The FTSE 100 edged higher on Wednesday as markets prepared for the next instalment from the Federal Reserve and its interest rate decision after the European cash market closes.
The main interest rate decision is likely to be a non-event with the Federal Reserve expected to keep rates on hold. Markets will be most concerned with the accompanying projections and insight into thinking on where rates will go in the coming months.
A bumper 4.9% increase in US GDP in the last quarter shows the world’s largest economy is able to withstand higher rates and suggests the Federal Reserve could act again to increase rates if inflation persists at current levels.
Interest rate cuts will not even be in the conversation.
After the US 10-year treasury yield hit 5% last week, bond markets will be watched closely for any sign of rising yields that could dampen demand for equities.
“The FTSE 100 moved higher on Wednesday ahead of the crunch meeting of the US Federal Reserve,” said AJ Bell investment director Russ Mould.
“The broad expectation is the Fed will sit on its hands for now, so all the focus is likely to be drawn to any hints dropped about the future direction of monetary policy.
“Given the volatile economic and geopolitical backdrop, Jerome Powell will have to weigh any words in the accompanying statement carefully if he wants to avoid giving investors the jitters.”
FTSE 100 movers
Next was the FTSE 100’s top riser after the retailer again dispelled any fears about the UK consumer with an increase to full year profit guidance.
“It’s been a turbulent year for retailers thanks to consumers battling high interest rates and, more recently, unusual weather patterns which meant the wrong kind of clothes were on the shelves. For example, t-shirts and summer dresses were less appealing during the cooler than average August, and then retailers’ winter range gathered dust during a warmer than average September,” Russ Mould said.
“Nonetheless, Next has managed to navigate through the challenges and once again has upgraded earnings guidance. Rival retailers will certainly want to know how it has managed to stay above water.
“The latest success can be attributed to online sales, suggesting Next continues to stock what people want and at price point that shoppers deem to be good value for money.”
Marks & Spencer’s rose in sympathy but sports retailer JD Sports didn’t join in the rally declining 1.2%.
GSK was the FTSE 100’s biggest loser, down 3%, as the removal of COVID-related sales masked otherwise strong sales activties.
“Speciality medicines couldn’t quite shrug off the effects of falling COVID sales but still saw strong growth from the rest of the portfolio. Here, the longer-term outlook looks promising driven by product launches/expansions and a strong R&D programme, the success of which will be key to unlocking further value,” said Derren Nathan, head of equity research at Hargreaves Lansdown.
“The current share price valuation looks attractive, likely held back in some part by the ongoing Zantac litigation. GSK is moving swiftly to settle these cases but there are still a number of key hearings outstanding. However, investors should take heart from the strong operational progress.”
Investors will have one eye on tomorrow’s Bank of England rate decision and Shell’s earnings.
After BP’s disappointing results on Tuesday.
