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London open: Stocks slide ahead of Fed’s interest rate decision
London stocks opened the week in the red, reversing gains on Friday after the European Central Bank hinted a further stimulus in December and China cut rates.
The People’s Bank of China cut its one-year deposit rate and one-year lending rate by 25 basis points each to 1.5% and 4.35%, respectively. The PBoC also cut the reverse requirement ratio for all banks by 50 basis points to 17.5%, with an extra 50 bps reduction for some lenders. The move was welcomed by most economists. Goldman Sachs analyst said they believe the cuts “may be necessary to prevent a tightening of financial conditions”.
The ECB also provided a boost to markets last week by saying that it will re-examine its quantitative easing programme and consider extending it past September 2016 if necessary.
“The market reaction may be a little over the top; the ECB has not done anything yet. A statement saying the ECB governing council will ‘re-examine’ the level of monetary accommodation doesn’t mean that the examination will conclude anything needs to be done,” said Jasper Lawler, market analyst at CMC Markets.
“Consumer price inflation data for the Eurozone released this Friday will surely be a large chunk of what the ECB evaluates before its December meeting.”
ECB official Yves Mercsh may elaborate when he speaks in Brussels later on Monday.
Looking ahead, the Federal Reserve’s policy meeting on Wednesday is taking centre stage as analysts speculate on whether the central bank will raise interest rates. The consensus forecast is that rates will remain at 0.25% amid low inflation and risks arising from a slowdown in emerging markets.
“I personally think that the Federal Reserve completely missed the boat with an opportunity to begin raising US interest rates during its September policy meeting and that the chances of a US interest rate rise at all this year have weakened each passing week since,” said Jameel Ahmad, chief market analyst at FXTM.
“The reduced US interest rate expectations are not limited to just slowing US economic momentum, but because the central bank cited global economic weakness as a reason to leave US rates unchanged in September.”
On the company front, WPP slumped after reporting a healthy rise in revenue for the third quarter and saying it expects an even better fourth quarter.
AstraZeneca climbed after the US Food and Drug Administration’s Arthritis Advisory Committee recommended the approval of lesinurad tablets for the treatment of hyperuricemia with gout.
Intertek gained after buying New York-based MT Group and Material Testing Lab in a bid to expand its building and construction capabilities in the US.
Oil stocks, including BG Group and Royal Dutch Shell, rallied as Brent and West Texas Intermediate crude futures ticked higher by 0.5% to $48.26 per barrel and 0.6% to $44.91 per barrel, respectively, at 0900 BST.
