Stock markets were effectively on hold in Europe on Friday, ahead of a speech by US Federal Reserve Chair Jerome Powell.
Despite positive days in Asia on Friday and in New York on Thursday, European investors were unwilling to take on risk ahead of the week's key risk event.
Powell will deliver the keynote speech on Friday starting at 1500 BST at the annual gathering of top central bankers at Jackson Hole, Wyoming. Powell is widely expected to confirm that more interest rate hikes are on the way as Fed officials try to bring inflation down from highs not seen in four decades.
The key issue facing investors is by how much the bank will tighten over the coming months. Markets are pricing in a 41.5% chance of a 50 basis-point interest rate hike at the Fed's September meeting and a 58.5% probability of a 75 basis-point increase, according to the CME's FedWatch Tool.
The US central bank's last two rate hikes were 75 points.
Markets have been optimistic of a ‘pivot’ to smaller interest rate increases, with a view for the Fed to begin cutting rates next year.
However, Fed speakers, such as James Bullard, have reiterated the need to ‘front-load’ rate hikes, with a year-end Fed funds rate of 3.75% to 4.00% deemed necessary.
‘Last year, Fed Chair Powell said that inflationary pressures were temporary - a comment that he later had cause to regret,’ commented Lloyds Bank. ‘This time markets will be looking for signals on the size of the probable US rate hike in September, indications of whether he thinks inflation has now peaked and what evidence he and his colleagues will want to see before ending monetary tightening.’
Western Union analyst George Vessey commented: ‘Powell is expected to restate his resolve to fight inflation and push back against bets the Fed will cut rates next year.
‘Powell may not want to shock markets though and therefore reiterate the importance of data dependency. This could delay any significant market reaction until next week's US payrolls data. Still, if peak US rate expectations edge closer to 4%, expect a moderately dollar-positive impact as yields at both the front and back of the yield curve rise and equities sell-off.’
The FTSE 100 was up by just 1.17 points at 7,480.91 at midday on Friday. The FTSE 250 index was up 63.42 points, or 0.3%, at 19,321.29. The AIM All-Share index was down 0.59 of a point at 900.17.
The Cboe UK 100 index was flat at 747.00. The Cboe 250 was up 0.3% at 16,601.40. The Cboe Small Companies was down 0.1% at 14,043.40.
In Paris, the CAC 40 stock index was down 0.3%, while the DAX 40 in Frankfurt was 0.2% lower.
In the FTSE 100 in London, InterContinental Hotels Group was down 2.5% after JPMorgan downgraded the Crowne Plaza and Holiday Inn owner to 'neutral' from 'overweight'.
In the FTSE 250, Micro Focus International was the standout performer, up 93% at 518.00 pence, after the enterprise software provider agreed to be taken over by Ontario-based OpenText.
Under the terms of the deal, Micro Focus' shareholders will receive 532 pence per share, valuing the Newbury, Berkshire-based company, including its debt, at around £5.1 billion.
Shares in OpenText closed at $37.27 in New York on Thursday and were down 8.5% in pre-market trade.
Micro Focus said its directors intend to recommend unanimously that shareholders vote in favour of the takeover at a court meeting and the resolutions to be proposed at a general meeting. The transaction is expected to be completed during the first quarter of 2023.
The deal comes five years after Micro Focus acquired Hewlett Packard Enterprise's software arm in 2017 as part of a reverse takeover for $8.8 billion. The stock is down 75% since then.
The loss of another UK technology listing comes as London struggles to hold on to technology companies amid overseas interest.
Earlier this week, London's largest-listed software firm Aveva became the subject of takeover interest from majority shareholder Schneider Electric, though Aveva is yet to receive a formal approach from the French company.
Aveva shares were up 1.0% on Friday. Schneider was down 0.8% in Paris.
London also looks set to miss out on a potential listing of SoftBank's chip designer Arm, with New York the most probable destination for the one-time UK tech listing.
Meanwhile, the UK's energy regulator Ofgem said it will increase the annual energy price cap on default tariffs by 80%.
From October 1, energy suppliers in Britain can charge up to £3,549 per year for energy bills, up from the previous cap of £1,971.
In August 2021, Ofgem set the price cap at £1,277 from October 2021, meaning the cap has nearly tripled over a one-year period.
The cap for households on prepayment meter bills will rise by 79% to £3,608 from £2,017. In August 2021, Ofgem set that cap from October 2021 at £1,309.
Ofgem regulates energy prices for England, Scotland and Wales, while Utility Regulator sets the price cap in Northern Ireland.
On Thursday, Centrica's British Gas said it will donate 10% of its profit made during the energy crisis towards grants for customers who are under pressure from rising energy bills. British Gas generated a pretax profit of £98 million for the first half of 2022, meaning that the initial contribution to the British Gas Energy Support Fund should be £9.8 million.
However, British Gas said it will increase its contribution to £12 million, to ensure that there is enough available for the winter, when energy usage will be at its highest. From then on, British Gas will contribute 10% of its interim profit to the fund, which will provide customers with grants expected to average £750 per household.
Centrica shares were up 1.4%. Fellow power utility SSE was down 0.2%.
New York was pointed to a lower open following Thursday's strong rally.
The Dow Jones Industrial Average was called down 0.3%, the S&P 500 down 0.4% and the Nasdaq Composite down 0.6%. The indices had closed up 1.0%, 1.4% and 1.7% respectively on Thursday.
On Wall Street, Workday shares were up 11% in pre-market trade. The enterprise software firm, late Thursday, said it swung to a loss in the second quarter of its financial year but maintained a bright outlook for the year.
In the three months ended July 31, the Pleasanton, California-based enterprise software firm swung to a net loss of $64.2 million from a profit of $105.7 million the previous year. Revenue climbed by 22% to $1.54 billion from $1.26 billion.
Looking forward, Workday maintained its revenue guidance for financial 2023, anticipating subscription revenue in the range of $5.54 billion to $5.56 billion. If achieved, this would represent 22% growth against the previous year.
The pound was quoted at $1.1830 at midday on Friday, up from $1.1815 at the London equities close Thursday.
The euro continued to bob above and below parity against the dollar. It was priced at $1.0002 midday Friday in London, up from $0.9975 late Thursday. Against the yen, the dollar was trading at JP¥136.92, higher against JP¥136.72.
Brent oil was quoted at $100.65 a barrel on Friday at midday, up from $100.48 a barrel at the London equities close Thursday. Gold stood at $1,748.14 an ounce, lower against $1,756.33.
In the economic calendar other than the Jackson Hole event, there is US personal consumption expenditure data at 1330 BST.
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