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London open: Markets rattled by FOMC minutes
UK stocks slipped on Thursday, following US and Asian markets lower overnight, as investors reacted to the possibility of further interest-rate hikes by the Federal Reserve.
By 0824, the FTSE 100 was down 0.4% at 7,325.14, after closing Wednesday’s session at 7,356.88 – already a five-week low.
The minutes from July’s Federal Open Market Committee meeting, released on Wednesday evening, were at the top of the agenda, after recent strong economic data raised concerns that the Fed may once again step in to raise rates to stop an overheating economy and fight rising prices.
The publication showed a divided opinion within the FOMC, with a majority hinting at the need for “further tightening of monetary policy” to tackle rising inflation, which they viewed as having “significant upside risks”.
“While the consensus continues to point to no change at the September meeting, the odds are rising for a further hike in November,” said Richard Hunter, head of markets at Interactive Investor. “Such uncertainty has led some investors to reconsider whether the fact that markets had been pricing in victory against inflation came too early, and in any event whether higher rates could remain in place for longer than had been anticipated.”
Eyes will now turn to the release of US weekly jobless claims data for the week to 12 August, which is expected to show 240,000 filings for unemployment benefits, down from 248,000 the week before.
In other news, market sentiment may have been dampened by fresh concerns over China’s economy, after wealth manager Zhongzhi Enterprise Group revealed it’s experiencing a liquidity crisis and will have to restructure its debt, owing to its heavy exposure to the country’s fragile property market.
“This latest crisis is set to see confidence in China’s economy ebb away further, with investors waiting to see what else authorities can come up with to patch up problems,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
BAE slips on M&A news
BAE Systems was trading lower on the news that it is buying Ball Corporation’s aerospace business for $5.55bn in cash. Despite the negative share-price reaction, analysts at Shore Capital said the acquisition “positions BAE in a fast growing segment of the defence market so that it can capitalise on the long term uptick for defence products”.
A bunch of heavyweight stocks were trading ex-dividend, providing some downward pressure on markets, such as Abrdn, Schroders and Anglo American.
Miners on the whole though were performing relatively well, with Rio Tinto, Glencore and Antofagasta among the top performers on the FTSE 100.
On the second-tier index, Bank of Georgia was the standout riser after it reported a 33.5% jump in half-year profits, driven by a sharp rise in net interest income.
Empiric Student Property also jumped after the company raised its full-year guidance following a “very strong” start to the year, in which earnings rose 19%.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Prudential Plc | +1.33% | +13.00 | 993.20 |
| 2 |  |
Rio Tinto Plc | +1.28% | +58.50 | 4,617.50 |
| 3 |  |
Standard Chartered Plc | +1.13% | +8.20 | 736.80 |
| 4 |  |
Aviva Plc | +1.12% | +4.30 | 387.50 |
| 5 |  |
Smith & Nephew Plc | +0.89% | +9.50 | 1,082.50 |
| 6 |  |
Glencore Plc | +0.86% | +3.60 | 423.10 |
| 7 |  |
Lloyds Banking Group Plc | +0.83% | +0.35 | 42.44 |
| 8 |  |
Hargreaves Lansdown Plc | +0.57% | +4.40 | 777.00 |
| 9 |  |
Centrica Plc | +0.52% | +0.75 | 144.05 |
| 10 |  |
Hsbc Holdings Plc | +0.51% | +3.00 | 592.80 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Bae Systems Plc | -4.28% | -42.90 | 959.60 |
| 2 |  |
Ocado Group Plc | -2.39% | -19.40 | 793.00 |
| 3 |  |
Berkeley Group Holdings (the) Plc | -2.29% | -96.00 | 4,092.00 |
| 4 |  |
Schroders Plc | -2.02% | -8.50 | 411.30 |
| 5 |  |
Melrose Industries Plc | -1.88% | -9.80 | 510.40 |
| 6 |  |
3i Group Plc | -1.73% | -33.50 | 1,906.50 |
| 7 |  |
Kingfisher Plc | -1.67% | -3.90 | 229.30 |
| 8 |  |
Ferguson Plc | -1.51% | -190.00 | 12,425.00 |
| 9 |  |
Fresnillo Plc | -1.48% | -7.60 | 506.00 |
| 10 |  |
Wpp Plc | -1.47% | -11.00 | 738.60 |
US close: Stocks slip as investors digest Fed minutes
Wall Street faced a downturn on Wednesday as US stocks closed in the negative, with the biggest drops coming from the technology-centric Nasdaq Composite.
The Federal Reserve’s minutes from its July meeting were released late in the session, showing that a majority of senior officials now expected “upside inflation risks”.
By the close, the Dow Jones Industrial Average was down 0.52% at 34,765.74 points, while the S&P 500 registered a dip of 0.76% to end the day at 4,404.33.
The Nasdaq Composite took the hardest hit, shrinking by 1.15% and finishing at 13,474.63.
On the foreign exchange front, the dollar was flat against sterling at 78.55p, while it slipped 0.01% against the euro to trade at 91.91 euro cents.
The greenback dropped 0.05% on the yen, changing hands at JPY 146.28.
“US stocks have finally remembered how to go down in August, as inflation and China fears hit home after a stellar run for the year so far,” said IG chief market analyst Chris Beauchamp earlier.
“For now the selling is contained, but with a lighter calendar for the moment thoughts will inevitably turn to Jackson Hole and what central bankers might say about the fight against inflation.
“With this in mind, some more trimming of profits might be the theme for the second half of August.”
Fed minutes, economic data paint mixed picture for US economy
The minutes from the Federal Reserve’s July meeting were at the top of the agenda late in the day, after the central bank decided to increase the federal funds rate by a quarter of a percentage point to between 5.25% and 5.5% last month – its highest point in more than two decades.
They showed a divided opinion within the Federal Open Market Committee, with a majority hinting at the need for “further tightening of monetary policy” to tackle rising inflation, which they viewed as having “significant upside risks”.
Another faction, however, expressed apprehension over the economic outlook.
The minutes noted that some officials held concerns about potential economic downturns, despite the present resilience of the economy.
Committee members also pointed towards the possibility of a short-term slowdown in real GDP growth, and a slight weakening in the labour market.
“With the Fed at or near the end of its tightening cycle and rate cuts looking likely in 2024, we expect to see more discussion at future FOMC meetings about when to begin scaling back the reduction in the Fed’s balance sheet,” said Oxford Economics lead US economist Nancy Vanden Houten.
“The July minutes note that several FOMC members thought the Fed could continue to reduce the balance sheet even after rate cuts are underway.
“Our baseline assumes some tapering off on the pace of reduction begins in early 2024, but the comments in the minutes suggest we might be looking at a later timetable.”
In other economic headlines, the industrial sector displayed promising vigour in July, with a report from the Federal Reserve showing a 1% rise in industrial production during the month, largely propelled by increased utility consumption due to the sweltering summer and a resurgence in vehicle output.
The uptick eclipsed the Wall Street Journal‘s projection for 0.5% growth.
In contrast, June’s figures were adjusted to a more significant decline of 0.8%, compared to the preliminary estimate of a 0.5% decrease.
On the housing front, July brought good tidings for construction and real estate, with housing starts seeing a 3.9% jump following June’s considerable 11.7% fall.
Building permits, indicating future construction activity, meanwhile saw a modest increase of 0.1% in the same month.
Retailers and tax-filers shine with positive quarterly results
In equities, Target Corporation rose 2.96% after it outperformed market expectations in its second-quarter earnings.
However, it wasn’t all sunny skies for the retail giant, as it lowered its full-year guidance.
Earnings per share expectations were adjusted to a range of between $7 and $8, down from the previous prediction of $7.75 to $8.75.
Elsewhere in the retail domain, TJX Companies jumped 4.13% after reporting a robust performance on the back of an exceptional second quarter, as it revised its full-year guidance upwards.
The off-price retail group’s adjusted earnings per share came in at 85 cents for the period, pleasantly surpassing the market consensus for 77 cents.
Finally, tax-filing provider H&R Block surged 9.7% after it reported smashing second-quarter earnings late on Tuesday, topping market forecasts.
H&R Block also revised its full-year guidance in an upward direction.
