London’s FTSE 100 opened in the red on Wednesday as investors assessed UK inflation data and looked ahead to a finely-balanced US interest rate call.
According to CME FedWatch, there is a 63% chance the US central bank cuts by 50 basis points. There is a 37% likelihood it reduces the federal funds rate by 37%.
However, sell-side consensus is backing a 25bp cut.
‘Speculation about a more aggressive cut has gained traction following recent reports suggesting that the Federal Reserve may be considering this option. As inflation has decreased to 2.5%, some sectors believe the Fed has the room to act more decisively. The Federal Reserve has maintained the current rate of 5.50% for several months in an effort to control inflation, but with the economy showing mixed signals, the situation could change rapidly,’ XS.com analyst Antonio Ernesto Di Giacomo commented.
The FTSE 100 index fell 19.52 points, 0.2%, at 8,290.34. The FTSE 250 lost 50.76 points, 0.2%, at 20,893.84, and the AIM All-Share slipped 0.64 of a point, 0.1%, at 744.10.
The Cboe UK 100 fell 0.3% to 829.87, the Cboe UK 250 fell 0.2% to 18,439.28, and the Cboe Small Companies fell slightly to 16,792.49.
In European equities on Wednesday, the CAC 40 in Paris was down 0.1%, while the DAX 40 in Frankfurt was flat.
The Fed announces its rate decision at 1900 BST. The federal funds rate currently stands at 5.25%-5.50%.
ING analysts commented: ‘Our economists are calling for a 25bp cut by the Fed today, but admit it is an exceptionally close call. Markets are narrowly favouring a 50bp reduction. The dollar should rally on a 25bp move. However, if [Federal Reserve Chair] Powell and dot plots are as dovish as we think, dollar gains may soon prove unsustainable.’
The pound was quoted at $1.3188 early Wednesday, fading from $1.3164 at the time of the London equities close on Tuesday. The euro stood at $1.1125, rising from $1.1119. Against the yen, the dollar was trading at JP¥141.79, up slightly from JP¥141.76.
The price of gold rose to $2,568.83 an ounce from $2,564.83. Brent oil was quoted at $73.22 a barrel, down from $73.60.
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.
Pepperstone analyst Michael Brown commented: ‘It’s important to consider that, despite being a touch hotter, the figures are still better than the most recent round of Monetary Policy Committee forecasts, which saw headline inflation at 2.4% in August, and services inflation rising to 5.8% year-on-year. ’Could be worse’ springs to mind.’
Elsewhere, the economic calendar has a eurozone inflation reading and construction output data at 1000 BST.
In London, Reckitt Benckiser rose 1.8%. It has started early discussions with some of the potential suitors for its homecare assets, which could fetch more than £6 billion, Bloomberg reported, citing people familiar with the matter.
The Slough-based consumer goods firm is working with Morgan Stanley for the brands including air freshener Airwick and Cillit Bang cleaners, the report said.
Mostly financial investors as well as some consumer companies have shown interest in the assets, Bloomberg said, with a formal sale process likely to kick off within months and be completed in 2025.
Meanwhile, Goldman Sachs is helping Reckitt on evaluating options for its infant formula brand Mead Johnson, including a potential sale, according to the report. Deliberations are ongoing and no final decision has been made.
In July, Reckitt announced plans to streamline and reshape the business creating an organisation, ‘with one of the strongest growth and margin profiles among its peer group’.
Reckitt plans to focus on a portfolio of ’powerbrands’, which it defined as high-growth, high-margin businesses that it thinks have the potential for long-term growth.
These include Mucinex, Strepsils, Gaviscon, Nurofen, Lysol, Dettol, Harpic, Finish, Vanish, Durex and Veet.
Spiking in early trade among London’s midcaps, Kainos added 3.6% and insurer Lancashire rose 1.3%.
Deutsche Bank raised IT service company Kainos to ’buy’ from ’hold’. Goldman Sachs boosted Lancashire to ’buy’ from ’neutral’.
Elsewhere, Advanced Medical Solutions added 8.6%. The surgical dressings company, a supplier to the NHS in the UK, hailed a ‘robust financial performance’ in its first half.
Revenue improved 7.8% to £68.0 million from £63.1 million in the six months ended June. However, pretax profit fell 52% to £5.7 million from £11.7 million.
It booked a £7.5 million exceptional hit, hurting its bottom line. This was incurred as a result of the acquisitions of Peters Surgical and Syntacoll.
Equities in Asia were largely higher on Wednesday. In Tokyo, the Nikkei 225 ended up 0.5%. In China, the Shanghai Composite also rose 0.5%. In Sydney, the S&P/ASX 200 closed flat. Financial markets in Hong Kong are closed.
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