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Market ReportFTSE 100

FTSE 100 closes shade lower ahead of Fed interest rate decision

Footsie closed 6.35 points down at 7,314.05 on the day

Wall street
All eyes now turn to the Federal Reserve's interest rate decision
  • FTSE 100 closes lower

  • Markets keenly await Fed rate decision 

  • UK CPI slows to 1.7% 

  • Housebuilders fall on weak house price data

FTSE 100 closed a shade lower, while US stocks were down, ahead of the closely watched Fed interest rate decision due within the next couple of hours.

"The mood today has been one of cautious optimism, as the US central bank are tipped to lower interest rates, but seeing as the US economy is in good shape, there is the possibility the update won’t be as dovish as expected," noted David Madden, market analyst at CMC Markets.

It comes after last week's European Central Bank (ECB) meeting largely underwhelmed.

Footsie closed 6.35 points down at 7,314.05 on the day.

The mid-cap FTSE 250, on the other hand, notched up a 13.89 point gain to close at 20,054.43.

On Wall Street, the Dow Joines Industrial Average lost 54.62 points and the S&P 500 shed 8.04.

Top laggard on Footsie was DIY giant and Screwfix owner Kingfisher plc (LON:KGF), which saw shares advance 3.15% to 195.15p after it posted a disappointing set of half-year results. In the six months to July 31, the retailer posted a 12.5% fall in pre-tax profit to £245 million, and down 6.4% to £353 million on an underlying basis. Revenues dipped 1.4% to £5.6bn.

3:50pm: Footsie near flat

As the final hour of trading began the FTSE 100 seemed set to end Wednesday more or less in the same place it began, with the shares down only 1 point at 7,318.

Connor Campbell, financial analyst at Spreadex, said that the muted activity was predictable as investors were keeping their cards close to their chest before finding out plans form the Federal Reserve later today.

“Currently the CME FedWatch tool has the likelihood of a rate cut at 70.4 – an increase on this morning’s 56.5%, and yesterday’s 63.5%, but well off the 95%-plus levels seen at the start of the month. Potentially more important than the expected slash may be what the central bank hints at for the future; a lack of guidance could be just as harmful as an unexpectedly hawkish statement”, Campbell said.

Meanwhile, DIY retailer Kingfisher plc (LON:KGF) was the biggest blue-chip faller, down 2.3% at 196.8p, after it delivered a disappointing set of half-year results and its chief executive, Véronique Laury, headed for the exit.

At the other end of the scale, Halma PLC (LON:HLMA), the maker of fire suppression and hazard detection machines, was the FTSE 100’s biggest riser, up 1.8% at 2,025p.

2.35pm: US stocks open lower ahead of Fed decision 

US stocks have opened in negative territory as traders look ahead to the Federal Reserve's policy announcement.

The Dow Jones Industrial Average dropped 90 points to 27,025, the S&P 500 shed 8 points to 2,997 and the Nasdaq declined 20 points to 8,165. 

The Fed is widely expected to cut interest rates while a press conference by chairman Jerome Powell after the policy decision will be closely eyed for hints on the central bank's next moves. 

Meanwhile, Donald Trump said he has asked the US Treasury to substantially increase sanctions on Iran, according to Bloomberg.

Trump has accused Iran of being responsible for drone attacks at state-owned Saudi Aramco oil facilities at the weekend. Iran has dismissed the claims. 

On this side of the pond, the FTSE 100 is now down10 points to 7,309 after disappointing UK inflation and house price data, which sent housebuilders' shares lower. 

1.30pm: Pendragon shares fall as it slumps to loss 

UK car dealer Pendragon said it plans to close 22 of its 34 Car Store showrooms as part of a restructuring plan.

The company said the sites “do not fit the long-term strategy” and most are historic franchise locations that are “not suited to the Car Store model”.

The group made the announcement as it revealed it swung to an underlying loss before tax of £32.3mln in the first half from a profit of £28.4mln last year, mainly due to cutting used car prices. 

It warned that it now expects to make a larger-than-expected loss for the full year. 

"Economic and market conditions are very challenging,” Pendragon said.

“The heightened political and Brexit uncertainty, as to both outcome and timing, is adversely affecting customer confidence.

"We are not anticipating any improvement in this for the rest of our financial year and are closely monitoring market conditions and customer behaviour particularly during the important trading month of September."

Shares fell more than 9% to 9.87p.

12.50pm: US stock futures fall 

US stock futures are pointing to a lower open as investors await the latest interest rates decision from the Federal Reserve.

Dow Jones Industrial Average futures fell 30 points to 27,080, S&P 500 futures dropped 4 points to 3,003 and Nasdaq declined 14 points to 7,899.

Market participants have their attention focused on the Fed’s policy announcement due out later. The US central bank is expected to cut interest rates by 25 basis points. Fed chairman Jerome Powell is set to hold a press conference after the decision is released.

“Beyond that expected rate cut later today, it’s going to be the tone of Jerome Powell’s comments which will be most closely followed,” said James Hughes, chief market analyst at Axitrader.

“Opinions are divided as to how many more rate cuts will be seen by the year end, so anything that puts a more hawkish spin on the outlook could see stocks slide lower.

“However, with oil prices reverting fairly quickly after the weekend’s attack on Saudi Arabia, concerns over the inflationary pressure this may have brought can arguably be side lined.

“President Trump is also adamant that rates need to go much lower, too and although the Fed will want to maintain its independence, the lingering threat of recession may prove sufficient to dictate a more dovish narrative. “

12.20pm: Weak UK house price data drags shares of housebuilders lower 

Housebuilders are under the cosh for a second day after the ONS said UK house prices rose in July at the weakest annual rate since September 2012.

Prices gained 0.7% in the year to July after a 1.4% rise in June.

Persimmon PLC (LON:PSN), Barrat Developments PLC (LON:BDEV) and Taylor Wimpey PLC (LON:TW. shares are all down. 

Housebuilders' shares were in the red on Tuesday after a government body criticised the government's Help to Buy programme. 

11.50am: Kingfisher slumps on weaker profit 

DIY retailer Kingfisher plc (LON:KGF) is now one of the biggest fallers on the FTSE 100 after posting a drop in first-half profits due to poor performances in France and at B&Q outlets in the UK. 

Shares are down by more than 2% to 197p.

The company, which also owns Screwfix, said statutory profit before tax declined 12.5% to £245mln in the first half as sales declined 1.4% to £5.9bn.  On a like-for-like basis, sales dropped 1.8%. 

Retail profit in France fell 12.2% as like-for-like sales decreased 4.4% to £2.2bn. Kingfisher said weakness at its unit Castorama continue as it was hit by logistics and stock inefficiencies.

In the UK, sales at B&Q dropped 3.3% while Screwfix delivered a 9.9% rise in sales. 

The results mark the last for Kingfisher boss Véronique Laury, who steps down next week. She will be replaced by Thierry Garnier.

Russ Mould, investment director at AJ Bell, said Laury is not leaving on a high note.

"The shares are down by a third since she took over in December 2014, during which time the FTSE 100 is up by some 10% and the main reason for this is the failure of her five-year OneKingfisher plan to deliver the targeted cost, productivity and profit gains," he said.

“At least today’s interims do no worse than live down to the lowered expectations set by March’s profit warning, when Kingfisher acknowledged that gross margins would come in flat (excluding Russia and Iberia)."

11.00am: UK house prices rise at weakest rate since September 2012

UK house prices rose 0.7% in the year to July, according to the ONS.

That compares to a 1.4% rise in June and marks the lowest annual rate of growth since September 2012. However, it was better than the 0.6% increase analysts were expecting.

“July’s house price data is yet more evidence of a property market with a distinct lack of momentum,” said David Westgate, chief executive at Andrews Property Group

 “Very low single digit annual price growth is about as exciting as it’s going to get for some time yet.”

Michael Biemann, chief executive of digital property lender, Selina Finance, said: “The latest house price growth data is not going to blow anyone away, but given the climate we find ourselves in that’s not exactly a surprise. 

“Against the current political backdrop, we should actually be encouraged by the fact that annual price growth remains in the black, rather than dismayed that it is low.

“The blows to the market from Brexit are being countered by low supply, low mortgage rates, a robust jobs market and decent wage growth.

“ Unless we have a chaotic and rancorous exit from the EU, the economic fundamentals are likely to keep prices above water in the turbulent months ahead.”

10.20am: Bank of England still likely to stand pat on rates after inflation miss, says analyst 

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, reckons there remains a slim chance the Bank of England will cut interest rates despite the sharp fall in CPI in August.

He pointed out that the1.7% print exceeded the Monetary Policy Committee’s August Inflation Report forecast of 1.6%.

“In addition, half of the sharp fall in the headline rate was driven by further volatility in the price of computer games,” he said.

Tombs added: “Looking ahead, the headline rate likely will remain below the 2% target this year.

“Energy’s contribution to the headline rate looks set to fall by 0.2 percentage points (pp) in October, when the cap of standard variable tariffs for electricity and natural gas will be reduced by 6%.

“Nonetheless, sterling’s recent depreciation points to core goods inflation rising to about 1.5% in the first half of 2020, from 0.4% in August, boosting the headline rate by 0.3pp.

“In addition, we expect services firms to respond to the recent surge in unit labour costs—the pick-up in wage growth to 4% has not been accompanied by any improvement in productivity growth, which has remained near-zero—by pushing through bigger price increases next year.

“Accordingly, CPI inflation still looks set to rise back to and then slightly exceed the 2% target in 2020, ensuring that only a sharp downturn in the economy will prompt the MPC to cut Bank Rate again.”

The pound has fallen 0.35% versus the dollar to US$1.2456. 

9.40am: UK inflation slows

UK consumer price inflation slowed in August due to declines in the prices of games, toys and hobbies, and cultural services, clothing and sea fares, the Office for National Statistics has revealed.

CPI rose by 1.7% last month after a 2.1% increase in July, missing analysts' expectations of 1.9% and falling behind the Bank of England's target of 2%. 

Core CPI slowed to 1.5% from 1.9%. 

9.00am: Games Workshop rallies

Games Workshop Group PLC (LON:GAW) is on the front foot after saying in a brief update that it is trading is in line with its expectations and cash generation remains strong.

The company has declared a dividend of 35p per share in line with its policy to distribute surplus cash. 

The shares are up 2.2% to 4,778p on the back of the announcement. Since the start of the year, the shares have risen 58% after a strong period of sales growth.

8.40am: Traders await Fed's rate decision 

The FTSE 100 made a subdued start to proceedings with traders keeping their powder dry ahead of the US Federal Reserve’s monthly interest rate decision.

The market is currently pricing in a quarter-point cut to borrowing costs.

More important, possibly, is the fiscal stimulus programme that may or may not accompany be signed off at the Fed meeting later.

Currently, the traders are expecting US$75bn to be poured into the American economy to mitigate the impact of an economic slowdown.

Here in the UK, the focus later this morning will be on the latest inflation number, though one suspects it is unlikely to influence the thinking of the Bank of England’s Monetary Policy Committee as it sits to decide domestic interest rates.

Cost-price inflation is expected to falls back to 1.9% from 2.1%.

“These forecasts seem slightly counterintuitive when set against the recent decline in the value of the pound to multi year lows last month,” said Michael Hewson of CMC Markets.

“However, the effect of the recent fall in sterling may well come out in the wash as we head into the end of the year.”

There was no relief for investors in Sirius Minerals (LON:SXX), the beleaguered potash mine developer, following the collapse of its debt funding plans.

The shares receded a further 8%, following a two-thirds collapse on Tuesday.

This is awful news for the 85,000 private investors, thousands of whom live close to operation on the North York Moors.

Liberum weighed in with a ‘buy’ recommendation earlier but the broker cut its price target to 9p from 40p. Still, the new valuation is still more than double the current price.

Proactive news headlines

Pan African Resources plc (LON:PAF) swung strongly back into profit and re-started dividend payments as gold production jumped 54% to 172,400oz in the year to June.

Cello Health PLC (LON:CLL) reported good growth in profits and strong cash flow for the first half of the year said it was confident about the rest of the year too.

Westminster Group PLC (LON:WSG) says it is pleased with the terms for its container screening contract at Terminal 3 at the Port of Tema in Ghana.

Salt Lake Potash Ltd's (ASX:SO4) pilot plant test work on salts from the Lake Way project has confirmed a highly water-soluble premium sulphate of potash (SOP) product with a potassium oxide grade exceeding 53%.

Keywords Studios PLC (LON:KWS) has expanded its global empire with the acquisition of German dubbing specialist TV+SYNCHRON Berlin (TVS). In a separate announcement, Keywords reported that for the six months ended 30 June an adjusted pre-tax profit of €18.4mln, up 14.3% on the prior year, while the interim dividend was hiked to 0.58p per share from 0.53p.

ClearStar Inc’s (LON:CLSU) direct sales and medical screening arms shone in its first six months of the year and revenue momentum has continued into the second half.

Anglo Asian Mining PLC (LON:AAZ) said it is on course to meet its production target for the year after a strong first half of output.

Kodal Minerals PLC (LON:KOD) continues to advance and de-risk its flagship Bougouni lithium project in southern Mali, chief executive Bernard Aylward highlighted in a new operations update.

OptiBiotix Health PLC (LON:OPTI) has clinched a deal with a South African partner for the distribution of its GoFigure weight management products.

Eden Research plc (LON:EDEN) cut losses in the first half of its financial year as it eyed a larger sales footprint for its Cedroz pesticide.

Iofina PLC (LON:IOF) has found a partner to supply brine for its next iodine extraction plant in the US with construction to start immediately.

Europa Oil & Gas Holdings PLC (LON:EOG) has expanded its portfolio adding new exploration acreage in the Agadir basin offshore Morocco.

Eckoh PLC (LON:ECK) said trading is in line with expectations for the full year with “good” revenue growth in the UK and the US.

Nektan PLC (AIM: NKTN) is proposing a capital restructuring to strengthen its balance sheet as its business-to-business arm begins integrating new clients at a rapid rate across Asia and Africa.

SDX Energy Plc (LON:SDX) has revealed success in the MSD-19 development well in the West Gharib project area, in Egypt.

Avation PLC (LON:AVAP) has agreed to lease four new ATR 72-600 aircraft to Braathens, Sweden’s second-largest domestic airline.

Oncimmune Holdings PLC (LON:ONC) will deliver a keynote presentation at the China BioMed Innovation and Investment Conference this Sunday in Suzhou, China, with chief executive Adam Hill giving an overview of the company and progress in delivering its strategy.

Summit Therapeutics PLC (LON:SUMM) (NASDAQ:SMMT) has flagged up an editorial in the Future Microbiology journal calling for the development of antimicrobial products to combat resistance to antibiotics. Summit is developing Ridinilazol, a new class antibiotic for the treatment of C. difficile infection, where current treatments fail in about a third of cases. Dr David Roblin, president of research and development at Summit, said: “Our approach to antibiotic drug development aims to end the perception that new antibiotics are ‘break-in-emergency’ treatments.”

Ticketing software specialist Accesso Technology Group PLC (LON: ACSO) says it expects the cost of its new unified product strategy will be lower than expected.

6.45am: FTSE 100 set to open lower 

The FTSE 100 is expected to start lower on Wednesday as traders looked set to sit on their hands ahead of the Federal Reserve’s decision on interest rates.

Spread-better IG expects the index to open around 11 points lower after closing down 1 point at 7,320 on Tuesday.

The consensus forecast is for a cut of 25 basis points to a range of 2.0% and 1.75%, although investors will also want to hear about the Fed’s plans to increase short term liquidity, with the bank standing ready to inject around US$75bn into the system when trading begins on Wednesday morning.

Ipek Ozkardeskaya, senior market analyst at London Capital Group, said that the liquidity would ring alarm bells for the Fed, as it would now come under pressure to reduce pressure on short-term rates to avoid liquidity drying up in the future.

As a result, she said quantitative easing, where a central bank increases a country’s money supply, “could be down the road”.

US markets logged modest gains overnight ahead of the Fed, with the Dow closing 0.13% higher while the S&P 500 was up 0.26% and the Nasdaq increased 0.4%.

However, Asian traders seemed content to hold back ahead of the decision this morning, with the Japanese Nikkei 225 down 0.11% and Hong Kong’s Hang Seng 0.12% lower.

On the currency markets, the pound was slightly weaker against the dollar, down 0.12% at US$1.2485, however UK inflation data, due later today, could provide a catalyst for movement as it could inform the interest rate decision of the Bank of England, due on Thursday.

Significant announcements expected for Wednesday September 18:

Federal Reserve rate decision

Finals: Avingtrans PLC (LON:AVG), Pan African Resources plc (LON:PAF)

Trading updates: Kingfisher plc (LON:KGF)

Interims: Accesso Technology Group PLC (LON:ASCO), Attraqt Group PLC (LON:ATQT), Bonhill Group plc (LON:BONH), Cello Health PLC (LON:CLL), ClearStar Inc (LON:CLSU), Jarvis Securities Plc (LON:JIM), Keywords Studio PLC (LON:KWS), Maxcyte Inc (LON:MXCT), Pendragon PLC (LON:PDG), Strix Group PLC (LON:KETL), Surgical Innovations PLC (LON:SUN), Walcom PLC (LON:WALG), Warpaint London plc (LON:W7L), Yu Group PLC (LON:YU)

Economic data: UK CPI and RPI inflation, UK house price index, US housing starts, Eurozone CPI

Around the markets:

Sterling: US$1.2485, down 0.12%

Brent crude: US$63.46 a barrel, down 0.16%

Gold: US$1,502.6 an ounce, down 0.17%

Bitcoin: US$10,226.8, up 0.26%

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