening monetary policy.

"Even as Jerome Powell was talking, market expectations of a cut declined, with a 50% probability of a cut now being priced in. This boosted the dollar. Stocks were less impressed as the prospect of tighter conditions saw investors pull out of equities."

It's the Bank of England's turn later on Thursday, with a rate announcement in the UK due at midday. Interest rates are expected to remain at 0.75%, with all nine policymakers in agreement.

"The extension of Article 50 to October will enable the central bank adopt a broader view on the economy," said Lawler. "However, lingering Brexit uncertainties are expected to keep their hands tied on policy. We are expecting the BoE to remain sat on the fence."

On the data front, the UK construction PMI for April is scheduled for release at 0930 BST.

Meanwhile, Sino-US trade relations were in focus again amid news that an agreement between the two nations could be announced as soon as next Friday.

In UK corporate news, Lloyds Banking Group's first-quarter profit was unchanged as market swings and other items offset rising income and lower costs. Pre-tax profit for the three months to the end of March was £1.6bn, the same as a year earlier. Net income rose 2% to £4.42bn and total costs fell 4% to £1.98bn.

Consumer goods group Reckitt Benckiser posted a small uptick in first-quarter like-for-like revenue after what it called a "slow" start to the year, as it said it was on track to meet its full-year targets.

LFL sales edged up 1% during the quarter, with continuing momentum in the Hygiene Home division and a slow start in the health segment, as expected. Meanwhile, total revenue came in at £3.16bn, up 1%.

Higher prices helped Howden Joinery increase revenue by 5.7% overall and by 3.9% on a same depot basis for the 16 weeks to 20 April 2019.

"Looking forward, we are on track with our plans for the year as a whole although remain watchful of market conditions and the further impact that Brexit may have on the economy," the company said in a trading statement.

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