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FTSE 100 closes lower as traders mull Fed testimony

The UK's premier share index finished down over five points lower at 7,530,

wall street
Wall Street stocks were up at the time of writing
  • FTSE 100 closes lower

  • Wall Street shares up at time of writing

  • Fed chief Powell indicates July rate coming

FTSE 100 closed marginally in the red on Wednesday, having been higher earlier, but US shares were heading north.

The UK's premier index finished down  over five points at 7,530, while FTSE 250 was also lower, off nearly 48 points at 19,419.

"Stocks are mixed as Jerome Powell, the head of the Fed, testifies in Washington D.C. So far the central bankers hasn’t give much away in terms of clues as to possible changes to monetary policy, although earlier in the day, he warned that uncertainties have continued," said market analyst David Madden earlier.

"Some dealers are sitting on their hands until they get a clear view from Mr Powell."

Micro Focus (LON:MCRO) was top Footsie laggard, down nearly 12% to 1,753p, after the FTSE 100 constituent warned that revenue would fall this year as it continues to digest Hewlett

Packard’s software division developer following the acquisition two years ago.

On Wall Street at the time of writing, the Dow Jones Industrial Average is up 81 points, while the Nasdaq is ahead by over 52 points.

3.10pm: US stocks steam higher

Wall Street strutted about like the cock of the walk after Wednesday’s opening bell after Fed chief Jerome Powell indicated a rate cut coming this month.

The S&P 500 index jumped 0.7% to above the 3,000 mark for the first time in its history in early trading, while the Dow Jones Industrial Average added more than 160 points or 0.6% to 26,944.73. The Nasdaq Composite was up 0.8% to 8,215.05.

Just before US markets opened, Powell's written remarks to Congress revealed that at last month's meeting of the Federal open markets committee, “many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened”.

The market is now all but certain that the Fed intends to push ahead with a rate cut at its July meeting.

Markets are convinced that the Fed will cut rates by 25 basis points and the case for a bigger rate cut could also emerge soon, adds Craig Erlam at Oanda, if inflation data on Thursday is softer than expected and if the advance second quarter GDP reading comes in well below 2.0% on 26 July.

In this case, “we will see the case grow for the first cut to be a 50 basis point one”, Erlam says, with markets currently eyeing one cut in July and “almost a coin flip” for another one in September.

1.55pm: US stock futures turn positive 

US stocks are now expected to start on the front foot, after dovish comments from Federal Reserve chair Jerome Powell, lifting stocks around the world out of the red.

Turning positive, S&P 500 futures pointed to a five-point or 0.2% gain to 2,987.5 ahead of Wall Street’s opening bell, with Dow Jones futures pointing to a gain of more than 100 points.

Powell's written comments were decoded as suggesting a rate cut was still on the cards, as he said the Fed will “act as appropriate” to sustain economic expansion in the face of “crosscurrents”.

As part of his twice-yearly testimony to Congress, the Fed head’s prepared remarks emphasised that “incoming data and other developments” indicated that “uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US economic outlook”.

Powell's comments also lifted the FTSE 100 into positive territory to 7,548.59, up 12 points or 0.2% on the day, as well as boosting the pound, which was up 0.4% against the US dollar to 1.2515.

12.55pm: NIESR predicts UK will shrink 0.1%

The UK economy is on course to contract in the second quarter of 2019, according to the NIESR economic thinktank but will avoid a full recession.

For the three months to June, the UK economy will shrink by 0.1%, NIESR forecast, following the ONS data showing an expansion of 0.3% in the three months to May.

A technical recession would require two quarters of contraction, but NIESR's initial outlook for the third quarter is for growth of 0.2%.

Economist Janine Boshoff said: “Our latest estimate implies that the economy will narrowly avoid a technical recession in the middle quarters of this year. 

“That said, the latest ONS data and recent surveys suggest that the economy has lost considerable momentum since the first quarter. This reflects the impact of Brexit-related uncertainty and slower growth in the global economy outside of the United States. The near-term outlook for the UK economy continues to depend on the outcome of the Brexit negotiations.”

The FTSE 100 has narrowed its losses as the afternoon develops, down less than five points to 7,531.94, while the pound is almost flat against the dollar at 1.2469.

12pm: Pound gives up gains, FTSE wallows below waterline

The pound perked up this morning but this has not lasted long as reports emerged that President Trump is looking for new ways to weaken the US dollar.

Sterling bounced back to almost $1.25 earlier, climbing 50 basis points off its two-year low against the dollar after the publishing of positive monthly GDP data.

But the White House’s concern about the strengthening of the dollar, which it believes is preventing a potential economic boom, have reached a level that the President can no longer tolerate.

The Donald has asked aides to seek “ways to weaken the greenback”, according to a Bloomberg report, following months of talking down the dollar by the former Apprentice presenter.

While economic adviser Larry Kudlow and Treasury Secretary Steven Mnuchin both oppose any intervention to weaken the dollar, Bloomberg’s “people familiar with the matter” said Trump has pressed home his concerns about dollar strength in two meetings with new appointees to the Federal Reserve’s board.

"We need to see what Jay Powell does to the dollar later now to consider if this marks a turnaround for the pound’s fortunes," cautioned Neil Wilson at Markets.com, though if it goes the wrong way for sterling a breach below $1.24 "could easily bring April 2017 lows at 1.2360 into view".

The FTSE was continuing to wallow below the waterling, down seven points or 0.1% to 7,529.85, by midday.

Talking of the wet stuff, shares in water companies Severn Trent Plc (LON:SVT) and Pennon Group (LON:PNN) have sunk around 1% today, though United Utilities Group PLC (LON:UU.) is down less than its peers, on the back of news that the industry has been told to clean up its act.

The Environment Agency described the performance of several last year as “simply unacceptable”, with Pennon's South West Water only achieving a two-star rating due to an “unacceptable level of performance” and Severn Trent one of four that had increased numbers of serious pollution incidents.

10.40am: May's GDP data 'masks true picture'

Despite the upswing in GDP growth in May, the second quarter as a whole is still likely to see the UK economy contract for the first time in almost seven years, analysts and economists are saying.

ONS data showing a 0.3% growth in GDP represents a decent recovery from April’s sizeable drop but, said David Cheetham at XTB, “it will still take a near miracle for the UK economy to avoid falling into contraction territory in the second quarter”.

In fact it will take an increase of 0.8% in June alone to avoid this fate, which seem improbable in light of the soft data readings already available.

Surveys of the services, manufacturing and construction sectors by IHS Markit in June suggest a worsening of the economy, with businesses having reported the second steepest drop in output since 2009.

With companies blaming growing uncertainty around Brexit compounding worries about slowing international economic growth, economist Chris Williamson at IHS Markit says June's data is moving further into territory historically "consistent with a bias towards looser monetary policy from the Bank of England, and the official data are now seemingly also heading in this direction".

The FTSE 100 remains in the red, down eight points or 0.1% to 7,528.21.

10.00am: GDP boost for pound hits stocks

Britain’s economy returned to growth in May, official data showed on Wednesday, news that gave a small boost to the pound but sent the Footsie into the red.

Continuing its earlier zigzagging path, the FTSE 100 reversed course again to fall 10 points or 0.1% 7,526.11 after two hours’ trading.

The trigger was the revelation that UK gross domestic product grew 0.3% in May, according to the Office for National Statistics, rebounding from the 0.4% shrinkage in April.

May’s GDP beat the 0.1% forecast by economists.

Car production moving back into a forward gear was a key reason for the return to growth, but the UK’s big services industry remained flat.

Manufacturing production also rebounded to a 1.4% gain in May after contracting 4.2% in April when car manufacturers brought forward their annual factory shutdowns due to fear of a no-deal Brexit.

The pound climbed from its earlier low against the dollar, up 0.1% to 1.2482, but was still around two-year lows.

8.45am: Uncertain start for Footsie

London’s blue chip index zigzagged slightly lower and then slightly higher in early trading on Wednesday as the pound slunk back to two-year lows.

The FTSE 100 regained 10 points or 0.1% to 7,546.23 after half an hour of trading, recouping some ground after falls in each of the previous five sessions.

WATCH: Investor Update: Redx Pharma agrees US$203mln deal for cancer programme

Waiting for Federal Reserve chair Jay Powell to make his testimony in Washington was turning global stock markets into a “pretty mixed, directionless bag”, said Neil Wilson at Markets.com.

European equity benchmarks were mostly on the back foot, as were those across Asia, with a few spots of green such as Italy and Hong Kong.

“Caution will be the order of the day until markets get what they want from the Fed chair – if they do,” said Wilson, adding that “the big risk is that Powell is not nearly dovish enough".

Continuing its recent weakness, the pound was down below the 1.25 mark against the US dollar, around two-year lows, and at six-month lows against the euro at just over 1.11.

The threat of a no-deal Brexit was looming over sterling, despite MPs voting overnight to prevent the UK’s next prime minister from suspending Parliament to push through a no-deal Brexit.

“The UK’s political scene became messier; the rising possibility of another referendum means more uncertainty for the market and investors continue jumpshipping the pound markets,” said Ipek Ozkardeskaya, market analyst at London Capital Group.

Among the movers on the FTSE 350, housebuilder Barratt Developments PLC (LON:BDEV) was on the rise after saying it now expects annual profit to beat market forecasts of around £910mln.

For the past year the group delivered a record number of home completions and improved margins to 18.9% from 17.7% after it decided to buy sites with higher margins and refinements to new housing ranges.

Micro Focus International PLC (LON:MCRO) was down for the second day running, almost 5% lower to 1,894.4p as traders pointed to a fresh bearish technical signal, and Citi and Credit Suisse both reiterated their 'sell' ratings.

Investors were taking a glass-half-full approach to no-frills pub chain JD Wetherspoon PLC (LON:JDW), with the shares up more than 3% to 1,455.8p as boss Tim Martin said sales soared in recent months but he still expects profits to fall slightly this year.

Proactive news headlines:

Investors in Redx Pharma PLC (LON:REDX) received some welcome good news after the company announced it had sold one of its cancer research programmes for up to US$203mln. Like all deals of this kind, the agreement with Jazz Pharmaceuticals (NASDAQ:JAZZ) of the US has a tiered payment structure. So, Redx will receive a far more modest upfront sum of US$3.5mln.

Feedback PLC (LON:FDBK) said it is prioritising its Cadran picture archiving system ahead of its TexRAD technology for uncovering biomarkers in medical images. The change of tack follows a strategic review by new chief executive Tom Oakley, who believes Cadran can become the go-to method of securely sharing patient information by mobile phone or tablet.

Bango PLC (LON:BGO) has reported a jump of almost two-thirds in first half revenues and has forecast that end user spend (EUS) on its platform will rise by over 100% in 2019. In a trading update for the six months ended 30 June, the mobile commerce firm said EUS for the period had been over £465mln compared to £220mln a year ago.

Tidal power specialist SIMEC Atlantis Energy Limited (LON:SAE) has revealed that the underwater turbines of the MeyGen operation in the north of Scotland have set a new record. The company said it has now exported 17.5 gigawatt hours (GWh) of electricity to the national grid, eclipsing the previous record of 11GWh. This year alone, the group said it has produced enough energy to power 2,200 homes.

Applied Graphene Materials PLC (LON:AGM) has hailed “significant technological progress” in development work on using graphene in water-based anti-corrosion coatings.

Circle Property PLC (LON:CRC) has grown the value of its assets by more than 20% for the third successive year and sees a “clear prospect of further growth” from regional office property in coming years.

Eland Oil & Gas PLC (LON:ELA) told investors that it has completed remedial work on  the Gbetiokun-3 well, which will be part of the early production system (EPS) due online this month. In June, the company identified a small leak in the shorter of the well’s two production strings and this has now been remedied.

TLOU Energy Ltd (LON:TLOU) told investors that the Lesedi 4 production pod has now reached ‘Critical Desorption Pressure’, or CDP, which is the point at which coal bed methane wells can start being producible.

Bezant Resources PLC (LON:BZT) is to carry out further exploration at its Buffalo copper/gold option in Zambia after identifying possible extensions to the existing mine pit. A review of the historic data and site visit suggests that the steeply-dipping target shear zone is open at depth and to the southwest into the Buffalo hill.

Oracle Power PLC (LON:ORCP), the UK energy developer of a combined lignite coal mine and mine mouth power plant located in the south-eastern Sindh Province of Pakistan, advised that it has received a further tranche of £50,000 from Brandon Hill Capital Limited, the second amount drawn down under the loan agreement that was announced on 30 May 2019.  It said the total amount drawn down under this arrangement now totals £100,000.

Asiamet Resources Limited (LON:ARS) has announced the appointment of Feng (Bruce) Sheng as a non-executive director with effect from 10 July 2019.  The group noted that Sheng is the chairman of Melbourne based Asipac Group Pty Ltd, a diversified company with investments across the resources and financial sectors, and various property businesses.

BlueRock Diamonds PLC, the AIM listed diamond producer, which owns and operates the Kareevlei Diamond Mine in the Kimberley region of South Africa, announced that its executive chairman, Mike Houston will be delivering a presentation to investors at the SVS Securities and UK Investor Magazine investor evening on Thursday 18 July 2019 at the Skinners Hall, Dowgate Hill, London EC4R 2SP which commences at 6:00pm

ValiRx PLC (LON:VAL), the AIM-quoted clinical stage biotechnology company announced that its chief executive, Dr Satu Vainikka will also be delivering a presentation to investors at the SVS Securities and UK Investor Magazine investor evening.

6.45am: FTSE called slightly higher

The FTSE 100 is tipped to open slightly higher on Wednesday as traders await the latest batch of minutes from the Federal Reserve and testimony from the US central bank’s chairman Jerome Powell.

Spread-betting firm IG expects the FTSE 100 to open around 4 points higher having closed 13 points lower at 7,536 on Tuesday.

US markets yesterday were in a similar state as they struggled for direction ahead of Powell’s testimony to the US Congress.

The Dow Jones Industrial Average closed 0.08% lower at 26,783, while the S&P 500 was up 0.12% at 2,979 and the Nasdaq composite closed 0.54% higher at 8,141.

It was a similar picture in Asia today, with the Japanese Nikkei 225 down 0.05% while Hong Kong’s Hang Seng was up 0.24%.

Ipek Ozkardeskaya, senior market analyst at London Capital Group, said Powell was likely to repeat that the Fed would ‘act appropriately’ to prevent the economy slowing amid the US-China trade war, which is likely to include the possibility of an interest rate cut despite a recent rebound in US non-farm payrolls data.

However, Ozkardeskaya added that “mounting political pressure” of Powell and the Fed to cut interest rates was one more reason for the chairman to remain “as ambiguous as possible” on the central bank’s policy.

On currency markets, the pound continued its weak showing against the dollar overnight and was down 0.1% at US$1.2453.

Sterling didn’t seem to get much of a lift from the Tory leadership debate on Tuesday night when hopefuls Boris Johnson and Jeremy Hunt yet again raised the prospect of a no-deal Brexit, which often has the tendency to rattle currency traders.

The UK's latest GDP reading, due later today, could potentially push the pound lower if it confirms other signs that the UK economy may be slowing amid the Brexit impasse.

Meanwhile, blue-chip housebuilder will take the top spot in the corporate calendar on Wednesday, while there will also be updates and results from a collection of mid-cap firms including SuperDry, Wetherspoons and Dunelm.

Significant announcements expected for Wednesday July 10:

Trading updates: Barratt Developments PLC (LON:BDEV), JD Wetherspoon PLC (LON:JDW), PageGroup PLC (LON:PAGE), Dunelm PLC (Q4) (LON:DNLM)

Finals: SuperDry PLC (LON:SDRY), Yourgene PLC (LON:YGEN)

Economic data: UK monthly GDP estimate; UK trade; UK index of production; UK construction output; FOMC minutes

Around the markets:

  • Sterling: US$1.2453, down 0.1%
  • Brent crude: US$64.82 a barrel, up 1.03%
  • Gold: US$1,393.6 an ounce, down 0.28%
  • Bitcoin: US$13,021.6, up 2.6%

City headlines:

  • The Financial Reporting Council has singled out Britain’s biggest auditor PWC for an “unsatisfactory” decline in the quality of its work – Times
  • Savers in Neil Woodford's beleaguered Equity Income fund have been blocked from moving their money away from Hargreaves Lansdown – Daily Mail
  • The former auditor of Patisserie Valerie, the cake and cafe chain at the centre of an alleged accounting fraud, has been placed under increased scrutiny after the industry watchdog called the quality of its work “unacceptable” – Guardian
  • Ofwat is set to bring forward new requirements for Britain’s 17 water companies to maintain an investment-grade credit rating — a sign of a business’s financial health — and for suppliers to accept restrictions to dividend payouts to shareholders if it is under threat - Times
  • Sterling plunged below a key level of $1.2455 partially due to relatively weak UK economic data and no-deal Brexit concerns – Telegraph
  • A £2bn auction for Electricity North West has been derailed by the Labour Party’s plan to nationalise energy networks if it wins power – Financial Times
  • BMW has stopped building engines for its X3 cars in Britain because of Brexit worries – Telegraph
  • Cabinet has been warned that there is a “real risk” of the UK breaking up, with all four nations going their own way in the event of a no-deal Brexit – FT

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