Lower open seen after hawkish hold by US Fed

(Alliance News) - Stocks in London were set to open lower on Thursday in the wake of an interest rate decision from the US Federal Reserve and ahead of another from the European Central Bank.

IG says futures indicate the FTSE 100 to open 5.54 points lower, or 0.1%, at 7,597.20 on Thursday. The FTSE 100 index closed up 7.96 points, 0.1%, at 7,602.74 on Wednesday.

The Federal Reserve stood pat on Wednesday, as expected, though it left the door open for interest rate hikes in policy meetings to come this year.

The US central bank left the federal funds rate range unchanged at a range of 5.00% to 5.25%.

Speaking to reporters after the decision, Fed Chair Jerome Powell said nearly all committee participants view some further hikes this year as "appropriate".

"We have raised our policy interest rate by 5 percentage points, and we've continued to reduce our security holdings at a brisk pace. We've covered a lot of ground and the full effects of our tightening have yet to be felt," he said.

Chris Beauchamp, chief market analyst at IG, said "any lingering hope" of a rate cut this year from the Fed now seems to have gone following this meeting.

"A higher terminal rate is now expected, with two more hikes now seen as likely by the end of the year. This may change, but for now the Fed is sending a message that they are certainly not going to stay on pause for ever," he said.

Wall Street ended largely higher on Wednesday after the decision and Powell's comments. The Dow Jones Industrial Average ended down 0.7%, the S&P 500 up 0.1%, and the Nasdaq Composite up 0.2%.

The hawkish hold gave support to the dollar, which was firmer on Thursday morning in London.

Sterling was quoted at USD1.2645 early Thursday, lower than USD1.2694 at the London equities close on Wednesday. The euro traded at USD2.0816 early Thursday, lower than USD1.0850 late Wednesday.

Against the yen, the dollar was up by nearly two yen, quoted at JPY141.28, higher against JPY139.37.

With the Fed decision made, the European Central Bank will now take centre stage. The ECB will announce its interest rate decision on Thursday at 1315 BST. A press conference with President Christine Lagarde will follow half an hour later.

In contrast to the US central bank, another 25 basis point hike by the ECB is see as a done deal by markets.

At its last meeting in May, the Frankfurt-based central bank raised interest rates in the eurozone by 25 basis points, with the interest rate on main refinancing operations going to 3.75%.

On Friday, the Bank of Japan will announce its rate decision. The central bank is expected to keep its ultra-loose monetary policy unchanged.

In Tokyo on Thursday, the Nikkei 225 index was up 0.2%. In China, the Shanghai Composite was up 0.6%, while the Hang Seng index in Hong Kong was up 1.6%.

The S&P/ASX 200 in Sydney closed up 0.3%.

Brent oil was trading at USD73.51 a barrel early Thursday, down from USD74.27 late Wednesday. Gold was quoted at USD1,936.84, down sharply from USD1,957.97.

In Thursday's corporate calendar, there are trading statements from distribution services firm Bunzl and retailer N Brown, as well as full-year results from pub chain Fuller, Smith & Turner.

The economic calendar has the US unemployment insurance weekly claims report at 1330 BST.

By Heather Rydings, Alliance News senior economics reporter

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