Stocks in London opened lower on Thursday morning following the US Federal Reserve’s rate cut yesterday, as investors prepare for the Bank of England’s decision this afternoon.
The Fed announced another 25 basis point cut as expected, but hinted that that it will be slowing down next year in contrast with its ‘jumbo’ 50bp cut in September.
‘The market reaction was very aggressive, of course,’ said Swissquote’s Ipek Ozkardeskaya.
On the Bank of England, meanwhile, she commented: ‘The British policymakers are expected to maintain rates unchanged...A cautious stance from the BoE may slow down but not reverse the negative trend provided that the UK’s economy – which performed surprisingly well this year – could feel the pinch of higher taxes before it enjoys the benefits of improved growth.
‘The ’pain before gain’ scenario could keep the sterling bulls on the sidelines.’
The FTSE 100 index opened down 78.46 points, 1.0%, at 8,120.65. The FTSE 250 was down 206.33 points, 1.0%, at 20,395.66, and the AIM All-Share was down 6.06 points, 0.8%, at 713.36.
The Cboe UK 100 was down 0.9% at 814.84, the Cboe UK 250 was down 0.9% at 17,937.30, and the Cboe Small Companies was down 0.1% at 15,950.37.
On the FTSE 100, United Utilities gained 1.6%.
Water regulator Ofwat announced that household water bills in England and Wales will increase by an average £31 a year over the next five years, significantly higher than the expected average rise of around £20.
However, PA reported, households will actually face a heavy average hike of £86 or 20% in the next year with smaller percentage increases in each of the next four years. The average bill will rise by a total of £157 or 36% over the next five years.
Serco jumped 5.1%.
The outsourcing firm expects to post full-year revenue of around £4.8 billion, down 3% on-year but in line with guidance, with underlying operating profit of around £270 million, up 9%.
Looking further ahead, Serco expects 2025 underlying operating profit of around £260 million, and for revenue to be in line with 2024 at around £4.8 billion despite a revenue cut of around 7% from losing immigration contracts in the UK and Australia.
In smaller caps, Intelligent Ultrasound surged 12%.
It has accepted a 13 pence per share cash takeover offer from Surgical Science Sweden AB, in a deal valuing the company at around £45.2 million.
Surgical Science said it ‘has closely monitored the developments at Intelligent Ultrasound for some time’ and that IU selling its Clinical AI Business to GE HealthCare ‘presents a unique opportunity for both companies to join forces in a way that can significantly benefit both companies’ long-term goals’.
In European equities on Thursday, the CAC 40 in Paris was down 0.9%, while the DAX 40 in Frankfurt was down 0.8%.
The pound was quoted lower at $1.2645 early on Thursday in London, compared to $1.2692 at the equities close on Wednesday. The euro stood lower at $1.0408, against $1.0473. Against the yen, the dollar was trading higher at JP¥156.88 compared to JP¥154.03.
In Asia on Thursday, the Nikkei 225 index in Tokyo was down 0.7%. In China, the Shanghai Composite was down 0.4%, while the Hang Seng index in Hong Kong was down 0.5%. The S&P/ASX 200 in Sydney closed down 1.7%.
The Bank of Japan left interest rates unchanged at 0.25%. Analysts said policymakers were waiting for a clearer picture to emerge of next year’s wage increases before announcing another interest rate hike, which risks cooling the economy.
In the US on Wednesday, Wall Street ended lower, with the Dow Jones Industrial Average down 2.6%, the S&P 500 down 3.0% and the Nasdaq Composite down 3.6%.
‘Note that the Dow Jones has been diverging negatively from its tech-heavy peers since the beginning of the month - signalling a renewed concentration on tech stocks,’ Ozkardeskaya said. ‘But this time, even the rising stars of the tech couldn’t swim against the tide...Altogether, the Magnificent 7 stocks gave back a hefty 4.40% after the Fed announcement.
‘The Fed may have spoiled this year’s Santa rally, as its hawkish shift could trigger a deeper correction across US equity markets - which have enjoyed two stellar years largely thanks to Big Tech...Non-tech sectors have been waiting for Fed rate cuts to claim their share of the pie. Unfortunately, the latest equity rally may fade before it extends to these overlooked corners of the market.’
Brent oil was quoted lower at $72.96 a barrel early in London on Thursday from $74.01 late Wednesday.
‘In energy, the Fed’s hawkish shift dampened an early rebound in oil prices yesterday,’ Ozkardeskaya commented. ‘The Fed’s cautious stance, coupled with a weak demand outlook and ample supply, lent further strength to the bears. We anticipate rangebound trading within the $67–$70 per barrel range.’
Gold was quoted lower at $2,618.20 an ounce against $2,637.13.
Still to come on Thursday’s economic calendar, there are several data releases from the US including initial jobless claims, GDP and quarterly personal consumption expenditures.
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