London pre-open: Stocks seen down ahead of Fed announcement

by | Jul 26, 2023

(Sharecast News) – London stocks were set to fall at the open on Wednesday after an uninspiring Asian session, as investors eye the latest policy announcement from the Federal Reserve and a slew of UK earnings.
The FTSE 100 was called to open down around 10 points at 7,681.

CMC Markets analyst Michael Hewson said: “Last night’s initial reaction to the numbers from Microsoft, and Google owner Alphabet would suggest that optimism might be justified against a backdrop of a still resilient US economy, and a Federal Reserve that looks set to be close to the end of its rate hiking cycle.

“Today’s expected 25bps Fed rate hike, after last month’s pause, looks set to be the last rate rise this year, whatever Fed policymakers would have you believe.

“We may hear officials try and make the case for at least one more between now and the end of the year but given recent trends around US inflation its quite likely that PPI will go negative in July.

“While Powell will try and make the case for further rate hikes, his time would be better spent in making the case for rates remaining higher for longer, and projecting when the FOMC expected the 2% target to be met. Core prices remain too high even with headline CPI at 3%, and it is here that the Fed will likely focus its and the market’s attention.

“If headline CPI continues to fall in the way, it has been doing the Fed will struggle to convince the markets that it would continue hiking rates against such a backdrop.

“As things stand markets are already pricing in the prospect that this will be the last rate rise in the current hiking cycle given recent declines in the US dollar and US yields. With the next Fed meeting coming in September the market will have to absorb two more inflation reports and two more jobs’ reports. Nonetheless the Fed will be keen to prevent the market pricing in rate cuts which was one of the key challenges earlier this year.”

In UK corporate news, Lloyds Bank reported another surge in earnings as it benefited from high interest rates, with half-year profits up 23% to £3.8bn.

The bank said underlying net interest income rose14% to £7bn, although customer deposits of £469.8bn were £5.5bn lower.

Elsewhere, Alison Rose has stepped down as chief executive of NatWest, in a high-profile row about former UKIP leader Nigel Farage.

The controversial political pundit claimed that Coutts, NatWest’s private bank, had decided to close his account because of his political views.

Rose was not involved in the decision. But she implied to the BBC the bank had made the decision solely for commercial reasons, which was inaccurate. The broadcaster apologised to Farage and Rose admitted the conversation was a “serious error of judgement”.

But pressure remained on the bank, with both Downing Street and chancellor Jeremy Hunt understood to be concerned, and Rose’s departure was announced in the early hours of Wednesday morning.

Rolls-Royce reported a significantly improved first-half financially in an update, surpassing consensus expectations.

The engine maker upgraded its guidance for the full year, and now expected higher underlying operating profit and free cash flow.

It put the positive momentum down to continued end-market growth, commercial optimisation, and cost efficiencies from its transformation programme, helping mitigate the impact of inflation and supply chain pressures.

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