Stocks mixed hours before expected US Fed hold

(Alliance News) - Stock prices in London closed mixed on Wednesday in a trade-thinned day ahead of the US Federal Reserve interest rate decision this evening.

The FTSE 100 index closed down 35.74 points, 0.5%, at 7,630.57. The FTSE 250 ended up 8.45 points, marginally up, at 19,357.95 and the AIM All-Share closed down 0.14 of a point, marginally lower, at 754.75.

The Cboe UK 100 ended down 0.3% at 763.97, the Cboe UK 250 closed up 0.2% at 16,834.24, and the Cboe Small Companies ended up 0.2% at 14,772.04.

US monetary policymakers are expected to wrap-up their two-day meeting with a hold to interest rates later, which will be announced at 1900 GMT.

The key focus will be on the press conference and the outlook for interest rates.

According to the CME FedWatch Tool, there is a 46% chance the central bank lowers the federal funds rate range in March from the current 5.25% to 5.50%. A cut was once the most likely outcome for the March meeting, however.

"Today’s Fed decision is eagerly awaited by investors who are desperate to see what the Fed will hint at regarding the first rate cut," said IG analyst Chris Beauchamp.

"Much of the ebullient risk appetite we have seen over the past three months has been built on the expectation that the Fed will cut several times this year. Given how heavy the selling in Alphabet has been it looks like markets could get quite ugly if the Fed strikes a hawkish tone."

IG also said it will be a "busy 24 hours" for currency traders ahead of the Fed and Bank of England meetings. The BoE will announce its latest interest rate decision on Thursday at 1200 GMT.

"Market participants risk being caught between a rock and a hard place; the tight range seen in GBPUSD over the past two weeks screams indecision. Hopefully tonight and tomorrow will break the logjam," said IG's Beauchamp.

Alongside the BoE decision, there will also be the BoE's latest monetary policy report, with economic projections, as well as a press conference with Governor Andrew Bailey half an hour later.

Like the Fed, the BoE is expected to keep rates unchanged and the focus will be on messages about future policy decisions.

The pound was quoted at USD1.2715 at the equities close on Wednesday in London, higher compared to USD1.2665 on Tuesday. The euro stood at USD1.0846, higher against USD1.0839. Against the yen, the dollar was trading at JPY146.29, lower compared to JPY147.80.

Ahead of the Fed's decision this evening, numbers from payroll processor ADP showed that the US private sector added fewer jobs than expected at the start of the year.

Private sector employment increased by 107,000 jobs in January, easing from a downwardly revised 158,000 increase in December. Last month's figure was lowered from an initially reported 164,000 jobs.

January's job growth fell short of the FXStreet-cited market consensus of 145,000.

In addition, ADP said pay growth moderated in January. Annual wage growth for job stayers cooled to 5.2% this month from 5.4% in December. For job-changers, it slowed to 7.2% in January, the tamest growth since May 2021, from 8.0% in December.

The figures come two days before the official US nonfarm payrolls report for January. Numbers on Friday after expected to show employment growth eased to 180,000 this month from 216,000 in December, according to FXStreet-cited consensus.

Oanda dismissed the ADP survey compared to the upcoming official nonfarm payrolls report.

"The ADP employment number was lower than markets expected but I don't think it changes anything for a couple of reasons. The most obvious is that it's been a terrible indicator for the official payroll number so, barring an enormous miss, it should probably be ignored," said Oanda analyst Craig Erlam.

"The other is that employment is no longer as important to the Fed achieving its inflation goal, wages are the more important element of the jobs report."

Stocks in New York were largely downbeat at the London equities close, with the DJIA up 0.1%, but the S&P 500 index down 0.8% and the Nasdaq Composite down 1.4%.

In the FTSE 100, housebuilders were trading higher. Taylor Wimpey added 0.5%, Barratt Developments rose 1.2% and Persimmon climbed 0.4%.

The Nationwide house price index showed a 0.7% increase in seasonally-adjusted UK house prices in January, after showing no change in December. According to FXStreet, market consensus was for the house price index to edge up just 0.1% on-month.

Andrew Wishart, economist at Capital Economics, commented: "While the cost of the mortgage needed to buy the average home remains high by historical standards, the rise in house prices at the start of the year shows that declines in mortgage rates have been sufficient for house prices to eke out further gains."

Elsewhere in the FTSE 100, GSK gained 2.0%.

The Brentford, West London-based pharmaceutical maker said pretax profit climbed 7.7% to GBP6.06 billion in 2023 from GBP5.63 billion a year prior. Revenue rose 3.4% to GBP30.33 billion in 2023 from GBP29.32 billion.

GSK declared a final dividend of 16.00 pence per share, up from 13.75p in the fourth quarter of 2022. However, this brings the total dividend to 58.00p, down 5.3% from a total payout of 61.25p in 2022.

In the FTSE 250, Harbour Energy lost 5.4%. Goldman Sachs cut the oil and gas company's stock to 'sell' from 'buy'.

Amongst London's small caps, Smiths News rose 2.3%.

The newspaper and magazine distributor said trading in the year ending August 31 remains in line with market expectations.

Smiths said it has secured contract renewals across 74% of its current publisher revenue streams to at least 2029, underpinning revenue in the medium-term, alongside continuing to secure additional national and regional contract awards.

On AIM in London, ITM Power rose 24%.

The company which manufactures electolysers reported revenue for the six months ended October 31 surged to GBP8.9 million from GBP2.0 million a year earlier. Pretax loss narrowed to GBP18.2 million from GBP56.5 million.

Chief Executive Dennis Schulz said: "I am pleased to report that we have completed the implementation of our 12-month plan on time. The first half of the financial year already paints the early picture of a new ITM, which starts to be reflected in our improved financial results."

In European equities on Wednesday, the CAC 40 in Paris ended down 0.3%, while the DAX 40 in Frankfurt ended down 0.5%.

Germany's annual consumer inflation rate slowed by more than expected in January, numbers showed.

According to a Destatis estimate, the consumer price inflation rate abated to 2.9% in January from 3.7% in December. A less dramatic slowdown to 3.3% was expected, according to FXStreet-cited market consensus. It was the tamest rate of inflation since June 2021.

On a harmonised basis, allowing for EU-wide comparison, the rate of inflation cooled to 3.1% in January from 3.8% in December, and shy of the FXStreet cited consensus of 3.2%.

"The drop in German inflation will fuel speculations about an early [European Central Bank] rate cut, but underneath a favourable headline inflation there are still enough price pressures to worry about," said ING analyst Carsten Brzeski.

"We doubt that the ECB will be fooled by this drop in headline inflation. The monthly increase and still high underlying inflationary pressure clearly argue against too premature rate cuts."

Brent oil was quoted at USD81.03 a barrel on Wednesday, down from USD82.32 late Tuesday. Gold was quoted at USD2,050.57 an ounce, up against USD2,033.15.

In Thursday's UK corporate calendar, Shell posts its full-year results, while trading statements are released by BT and Glencore.

The economic calendar has a slew of manufacturing PMIs released, as well as consumer price inflation data for the eurozone.

By Greg Rosenvinge, Alliance News senior reporter

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