London close: Stocks mixed ahead of US Fed, BoE decisions

London’s financial markets finished with mixed performance on Wednesday, with investors closing their wallets ahead of rate announcements from both the US Federal Reserve and the Bank of England.

The FTSE 100 closed down 0.47% at 7,630.57 points, while the FTSE 250 managed a modest gain of 0.04%, finishing at 19,357.95 points.

In currency markets, sterling was last 0.23% stronger on the dollar, trading at $1.2729, while it managed a 0.17% uptick against the euro to change hands at €1.1730.

“Today’s Fed decision is eagerly awaited by investors who are desperate to see what the Fed will hint at regarding the first rate cut,” said IG chief market analyst Chris Beauchamp.

“Much of the ebullient risk appetite we have seen over the past three months has been built on the expectation that the Fed will cut several times this year.

“Given how heavy the selling in Alphabet has been it looks like markets could get quite ugly if the Fed strikes a hawkish tone.”

Beauchamp added that it was looking to be a busy 24 hours for currency traders thanks to the proximity of the Fed and BoE meetings.

“Market participants risk being caught between a rock and a hard place; the tight range seen in GBP-USD over the past two weeks screams indecision.

“Hopefully tonight and tomorrow will break the logjam.”

House prices top expectations, German inflation moderates

In economic news, house prices in the UK surpassed expectations in January, climbing by 0.7% on the month to rebound from a flat December and defy projections of a 0.1% increase.

The average house price now stood at £257,656.

On an annual basis, January recorded a minor dip of just 0.2%, a stark contrast to the 1.8% decline in the prior month and marking the most robust performance since January last year.

“There have been some encouraging signs for potential buyers recently with mortgage rates continuing to trend down,” said Nationwide chief economist Robert Gardner.

“This follows a shift in view amongst investors around the future path of Bank Rate, with investors becoming more optimistic that the Bank of England will lower rates in the years ahead.

“These shifts are important as this led to a decline in the longer-term interest rates – swap rates – that underpin mortgage pricing around the turn of the year.”

UK businesses meanwhile started the year on an optimistic note, according to the Lloyds Bank Business Barometer.

Overall confidence soared by nine points in January to reach 44%, representing the largest monthly surge since August and the highest level since February 2022.

Respondents cited factors such as easing inflation and the potential for falling interest rates as driving their optimism.

Broader economic confidence reached 37%, while trading prospects registered at 51%, with hiring intentions also strengthening, as a net balance of 33% expressed plans to increase headcount.

“Businesses are feeling more confident following the cautious end to 2023,” said Hann-Ju Ho, senior economist at Lloyds.

“With ongoing political issues and a general election on the horizon, businesses will have factored these into their risk radars and will be working to prepare for any potential impacts on their trading prospects.”

In the US, private sector employment figures for January fell short of expectations, with an increase of 107,000, compared to the anticipated 145,000 rise.

Additionally, December’s previously reported gain was revised down from 164,000 to 158,000.

The cost of hiring workers in the US meanwhile saw its slowest growth in years during the final quarter of 2023.

According to the Department of Labor, the employment cost index rose by 0.9% on a seasonally adjusted basis for the three months to December, slightly below the consensus estimate of 1.0%.

In Germany, inflation showed signs of moderation in January, with the consumer price index at 2.9%, the lowest since June 2021, in contrast to analysts’ expectations of 3.0%.

On a monthly basis, inflation inched up by 0.2%, indicating a decline in energy prices.

“On the face of it, this is a dovish set of numbers, but only marginally and much less dovish than our initial expectations,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics.

“Overall, we need to see Thursday’s eurozone inflation data before revising or reiterating our call for an European Central Bank rate cut in March.

“For the record, we now think Eurozone inflation stood at 2.7% in January, down 0.1pp from December.”

Finally on data, China’s factory activity experienced its fourth consecutive month of contraction in January, with the manufacturing purchasing managers’ index edging up to 49.2 from December’s 49.

The continued struggle in the world’s second-largest economy was offset by a strong services sector, leading to a rise in the official non-manufacturing managers’ index to 50.7 from 50.4 the previous month, despite weaknesses in the construction industry amid a real estate crisis.

Vodafone falls on end of Iliad deal, Croda jumps almost 5pc

On London’s equity markets, Vodafone Group declined 2.08%, taking a hit after French telecoms firm Iliad rejected a revised offer to merge the Italian businesses of both companies.

The revised proposal would have entailed Vodafone receiving €6.6bn in cash and a €2bn shareholder loan, while Iliad would have been granted €400m in cash and a €2bn loan.

On the upside, Croda International added 4.78% after better-than-expected results from US consumer care peer Ashland.

Professional IT services provider FDM Group Holdings managed to recover from earlier losses, closing with a 1.88% gain.

The company earlier indicated that it anticipated flat annual revenues, confirming a previous warning issued in November regarding the impact of geopolitical uncertainties and clients deferring project decisions.

GSK also saw a turnaround in its fortunes, posting a 1.97% increase after it revised its sales outlook for the next seven years.

Chilean copper miner Antofagasta recorded a 1.7% increase after Citi reaffirmed its ‘buy’ rating on the stock and raised its price target.

Citi emphasised Antofagasta’s growth narrative, driven by volume recovery in the next six to 12 months, and the approval of the Centinela expansion, which was expected to contribute 170,000 tonnes of copper production over the medium term at an attractive cost profile.

Reporting by Josh White for Sharecast.com.

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