LONDON MARKETS: FTSE 100 Takes Topsy-turvy Turn As Pound, Fed Decision Take Center Stage
20 September 2017 - 09:08PM
Dow Jones News
By Carla Mozee, MarketWatch
Retail shares extend gains after strong August sales report
U.K. stocks were whipped around Wednesday, with retail shares
stretching gains after monthly British retail sales leapt past
expectations, but a brief surge in the pound pulled the benchmark
FTSE 100 to session lows.
All the moves were made before Wednesday's marquee event for
global markets took place: the U.S. Federal Reserve's September
policy decision.
The FTSE 100 index was up 0.1% at 5,243.25 after opening
slightly in the red. On Tuesday, the London benchmark rose 0.3%.
(http://www.marketwatch.com/story/ftse-100-gets-a-lift-from-supermarket-stocks-softer-pound-2017-09-19)
Retail stocks on Wednesday extended gains after U.K. retail
sales in August grew 1% month-over-month
(http://www.marketwatch.com/story/uk-retail-sales-rise-faster-than-expected-2017-09-20)
as consumers picked up items at department stores and purchased
home improvement products. That figure was well above FactSet's
consensus estimate for a 0.2% increase. Sales growth of 2.4%
year-over-year was also above expectations.
Shares of department store chain Marks & Spencer Group PLC
(MKS.LN) (MKS.LN) jumped 2.3%, and apparel and home furnishings
seller Next PLC (NXT.LN) climbed 1.2%.
Home improvement retailer Kingfisher PLC (KGF.LN) was up 5.8%,
leading in price performance Wednesday. Kingfisher said it's on
track to meet targets in the second year of its five-year
restructuring plan, as it raised its dividend. But first-half
profit fell 6%
(http://www.marketwatch.com/story/kingfisher-pretax-profit-hurt-by-weak-french-sales-2017-09-20),
and the company stayed cautious in its outlook for its core U.K.
and French markets.
Pound: The FTSE 100 did drop by as much as 0.4% in morning trade
as the pound sprang toward levels last seen in June 2016, after the
U.K.'s Brexit referendum. Pound strength can eat into earnings made
overseas by multinational companies that are heavily weighted on
the FTSE 100, therefore pressure shares of those companies.
Sterling hit an intraday high of $1.3608 after the sales report
from the Office for National Statistics.
"U.K. retail sales rose a far better-than-expected 1% in August,
that figure ostensibly increasing the likelihood of a Bank of
England rate hike," said Spreadex financial analyst Connor
Campbell, in a note.
But Campbell noted two factors that likely resulted in the pound
quickly lost grip of $1.36. "First is the fear that the increase in
spending is being fueled by a rise in consumer credit, an issue the
Bank of England has repeatedly warned on in recent months," he
wrote.
"Then there was the latest round of economic projections from
the OECD, which puts the U.K. at the bottom of the G7 GDP table
with expectations of just 1% growth in 2018," which compares with a
growth forecast of 1.9% in the eurozone, and a 2.1% rise in
Germany, he added.
The pound eventually moved back to $1.3529, compared with
$1.3511 late Tuesday in New York.
Fed ahead: As well, investors were looking ahead to the U.S.
Federal Reserve's policy decision. That's due at 7 p.m. London
time, or 2 p.m. Eastern Time, and will be followed by a press
conference by Chairwoman Janet Yellen at 2:30 p.m. Eastern.
The Fed is widely expected to say it will start reducing its
$4.5 trillion portfolio of government securities. An interest-rate
hike isn't expected at the end of the central bank's two-day
meeting, and investors only see a 56% chance the Fed will raise
rates in December
(http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html/),
according to CME Group.
"According to their last projection, the Fed expected seven rate
hikes by the end of 2019. However, in the new forecast, the market
is widely expecting them to drop one interest rate hike," said
Naeem Aslam, chief market analyst, at ThinkMarkets UK, in a
note.
"Anything which deviates from the Fed's plan would spark concern
for the markets. We do think that another rate hike by the end of
this year still has 40% chance, however the upcoming economic data
is going to keep traders on their toes, due to the massive
footprints of hurricanes," he said, referring to the recent
Hurricanes Irma and Harvey.
Stock movers: Babcock International Group PLC (BAB.LN) shares
surged 5.6% after the infrastructure support company backed its
fiscal 2018 forecast
(http://www.marketwatch.com/story/babcock-international-reiterates-fy-2018-outlook-2017-09-20).
Diageo PLC (DEO) (DEO) shares fell 2.2% after the liquor maker
said it expects first-half organic sales growth to be hit by the
later timing of the Chinese New Year
(http://www.marketwatch.com/story/diageo-sales-to-be-hit-by-later-chinese-new-year-2017-09-20)
and by the expected impact of a ban on selling alcohol along
highways in India.
(END) Dow Jones Newswires
September 20, 2017 06:53 ET (10:53 GMT)
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