Stocks seen lower after Fed hike; BoE next

(Alliance News) - Stocks in London are set to open lower on Thursday, in the wake of the Federal Reserve's decision to lift US interest rates by 25 basis points and ahead of the Bank of England's own rate announcement.

IG says futures indicate the FTSE 100 index of large-caps to open 21.04 points lower, or 0.3%, at 7, 545.80 on Thursday. The FTSE 100 index closed up 30.62 points, 0.4%, at 7,566.84 on Wednesday.

The Fed lifted interest rates by a quarter of a percentage point on Wednesday, resisting the urge to pause hikes in the face of banking sector turmoil.

The central bank's rate hike takes the federal funds rate range to 4.75% to 5.00%. The Federal Open Market Committee vote was unanimous. It was an outcome that was largely expected, though tumultuous developments in the global banking sector meant the Fed may have been tempted to decide against a rate hike.

In the policy statement, the Fed said "some additional policy firming may be appropriate". The market interpreted that as more dovish than the Fed's previous guidance, where it said "the committee anticipates that ongoing increases in the target range will be appropriate".

In a press conference shortly after, Fed Chair Jerome Powell moved to calm banking sector fears.

In the wake of the interest rate decision and policy statement, the dollar was lower.

The euro traded at USD1.0921 early Thursday, sharply higher than USD1.0702 late Wednesday. Against the yen, the dollar was quoted at JPY130.74, significantly lower versus JPY132.67.

Wall Street ended lower following the interest rate announcement, with the Dow Jones Industrial Average down 1.6%, the S&P 500 down 1.7%, and the Nasdaq Composite down 1.6%.

The Bank of England will announce its own rate decision at midday in London. A similar quarter-percentage-point rate hike is largely expected, which would take the key UK bank rate to 4.25%, after figures from the Office for National Statistics on Wednesday showed an unexpected resurgence in the UK inflation rate.

The consumer price index rose by 10.4% in February from a year before, accelerating from a 10.1% annual rise in January. Market consensus had expected UK inflation to cool to 9.8% in February, according to FXStreet.

"While some have suggested the Bank of England might pass up on another rate rise today, most sensible people think that at the very least we can expect to see another rate hike of 25bps after yesterday's inflation numbers, although we could well see another split decision. It would be a huge surprise if we got no change and would hammer yet another nail in the central bank's credibility when it comes to its inflation-fighting credentials," said Michael Hewson, chief market analyst at CMC Markets.

Sterling was quoted at USD1.2331 early Thursday, up a cent from USD1.2228 at the London equities close on Wednesday.

In Tokyo on Thursday, the Nikkei 225 index was down 0.2%. In China, the Shanghai Composite was up 0.5%, while the Hang Seng index in Hong Kong was up 1.6%. The S&P/ASX 200 in Sydney closed down 0.7%.

Gold was quoted at USD1,980.22 an ounce early Thursday, higher than USD1,948.59 on Wednesday. Brent oil was trading at USD76.10 a barrel, flat than USD76.04.

In Thursday's UK corporate calendar, there are full-year results from Inchcape and Energean.

In the global economic calendar, the US weekly unemployment insurance claims report is released at 1230 GMT.

By Heather Rydings, Alliance News senior economics reporter

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