London pre-open: Stocks seen higher as investors mull dovish Fed, eye BoE
By Michele Maatouk
Date: Thursday 21 Mar 2019
(Sharecast News) - London stocks looked set for a positive open on Thursday following a dovish policy announcement from the Federal Reserve, as investors eye the latest policy announcement from the Bank of England and any further Brexit-related headlines.
The FTSE 100 was called to open 25 points higher at 7,315.
The Fed stood pat on interest rates on Wednesday, as expected, holding steady on its target of between 2.25% and 2.5%. The central bank also made it clear that no further increases in its interest rate targets would be delivered this year, given inflation was waning and economic growth was slowing.
Its dot plot continued to show that it would end its balance sheet runoff by September, while the Fed also slashed its gross domestic product estimate for the year to 2.1%.
The bank's members also agreed to take the shears to the Fed's personal consumption expenditure (PCE) inflation forecast, dropping it to 1.8% from a previous 1.9%, while its core PCE estimate remained at 2%.
In the after-meeting press conference, Fed chair Jerome Powell said there was "no need to rush to judgment" when it came to its more cautious stance, with the Fed's policy on its balance sheet set to ensure a "smooth [and] predictable" end to its runoff.
London Capital Group analyst Jasper Lawler said: "Even though Jerome Powell kept insisting that the economy was fine, the fact the dot plot now shows 0 rate hikes across 2019, the balance sheet reduction was cut short and the economic outlook was downgraded says otherwise. These actions from the Fed paint a distinctly less rosy picture.
"If the Fed had wanted to project a slightly more dovish tone, they could have cut rate hike expectations from 2 to 1 and pushed out the unwinding of the balance sheet until later in the year. The Fed's moves were clearly more dovish than that. This has the markets now thinking that a rate cut could be just as likely as a rate hike by the end of the year. Markets are now pricing in just shy of a 40% probability of an interest rate cut by then end of the year."
On home shores, market participants were eyeing the latest policy announcement from the Bank of England at 1200 GMT amid expectations for no change or any strong future guidance.
The big focus will be on any Brexit news as EU members prepare to discuss whether or not they will allow Theresa May's request for an extension of Article 50 to 30 June. The EU summit will take place after May said in a speech on Wednesday that she would not tolerate a longer extension, and shifted the blame onto MPs for failing to implement Brexit on time.
EU Council President Donald Tusk said on Wednesday that the extension was possible but only if May is able to get her deal through Parliament next week.
In corporate news, clothing retailer Next confirmed full-year sales and profits in line with its pre-close statement in January and maintained its guidance for earnings to grow 3.6% for the year ahead.
Total group sales of £4.2bn were generated in the year to January, up 2.5% on the previous year, while profit before tax was down 0.4% to £722.9m. Earnings Per Share increased 4.5% to 435.3p, helped by share buybacks.
Safety, health and environmental technology company Halma updated the market on its trading for the period since 1 October, saying it had made "good progress".
The FTSE 100 firm said that, based on current trading and forecasts, it expected adjusted profit before tax for the year ending 31 March to be in line with market consensus expectations. It said there had been widespread revenue growth geographically, with the US and UK seeing the strongest growth.
Persimmon said it was set to become the first major UK housebuilder to adopt a policy of providing a homebuyer's retention, by writing into its standard contract that 1.5% of the total home value - equating to around 6% of the build fabric costs - could be withheld by the buyer's solicitor until any faults identified at the point of key release were resolved.
The company said the average amount withheld, based on its current selling prices, would be around £3,600 per home. It said it had instructed its legal advisers to start work on drawing up the detail of the new standard contract, and expected the policy to be fully in place by the end of June.
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