The FTSE 100 was up 1.2% to 7,276 in midday trading ahead of the US Federal Reserve’s interest rates decision today, with the market expecting a 0.75% hike in light of the latest US inflation data after CPI hit a 40-year record high of 8.6% in May.
“Investors seem to have anticipated the US Federal Reserve will deliver a 0.75 percentage point increase in rates tonight so the focus is likely to be on whether it goes even further, amid some fairly wild talk of a full percentage point hike,” said AJ Bell investment director Russ Mould.
International markets all had their eye on the upcoming rates hike, with the NASDAQ up 0.1% to 10,828.3, the NYSE down 0.5% to 14,444.6, the German DAX climbing 1.1% to 13,456.6, the French CAC rising 1% to 6,009.6 and the Italian FTSE MIB gaining 2.6% to 22,426.7.
The prospect of higher interest rate hikes by the Fed served to throw a damp cloth on oil prices as they started to heat up again earlier in the week.
The price of brenchmark Brent Crude dropped from $123 per barrel on Tuesday to $119 per barrel today, dragging Shell shares down 0.9% to 2,285p and BP shares by 0.5% to 432.4p.
UK investors will be looking to the Fed for estimations of how the Bank of England will move on Thursday, with analysts predicting a 0.25% hike to 1.25%.
“Where the Fed leads, other central banks are likely to follow, and attention will switch almost immediately to tomorrow’s decision from the Bank of England,” said Mould.
“Recent weak economic data in the UK may affect the thinking of policy makers at the Bank of England. However, they can’t afford to be in any way complacent about the threat posed by rising prices.”
Banks had a strong trading session as their shares took flight, with Barclays gaining 3.8% to 162.8p, HSBC climbing 3% to 536.3p, Lloyds rising 3% to 4,467p and NatWest increasing 3.6% to 229.4p in anticipation of the Bank of England’s interest rates hike.
Whitebread shares surged 5% to 2,696p after the hospitality group confirmed a 303.8% year-on-year total sales growth in Q1 2023.
The Premier Inn owner warned of £20 million to £30 million in costs for its labour, IT and refurbishments in a bid to maintain its market position, however the company said it expected to beat market expectations in the coming quarter.
“News the company will invest £30 million in labour, refurbishments and IT in 2023 may have created a frisson of concern for shareholders,” said Mould.
“However, this looks a sensible decision for the long-term health of the business and the value-based Premier Inn proposition could prove attractive when household budgets are tight but people still want to get away.”
“Fine-tuning the product and paying a decent wage in a tight labour market to ensure it is supported by good staff are choices which could pay off down the line.”