Microphones at Fed presser
The US Federal Reserve is expected to once again leave interest rates unmoved on Wednesday / Image source: Adobe

Stocks in London trod a disparate path, ahead of UK inflation data, which could dictate events on Thursday when the Bank of England makes its latest decision on interest rates.

The FTSE 100 index rose 15.75 points, 0.2%, at 7,738.30. But the FTSE 250 ended down 53.72 points, 0.3%, at 19,432.81, and the AIM All-Share fell 1.07 points, 0.2%, at 735.56.

The Cboe UK 100 rose 0.2% to 774.76, the Cboe UK 250 fell 0.3% to 16,869.44, and the Cboe Small Companies closed up 0.3% at 14,818.14.

In European equities on Tuesday, the CAC 40 in Paris ended up 0.7%, while the DAX 40 in Frankfurt added 0.3%.

In New York, the Dow Jones Industrial Average was up 0.6% at the time of the closing bell in Europe. The S&P 500 rose 0.2%, though the Nasdaq Composite was fractionally lower.

The pound was quoted at $1.2719 at the time of the London equities close, a touch lower from $1.2722 on Monday. The euro stood at $1.0860, down against $1.0877.

The US Federal Reserve is expected to once again leave interest rates unmoved on Wednesday, while also dialling back cut expectations in its latest dot-plot.

The US central bank announces its latest interest rate decision at 1800 GMT on Wednesday. A press conference with Chair Jerome Powell follows shortly after. Threatening to hog the spotlight, the latest summary of economic projections will be revealed alongside the decision. The SEP features the dot-plot of interest rate expectations of policymakers.

In December, the chart suggested the Fed will enact three cuts this year.

With the CME FedWatch Tool suggesting a 99% chance the central bank holds in March, a 93% likelihood it does the same in May, and hope of a June cut dwindling, the December plot could be hawkishly re-jigged.

‘The US data continue to come in mostly firmer and despite Powell’s recent dovish testimony before Congress, most Fed officials remain very cautious about easing too soon. We believe that the current market easing expectations for the Fed still need to adjust. When they do, the dollar should gain further. Last week’s inflation data sparked the start of this process and the FOMC decision tomorrow will be key for the continuation of this move,’ Brown Brothers Harriman analysts commented.

The Bank of England will also be in focus this week, with a UK inflation reading to come on Wednesday, the eve of Threadneedle Street’s interest rate decision.

Ebury analyst Matthew Ryan commented: ‘Data on both UK inflation and wages has surprised to the downside since the last meeting, although both remain far too high for comfort and insufficient to warrant a change in guidance. There will be no Monetary Policy Report or press conference, but the statement will likely stress that policy will remain restrictive, with rates to be kept ’under review’.

‘The key for markets will be the voting pattern among committee members. We are pencilling in another unprecedented three-way split, whereby one votes for a cut, two for a hike and the rest for no change. We see a distinct possibility, however, of a dovish swing, whereby one or both of the hawks shift their allegiance in favour of the majority. With markets not fully pricing in the first rate cut until August, this could pave the way for some weakness in sterling, as investors mull a start to easing at the bank’s June meeting.’

According to FXStreet cited consensus, the rate of consumer price inflation in the UK is forecast to have ebbed to 3.6% in February, from 4.0% in January.

The data is released at 0700 GMT. Before the Fed decision at 1800 GMT, Wednesday’s economic calendar has a eurozone consumer confidence reading at 1500 GMT.

Against the yen, the dollar was trading at JP¥150.76 at the time of the European equities close, jumping from JP¥149.12.

In a long-anticipated move, the Bank of Japan on Tuesday ended its negative interest rate policy.

The Japanese central bank said it judged its monetary easing policy and yield curve control programme have ‘fulfilled their roles’. It raised its short-term policy rate to a range of 0.0% to 0.1%, from minus 0.1% previously. The move marks the BoJ’s first interest rate hike in 17 years.

XTB analyst Kathleen Brooks commented: ‘Right now, the market thinks that it could be one and done for the BoJ, however, with such large increases in wages, the BoJ could be forced into hiking again.’

In the FTSE 100, Unilever rose 3.1%, after it said it plans to spin off its ice cream business and cut 7,500 jobs as it picks up the pace of its reorganisation plans.

The owner of Marmite, Dove soaps and Domestos announced the move alongside proposals to accelerate its ‘growth action plan’.

Unilever intends to launch a comprehensive productivity programme which it anticipated will deliver total cost savings of around €800 million over the next three years, more than offsetting estimated operational dis-synergies from spinning off the ice cream business.

The changes are expected to impact around 7,500 jobs, with total restructuring costs now anticipated to be around 1.2% of group turnover for the next three years, up from around 1% of turnover previously guided.

Unilever, which owns five of the top 10 selling global ice cream brands including Wall’s, Magnum and Ben & Jerry’s, said the separation of ice cream will assist in the implementation of the GAP.

PureTech jumped 8.1%.

The Boston, Massachusetts-based biotherapeutics company said it plans to return $100 million to shareholders with a tender offer, starting after it publishes its annual report in April.

Crest Nicholson slumped 9.1%, after it warned it could face a £15 million charge after uncovering defects in some legacy projects.

The Surrey, England-based housebuilder said the issues related to four sites that were completed prior to 2019 when the group closed its regeneration and London divisions.

Crest Nicholson said these sites will require remediation over the next three years at an estimated cost of up to £15 million.

Sofa retailer DFS fell 6.0%. It said pretax profit fell to £900,000 in the 26 weeks that ended December 24 from £6.8 million a year before, as revenue declined by 7.2% to £505.1 million from GBPP544.5 million.

In response, DFS cut its interim dividend by 27% to 1.1p from 1.5p.

Looking ahead, it lowered its financial 2024 adjusted pretax profit guidance to between £20 million and £25 million, which would be down from £30.6 million in financial 2023.

Revenue is expected to be between £1.00 billion and £1.02 billion, which would be down from £1.09 billion.

‘After a solid start to January, market demand has weakened significantly over the last two months,’ DFS said, noting order volumes are down 16% on a year before.

Brent oil was quoted at $87.19 a barrel late in London on Tuesday, up from $86.27 late Monday. Gold fetched at $2,155.26 an ounce on Tuesday, lower against $2,158.93 late Monday.

Oil majors Shell and BP, among the FTSE 100’s largest constituents, rose 1.3% and 1.0%. Conversely, gold miner Fresnillo fell 3.5%.

ActivTrades analyst Ricardo Evangelista commented: ‘The retreat in the precious metal’s value is tied to the strengthening of the US dollar. This morning, the greenback reached a multi-week peak, signalling market anticipation of a hawkish stance from the Federal Reserve, potentially bolstering the dollar’s standing. As the US central bank concludes its March meeting tomorrow, traders anticipate interest rates will remain unchanged. Nevertheless, persistent inflation and the robustness of the US economy suggest that the Fed may uphold its tight monetary policy for an extended period. In this context, the dollar’s risk remains skewed to the upside, limiting the potential for gold price appreciation.’

Wednesday’s UK corporate calendar has annual results from insurer Prudential and a trading statement from financial services firm Investec.

Copyright 2024 Alliance News Ltd. All Rights Reserved.

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJ Bell logo

Issue Date: 19 Mar 2024