Stocks in London were in the red at midday on Wednesday, awaiting clarity from the US Federal Reserve over the pace of interest rate cuts.
According to CME FedWatch, a 50 basis point cut is the most likely move by the US central bank, though some believe a 25 basis point reduction is in the offing.
Elsewhere, the pound perked up, taking advantage of some dollar weakness after a UK inflation reading.
The FTSE 100 index fell 54.36 points, 0.7%, at 8,255.50. The FTSE 250 lost 90.10 points, 0.4%, at 20,854.50, and the AIM All-Share slipped 1.72 points, 0.2%, at 743.02.
The Cboe UK 100 fell 0.7% to 826.37, the Cboe UK 250 fell 0.5% to 18,389.38, and the Cboe Small Companies fell 0.2% to 16,770.08.
In European equities on Wednesday, the CAC 40 in Paris was down 0.4%, while the DAX 40 in Frankfurt lost 0.1%.
The Fed announces its rate decision at 1900 BST. The federal funds rate currently stands at 5.25%-5.50%.
According to CME FedWatch, there is a 65% chance it cuts by 50 basis points. The likelihood of a 25bp cut stands at 35%.
‘That feels like a step too far as the Fed might want to start the rate cut journey slow and steady, rather than going in headfirst with a big cut as that might send negative signals to the market that it is really worried about the state of the economy,’ AJ Bell analyst Russ Mould commented.
The pound was quoted at $1.3218 early Wednesday afternoon, rising from $1.3164 at the time of the London equities close on Tuesday. The euro stood at $1.1133, up from $1.1119. Against the yen, the dollar was trading at JP¥141.57, down against JP¥141.76.
Mould added: ‘While the Federal Reserve will almost certainly cut US interest rates today, it seems the chances of the Bank of England following suit with UK rates tomorrow have weakened after the publication of new inflation data.’
UK annual consumer price inflation remained at 2.2% last month, though services price growth picked up, reinforcing expectations that the Bank of England will leave rates unmoved later this week.
Numbers from the Office for National Statistics on Wednesday showed the annual rate of consumer price inflation landed in line with the FXStreet cited consensus of 2.2%. In July, the pace of consumer price growth picked up to 2.2% from 2.0% in June and May. The Bank of England has a 2.0% inflation target.
On-month, consumer prices rose 0.3%, following a 0.2% fall in July from June.
On-year, core consumer prices rose 3.6% in August, picking up speed from 3.3% in July and beating consensus of 3.5%.
Meanwhile, services prices rose 5.6% on-year in August, accelerating from 5.2% in July. Stubborn services price growth has been in focus in recent months.
ING analysts commented: ‘This morning’s numbers all but confirm that the Bank of England should keep rates on hold tomorrow. There is a residual 6bp of easing priced though for the meeting, suggesting a bit more room for short-dated Sonia swap rates to readjust higher, after falling throughout September.’
The price of gold rose to $2,576.73 an ounce from $2,564.83. Brent oil was quoted at $72.68 a barrel, down from $73.60.
After the BoE, the Bank of Japan announces a rate decision on Friday.
Ahead of the trio of rate calls, the mood in equities was nervy, with losses somewhat broad-based.
The FTSE 100’s largest constituents traded lower. Drugmaker AstraZeneca fell 1.0%, oil major Shell lost 0.5%, consumer goods firm Unilever shed 0.7%, lender HSBC gave back 0.5% and miner Rio Tinto declined 0.7%. By market capitalisation, they are the largest FTSE 100 firms.
InterContinental Hotels rose 1.2%. Goldman Sachs lifted the hotel company to ’buy’ from ’neutral’.
Spectris fell 4.9%. HSBC cut the firm to ’hold’, putting more pressure on the shares. The provider of instruments, test equipment, and software for industrial applications has fallen some 20% over the past 12 months.
Elsewhere in London, advertising agency M&C Saatchi rose 2.9%. The firm reported a ‘strong’ first-half and a ‘solid’ start to the third-quarter of 2024.
Revenue in the six months to June 30 declined 1.4% to £213.6 million from £216.7 million a year prior. On a like-for-like basis, M&C Saatchi explained its top-line advanced 4%.
It reported a swing to pretax profit of £11.3 million, from a loss of £5.1 million.
Edison analyst Fiona Orford-Williams said the results represented an ‘encouraging’ start to life under new M&C boss Zaid Al-Qassab.
‘The withdrawal from loss-making business is also helping drive the margin improvements, which were particularly marked in the Advertising segment, with Non-advertising specialisms, which represent the larger proportion of net revenue, also seeing the benefits. The group is on track to meet full year market expectations,’ Orford-Williams said.
Before the Fed decision, Wednesday’s economic calendar has US housing starts and building permits data at 1330 BST.
Over in Copenhagen, eyes were on Novo Nordisk shares. The drugmaker fell 1.4% on pricing fears for its blockbuster Ozempic offering.
Bloomberg reported the diabetes drug is likely to be a treatment targetted for US price cuts under the Medicare scheme.
‘It is very likely that Ozempic will be part of negotiations in the coming round, and we’re ready for that,’ Nordisk’s Senior Vice President of Finance & Operations Ulrich Otte said, according to Bloomberg.
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