London stocks were set to slide at the open on Thursday following heavy losses on Wall Street, after the US Federal Reserve hiked interest rates by 75 basis points and struck a hawkish tone.
The FTSE 100 was called to open 60 points lower at 7,177, with investors eyeing the latest rate announcement from the Bank of England at midday.
CMC Markets analyst Michael Hewson said: “As expected, the Federal Reserve raised rates by 75bps pushing the Fed funds rate up to 3% to 3.25%, pushing the US dollar to a new 20 year high, and sending the 2-year yield above 4% for the first time since 2007.
“The Fed also set out new projections for the benchmark rate raising the average to 4.4% by the end of this year, up to 4.6% in 2023, before falling to 3.9% in 2024.
“Fed chair Jay Powell went on to reiterate that the FOMC were “strongly committed” to driving inflation lower while signalling that more rate rises are on the way. Powell went on to say that there was no painless way to drive inflation lower, with the prospect that we could well see another 100bps by the end of this year at the bare minimum.
“Not surprisingly US equity markets did not like the hawkish tone, as well as the prospect of lower growth and higher inflation, with the Fed altering its guidance on both. US GDP is expected to slow to 0.2% in 2022, with Powell admitting that a recession might be possible. Core inflation is forecast to decline to 4.5% this year, before falling to 2.1% by 2025.”
On home shores, the BoE is widely expected to also raise rates by 75 basis points later in the day.
Hewson said talk of a 50 basis points move “almost seems ludicrous” with the pound at current levels, with the potential for even larger declines in the coming weeks.
“The Bank of England will probably need to go by 75bps at the very least today, to try and keep a check on the inflationary impulse of a weaker exchange rate, as well as the net effect of the government’s fiscal measures to ease the burden on consumers,” he added.
In corporate news, consumer goods giant PZ Cussons said first quarter like-for-like sales rose 6.7% on the back of higher prices as it also reported a fall in annual profits due to lower revenues and brand impairment.
The maker of Imperial Leather soap, said pre-tax profit fell 8.7% to £65.3m as revenue fell 1.7% to £592.8m.
Sportswear retailer JD Sports saw pre-tax profits fall in the six months ended 30 July despite delivering improved interim revenues.
JD Sports said that interim pre-tax profits had dropped from £364.6m to £298.3m, even as revenues rose from £3.88bn to £4.41bn in the half, amid an increase in total gross capital expenditure from £83.5m in H1 2021 to £156.6m twelve months later.
