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London open: Retail stocks gain, but markets hit by Fed comments
UK stocks retreated on Thursday as investors’ appetite for risk declined in the aftermath of some hawkish comments from the Federal Reserve, as markets look ahead to an uncertain monetary policy decision from the Bank of England.
London’s FTSE 100 was down 0.4% at 7,698 by 0850 BST, pulling back after finishing at 7,731.65 on Wednesday – its highest close since 23 May.
Eyes on BoE after hawkish tone set by Fed
The closely watched Federal Open Market Committee meeting drew to a close after the end of the previous trading session in London, with policymakers deciding to keep interest rates unchanged from the 5.25-5.5% range, as was widely expected by the market. This was the second time this year where its rate-hiking cycle has been paused.
However, 12 of the 19 voting FOMC members said they expect to raise rates once more this year, at one of the two remaining meetings in November or December. Furthermore, looking further forward, the committee indicated that interest rates would only be lowered to around 5% by the end of 2024, indicating that they remain committed to a ‘higher-for-longer’ strategy.
At a press conference following the meeting, chair Jerome Powell said he still needed to see “convincing evidence” that higher interest rates are having the desired effect on inflation before the FOMC can begin to loosen monetary policy.
The comments, which dragged US stock markets into the red, will likely have worried UK investors ahead of the BoE’s own Monetary Policy Committee meeting, given recent optimism that any potential interest-rate hike today will be the last in the central bank’s current cycle.
However, a surprise drop in inflation figures reported on Wednesday has “reshaped market opinion somewhat with the odds of a pause now about 50/50,” said Neil Wilson from Markets.com. Wilson pointed that the market pricing had been about 80% in favour of a interest-rate hike of 25 basis points to 5.5% before the consumer price index was released.
“The deceleration in headline inflation to an 18-month low will clearly create debate about the need for a hike today. But I would argue that, with inflation still three times where it should be, the risk for the BoE is in doing too little and needing to restart tightening,” he said/
JD and Next lead retailers higher
UK sportswear retailer JD Sports Fashion was a standout performer early on after reporting it was still on track to deliver a 5% rise in annual profit. First-half earnings rose by more than a quarter driven by strong sales despite the cost-of-living crisis.
High street peer Next also impressed as it lifted full-year guidance for the third time in four months after better-than-expected summer sales. Pre-tax profits are now forecast to come at £875m from previous guidance of £845m.
Dunelm was also rebounding after disappointing the market on Wednesday with its full-year results, in which pre-tax profits fell 8%.
However, sector peer Ocado was under intense selling pressure as investors took profits after share-price gains earlier in the week after a solid third-quarter trading update.
Safety equipment group Halma was lower despite saying it expects deliver good underlying growth in the first half, as it maintained full-year guidance.
Stocks in the heavyweight financial and mining sectors were weighing on markets early on with Barclays, Prudential, Antofagasta, Glencore and Fresnillo registering declines.
Outsourcing group Capita rose after signing two new contracts with the UK and Northern Ireland governments worth a combined £565m.
Hospitality conglomerate SSP Group dropped despite revealing that it would deliver annual revenues and profits at the “upper end of the ranges previously indicated”.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Next Plc | +2.31% | +164.00 | 7,270.00 |
| 2 |  |
Marks And Spencer Group Plc | +1.86% | +4.30 | 235.40 |
| 3 |  |
Auto Trader Group Plc | +1.21% | +7.60 | 634.40 |
| 4 |  |
Pearson Plc | +1.14% | +10.00 | 885.00 |
| 5 |  |
Admiral Group Plc | +0.99% | +24.00 | 2,439.00 |
| 6 |  |
Direct Line Insurance Group Plc | +0.62% | +1.10 | 177.80 |
| 7 |  |
Hiscox Ltd | +0.58% | +6.00 | 1,044.00 |
| 8 |  |
Gsk Plc | +0.35% | +5.40 | 1,539.80 |
| 9 |  |
Unilever Plc | +0.34% | +14.00 | 4,129.50 |
| 10 |  |
Astrazeneca Plc | +0.26% | +28.00 | 10,978.00 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Ocado Group Plc | -8.81% | -71.20 | 737.20 |
| 2 |  |
Flutter Entertainment Plc | -3.46% | -505.00 | 14,110.00 |
| 3 |  |
Carnival Plc | -2.97% | -32.50 | 1,061.50 |
| 4 |  |
Barclays Plc | -2.77% | -4.42 | 155.16 |
| 5 |  |
Bhp Group Limited | -2.38% | -56.00 | 2,298.00 |
| 6 |  |
Glencore Plc | -2.14% | -9.95 | 453.95 |
| 7 |  |
Antofagasta Plc | -2.03% | -29.50 | 1,425.50 |
| 8 |  |
Prudential Plc | -1.97% | -18.20 | 905.60 |
| 9 |  |
Melrose Industries Plc | -1.85% | -9.00 | 477.00 |
| 10 |  |
Fresnillo Plc | -1.79% | -10.60 | 581.80 |
US close: Stocks drop on Fed’s ‘higher-for-longer’ strategy
Stocks on Wall Street finished Wednesday’s session in the red after Federal Reserve policymakers revealed that an interest-rate hike was probable at one of its next two meetings.
The news came at the conclusion of the two-day Federal Open Market Committee meeting, where the central bank chose to leave interest rates unchanged from the 5.25-5.5% range, as was widely expected by the market. This was the second time this year where its rate-hiking cycle has been paused.
However, 12 of the 19 voting FOMC members said they expect to raise rates once more this year, at one of the two remaining meetings in November or December.
Furthermore, looking further forward, the committee indicated that interest rates would only be lowered to around 5% by the end of 2024, indicating that they remain committed to a “higher for longer” strategy.
At a press conference following the meeting, chair Jerome Powell said he still needed to see “convincing evidence” that higher interest rates are having the desired effect on inflation before the FOMC can begin to loosen monetary policy.
The comments pushed stocks lower just before the closing bell, following a broadly positive start. The Dow Jones Industrial Average was down 0.2% by the close at 34,441, the S&P 500 declined 0.9% to 4,402, while the Nasdaq dropped 1.5% to 13,469.
The only major economic data release on Wednesday was weekly US mortgage applications, which jumped 5.4% in the seven days to 15 September, after a 0.8% decline the previous week. The rebound came despite mortgage rates increasing to a one-month high.
Instacart reverses after solid debut
Instacart, the grocery delivery business that debuted on the Nasdaq on Tuesday, dropped 11% to $30.10, almost entirely wiping out the 12% jump following its IPO. The flotation was priced at $30.
Coty was trading 4% higher after the cosmetics manufacturer delivered “outstanding FY23 results” with like-for-like revenues growing 12%. The company said the core business would grow at the top end of the forecast range this year.
General Mills was flat despite the food manufacturing beating forecasts with its fiscal first-quarter results. The company kept its full-year guidance unchanged but said the current environment is being characterised by “a resilient but increasingly cautious consumer”.
Image-sharing platform Pinterest was in demand, rising 3% after Citigroup upgraded the stock from ‘neutral’ to ‘buy’ and raised its target price from $31 to $36 following a recent investor event.
Thursday newspaper round-up: Wilko, green targets, inflation, Nationwide, high street
Wilko’s administrators are to question majority shareholder Lisa Wilkinson on the £77 million in dividends paid out to investors in the decade before the retailer’s collapse, as calls grow for the Wilkinson family to plug a £56 million hole in workers’ pension pots. The Times understands that PwC will conduct a review into the dividends paid out to the Wilkinson family and the retailer’s other directors as part of a wider investigation into company transactions in the years building up to the administration. – The Times
Around 60 miles off the east coast, wind turbines more than twice as tall as Big Ben are ready to be powered up within weeks. Dogger Bank, the world’s largest wind farm with the ability to power 6m homes, will finally be switched on, eight years after it was first granted planning permission. But across the UK, hundreds more projects viewed as vital in helping the Government hit net zero ambitions, are currently being held up by bureaucracy and delays. – Telegraph
Competition among financial firms for a slice of the nation’s savings is intensifying, with Nationwide launching an account paying a “market-leading” 8% interest. A string of Bank of England interest rate rises have pushed up savings rates across the board, and many experts expect another one on Thursday. – Guardian
The Bank of England’s decision on whether to push ahead with another interest rate rise today or hit pause was on a knife-edge after a cooldown in inflation in August surprised the City. Expectation that the monetary policy committee (MPC) would impose another 25 basis-point rise, lifting the base rate to a 15-year high of 5.5 per cent, fell from a near-certainty to odds of 50-50 within minutes of yesterday’s unexpected data from the Office for National Statistics (ONS). – The Times
Jeremy Hunt should copy the Danish benefits system to encourage people to switch jobs more often, according to a new report. The Resolution Foundation has urged the Chancellor to offer people who lose their jobs more generous benefits to encourage them to take more risks with their careers. This would help tackle Britain’s productivity crisis by making the jobs market more dynamic and boost overall growth at a relatively modest cost, the Resolution Foundation argued. – Telegraph
Almost 2,000 more British independent stores were left empty in the first half of this year, as small businesses struggled to cope with rising inflation and the cost of living crisis. The biggest rise in vacancies in at least eight years marks a reversal in fortunes for independent outlets after two years of growth. Small firms had thrived from a shift towards local shopping prompted by the pandemic and were also helped by government Covid support on rent and business rates. – Guardian
