Stocks Trade Flat As Fed Rate Decision Awaited

LONDON (Alliance News) - Share prices in London were flat to higher Wednesday at midday, the large-cap index briefly knocked after sterling spiked on the back of better-than-expected UK retail sales in August, ahead of the US central bank's interest rate decision and economic projections at 1900 BST.

Data from the Office for National Statistics on Wednesday showed UK retail sales increased at a faster-than-expected pace in August.

Retail sales volume including auto fuel advanced 1% in August from July, the biggest growth in four months and exceeding the expected rate of 0.2% and July's increase of 0.6%. Excluding auto fuel, retail sales volume climbed 1% in August after rising 0.7% a month ago. Sales were expected to rise slightly by 0.1%.

Year-on-year, retail sales volume growth improved to 2.4% from 1.4%. Economists had forecast a 1.2% increase. Sales have increased for the 52nd consecutive month. Excluding auto fuel, retail sales gained 2.8% versus July's 1.7% increase, much faster than the expected 1.4%.

Sterling jumped to USD1.3607 following the figures but fell back later in the London morning to be quoted at USD1.3528 midday, still up compared to USD1.3508 at the London close on Tuesday.

"The FTSE 100 took a knock on the back of the [retail] news, but in common with other markets today the moves have been restrained. The Fed trumps all else, and with hours to go until the next decision caution reigns supreme," said IG chief market analyst Chris Beauchamp.

The large-cap index was pushed down to 7,249.58 after sterling spiked, but quickly recovered to trade flat.

The FTSE 100 index was just 0.02 points higher at midday at 7,275.27. The mid-cap FTSE 250 index was up 0.1% at 19,560.31, and the AIM All-Share index was flat at 994.67.

The BATS UK 100 index was flat at 12,358.86 Wednesday midday. The BATS 250 was up 0.1% at 17,795.26, while the BATS Small Companies was also up 0.1% at 12,121.04.

In Europe, the CAC 40 index in Paris and the DAX 30 in Frankfurt were up 0.1% and down 0.1%, respectively, at midday.

"Despite myriad different macro-events fighting for attention – including a deadly earthquake in Mexico, the latest hurricane devastation in the Caribbean, Donald Trump's sabre-rattling speech at the UN, and Boris Johnson's Brexit boasting – the markets are only interested in one thing this Wednesday: September's Federal Reserve meeting," said Spreadex analyst Connor Campbell.

Stocks in New York were called for flat open on Wednesday, with the Dow Jones Industrial Average, the S&P 500 index and Nasdaq Composite all pointed flat ahead of the Fed's interest rate decision and economic projections, which come after the London close but during New York market hours.

Fed Chair Janet Yellen will host a press conference at 1930 BST.

It is widely anticipated the US central bank will announce the unwinding of its large balance sheet on Wednesday, with disposals to begin in October, while interest rates are expected to remain unchanged at between 1% and 1.25%.

The market is expecting one more rate hike in 2017 - the US central bank having raised rates twice this year in March and June - which is widely forecast to occur in December.

Meanwhile, the Organisation for Economic Co-operation & Development said in its Interim Economic Outlook that the global economy is set for a further uptick next year, but strong sustainable, and inclusive medium-term growth is not yet secured,

The global economy is forecast to grow 3.5% this year and 3.7% in 2018, with industrial production and trade picking up and further acceleration in the rebound of technology spending.

The projection for 2017 was left unchanged, while the outlook for 2018 was revised up from 3.6%.

In the UK, the previously identified growth slowdown is expected to continue through 2018, while uncertainty remains over the outcome of negotiations around the decision to leave the European Union, the OECD said. The UK is projected to grow 1.6% in 2017, slowing to just 1.0% in 2018.

Back in London, Kingfisher was the best performer in the FTSE 100, up 6.3% Wednesday midday.

The DIY retailer said revenue increased in the six months to the end of July by 4.5% to GBP6.00 billion from GBP5.75 billion, but pretax profit including exceptional items decreased 5.9% to GBP402 million from GBP427 million.

On an underlying basis, pretax profit was up 0.9% to GBP440 million from GBP436 million year-on-year.

Kingfisher said it experienced "business disruption" during the period relating to its transformation strategy, in the form of clearing of old ranges and remerchandising, the roll out of its "unified IT platform" and the transition to its new offer and supply chain organisation.

The company said it is currently in the second year of its five year transformation, the intention of which is to unify its home improvement offers.

"We always recognised that this year would be challenging and we already have self-help plans in place to support our overall FY 17/18 performance. We therefore remain comfortable with consensus full year expectations though remain cautious on the backdrop for the second half in the UK and France, as previously guided," Kingfisher said.

Kingfisher declared an interim dividend of 3.33 pence, up 2.5% from the 3.25p paid a year earlier.

Babcock was the second best large-cap performer, up 5.7% after reporting that trading in its current financial year so far has been in line with its expectations.

Revenue visibility has also "continued to improve", the engineering services company said. 89% of revenue was in place for the financial year ending March 2018. For the financial year ended March 2019, 57% of revenue is in place.

Babcock said it continues to maintain a healthy financial position, adding that growth for the rest of the financial year was in line with its expectations.

Brewer and distiller Diageo was at the other end of the blue-chip index, down 2.2%.

In a statement ahead of Diageo's annual general meeting Chief Executive Ivan Menezes said the group's business has set itself up to deliver in line with expectations with improved marketing, innovation and commercial execution.

However, organic sales growth in the first half of its current year are to be affected by the later timing of the Chinese New Year and the highway ban in India, which prohibits the sale of alcohol within 500 metres of highways.

Diageo said it will increase investment behind its US spirits and Scotch products, and as a result expects expansion in its organic operating margin to be weighted towards the second half of the year.

Overall, the company's expectations for its current year ending June 30, 2018, remain unchanged. Diageo added it is also expecting organic operating margin over the three years ending June 30, 2019 to reach 175 basis points.

Domino Pizza's was the best mid-cap performer, up 5.3% at 289.70 pence after the pizza delivery chain announced a GBP15 million share buyback. The company has a market capitalisation of GBP1.41 billion

The buyback will commence from Wednesday until October 19, and the maximum number of shares that may be purchased under the programme is 49.2 million.

Metro Bank was at the bottom of the FTSE 250, down 4.2% after it was initiated at Underperform by Macquarie, while Ibstock was among the worst performers after Barclays downgraded the brick maker to Equal weight from Overweight.

Ibstock was down 2.5% Wednesday midday.

While Barclays said it recognises the UK presents "supportive fundamentals" to the wider housing market, such as a housing shortage and low unemployment, macroeconomic uncertainty "is likely to weigh on new build growth, and ultimately on brick consumption".

Yet to come in the economic calendar, EIA crude oil stocks are due to be released at 1530 BST.