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London open: Footsie slips as dollar gains on hawkish Fed
London’s equity benchmark was little moved in early trading on Thursday, after a slip in the pound helped provide support after a weak finish for Wall Street overnight and mixed Asia session.
The FTSE 100 index dipped almost 10 points or 0.1% to 7,501.62 after most of the first hour of trading. The pound was down 0.30% versus the dollar at 1.3128 and 0.1% lower against the euro at 1.1206.
Sterling was softer due to a stronger dollar on the back of comments from Federal Reserve chief Jerome Powell and amid a report from The Times that Prime Minister Theresa May could be losing cabinet support for her no-deal Brexit proposals in case the EU turns down her Chequers plan.
Following the US central bank’s 25 basis point interest rate hike, Fed head Powell made some upbeat remarks to the press. While the Federal Open Markets Committee stopped describing its policy stance as “accommodative”, Powell explained that that was not meant as a signal.
This sent US stocks lower and lifted the dollar, apart from against safe haven currencies the Japanese yen and the Swiss franc.
“A 100 point sell off in the Dow and a sharp move lower in US 10-year yields, is not the expected reaction when the Fed is upbeat about the economy and shows not that much has changed from the strong projections in June,” said London Capital Group market analyst Jasper Lawler.
“The Fed teed the market up for another rise in December and three more across the coming year. No changes there. However, Powell was quick to point out that rates could be hiked faster if needed or cut if the economy slows. The market had been expecting an unequivocal hawkish hike and these comments from Powell meant this was not the case, causing some disappointment for the bulls.”
Analyst Mike van Dulken at Accendo Markets noted that US banks and financials fell on comments about the Fed not forecasting higher inflation, while continued downward pressure came from US-China trade war concerns, with President Trump defending his protectionist policies against Canada and China in a wide-ranging press conference, where he accused Beijing of meddling in the US midterm elections to weaken him.
Van Dulken said the “hawkish” Fed comments and consequent stronger greenback sent base metals lower and hit the FTSE mining sector, though this was balanced by continued strength of BP and Shell as crude oil prices were back up around recent highs. Airlines easyJet and IAG were also in the red due to fuel price concerns.
Elsewhere, DCC was the biggest faller on the Footsie as it proposed raising up to £650m to carry out more acquisitions. This came alongside its second North American purchase of the year and a trading statement confirming first-half operating profit will be “well ahead” of the prior year, as expected.
Car accessories and bikes retailer Halfords skidded lower as management announced that up to £20m a year extra would be spent on improving stores and integrating services to keep up with changing consumer trends. Pre-tax profit will be broadly unchanged in 2020 from 2019 despite the extra investment and will rise at a rate in mid single digits after that, Halfords said.
Drug developer Indivior fell to a new two-year low after it issued a profit warnings just before the closing bell on Wednesday. Reinstating full year guidance after it had been withdrawn in the summer due to uncertainty about court challenges from rivals, the company said it expected net income to come in at $230-255m at constant exchange rates and excluding exceptional items, down from the $290-320m guidance given at the start of the year.
Saga slipped as it reported revenue down 1.7% and underlying pre-tax profit down 3.7% due to planned investments and increased in new business acquisition costs, but kept its dividend unchanged.
Rupert Murdoch and Disney said overnight that they would either accept Comcast’s offer for Sky at a price of £17.28 per share or directly sell its 39.12% stake. Comcast had 37.7% of Sky shares at Wednesday’s close and said it “does not currently intend to make any further market purchases of Sky shares”.
Going the right way, shares in TUI rose as the tour operator said the 2018 holiday season was closing as expected with customer numbers increasing despite the heatwave in Northern Europe. Early trading for future seasons is in line with expectations.
Restaurant and pub owner Mitchells & Butlers bubbled up as it said total sales for the year to date had increased 0.5%, impacted by disposals in the previous 12 months.
Equiniti edged higher as the pensions administration specialist said it had extended its contract with the Cabinet Office and was buying out the government department’s stake in a joint venture for £8m.
Safety, health and environmental technology group Halma was in the green as it reported all its sectors delivered as-expected organic revenue and profit growth in the six months since the start of April. Order intake was ahead of revenue and also ahead of the same period last year, the company said in a trading update.
In broker note action, John Wood Group was upgraded to ‘hold’ at Jefferies with a price target of 700p, GVC was rated a new ‘buy’ at Goldman Sachs with a price target of 1,195p and UBS upgraded Thomas Cook to ‘neutral’ from ‘sell’ with a target of 60p.
Thursday’s ex-divs included Bovis, Essentra, John Laing, Morrison Supermarkets and Smurfit Kappa.
