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London open: Airlines lead Footsie lower as Fed eyed
Low-flying airlines led London stocks lower in early trading on Monday amid elevated oil prices and as many traders sat on their hands ahead of the Federal Reserve rates announcement later.
The FTSE 100 dropped just over 14 points or 0.2% to 7,493.47, as the pound slipped 0.1% against the dollar and the euro to 1.3169 and 1.1189 respectively.
“As tends to be the case on Fed Wednesdays – especially ones where a rate hike is expected – the markets got off to a muted start, with little of interest happening after the bell,” said market analyst Connor Campbell at Spreadex.
Overnight, the Dow Jones and S&P 500 finished in the red following a President Trump speech to the United Nations General Assembly, where he made it quite clear that the US “would no longer tolerate abuse” when it comes to trade practices, with his ire directed at China, Iran and oil cartel Opec.
“The strident tone of his speech served to temper any further upside ambitions for US stocks, ahead of today’s Federal Reserve rate meeting,” said Michael Hewson, chief market analyst at CMC Markets UK.
With a rate rise from the Federal Open Markets Committee more or less a done deal, Hewson said attention will be less on the fact that this will be the third rate rise this year, than on how the Fed sees the glide path for further policy actions.
Jameel Ahmad, head of currency strategy at FXTM, agreed that the FOMC statement will not be the non-event that some investors believe, “because with all the prolonged external uncertainties that contribute to an ongoing unpredictable financial market, everyone would like to know what the outlook for US monetary policy might possibly be heading into 2019. If the Federal Reserve suggests that the pace of US interest rate rises will slow down next year, or that they are cautious in general about more interest rate increases do not be surprised if the USD sells off against the board.”
Traders may also be keeping a close eye on the pound with more Brexit discussions between the UK and European Union, while there were newspaper reports that Prime Minister Theresa May will tell the US general assembly that the UK will have the lowest taxes in the G20 post-Brexit, which Ahmad suggested that officials are “now bracing for a potential hard-Brexit reality more than ever”.
Oil majors BP and Shell, which have supported London’s blue chip benchmark this week amid a four-year high in crude oil prices, slipped slightly in early trading as while Brent crude was off its highs, it remained well above $81.
The high oil price was also hitting shares in British Airways owner IAG and budget airline easyJet, which came off its early lows as investors reacted to reports that another 30,000 Ryanair customers will be hit by cancellations this Friday after cabin crew across six European countries launched strikes.
In other corporate news, the AA skidded 10% lower as the roadside assistance group confirmed that profit margins had moved into a lower gear in the first half of the year as investment increased as part of its new strategy. While revenue in the six months to 31 July of £480m was up 2% on a last year, underlying earnings before interest, tax, depreciation and amortisation fell 17% to £161m, though this still kept the group on track to produce trading EBITDA of £335-345m for the full year.
Travel restaurant operator SSP Group fell after saying full-year sales growth expectations remained unchanged after a steady final quarter, driven by increased passenger numbers at airports.
Ocado was lower after credit ratings agency Fitch cut the online grocer’s outlook to negative, saying business risk transformation to a technology provider increases execution as its manufacturing capabilities need to scale up over the medium term.
Elementis edged lower as the chemicals group said production at its US Chromium facility in North Carolina had been disrupted as a result of Hurricane Florence, although the impact on 2018 earnings would be “modest”. Flooding had stopped output, but added that the factory had not sustained any significant structural damage.
Outside the FTSE 350, Mitie was lower as it said first-half operating profit would be “flat to slightly down” due to weakness in Social Housing and Cleaning, though this and its full year expectations were in-line with previous guidance.
Bubbling up, PZ Cussons said first-quarter trading was in line with expectations as growth in Europe and Asia offset problems in Nigeria. In a trading update the maker of Imperial leather soap said its performance in the three months to the end of August was supported by new products and tight cost control.
William Hill was little moved as it formed strategic partnership with IGT Global Solutions to offer US lotteries a full service solution for sports betting.
Down on AIM, online fashion retailer Boohoo surged as its upped full year guidance after first-half revenue jumped 50% and adjusted pre-tax profits 43%.
