The FTSE 100 held steady on Wednesday after UK inflation cooled more than expected, and traders prepared to receive the Federal Reserve’s interest rate decision later this evening.
The FTSE 100 was up just 3 points at the time of writing as London’s leading index reversed early losses.
When we refer to early losses, the declines were a minor undulation to the downside that was steadily erased as the session progressed.
Early trade was dominated by UK CPI inflation, which declined faster than expected in February, and what the firm disinflation trend meant for UK assets. Judging by the market reaction, UK CPI inflation at 3.4% means very little for financial markets or the Bank of England’s rate decision tomorrow.
“The FTSE 100 dipped at the open despite UK inflation numbers falling more than expected for February,” said AJ Bell investment director Russ Mould.
“The market is now pricing in a higher chance of a June rate cut, even if today’s reading is extremely unlikely to have any influence on the Bank of England’s decision making later this week.”
Today’s main event is the Federal Reserve’s interest rate decision, which is due after the European close this evening. Like the Bank of England, the Federal Reserve isn’t expected to change interest rates, but the commentary and financial projections could be explosive.
“Although policymakers are largely expected to keep rates on hold, investors will be hanging on the words of Fed Chair Jerome Powell about the path ahead for monetary policy. Hotter than expected inflation readings, have pushed down market expectations for an earlier rate cut,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“While enthusiasm for the forecast benefits of artificial intelligence powered products and services is energising big tech, a more hawkish stance from the Fed later would be unsettling. At the moment the markets are pricing in a 55% chance that a rate cut may come in June, so any changes to the dot plot of pencilled in cuts by policymakers will be closely scrutinised.”
With the S&P 500 again flirting with record highs, any hints that the first rate cut could be pushed back to later in the year have the potential to hit stocks.
Prudential
Prudential was the FTSE 100’s top faller on Wednesday despite posting a strong set of results for 2023. The company’s presence in China is a concern for investors, given Prudential’s exposure to the property market.
“Despite analyst price forecasts being significantly higher than the current price, it would appear that The Pru still has some work to do in convincing investors that the prolonged downtrend is reversing,” said Mark Crouch, analyst at investment platform eToro.
“Prudential still has significant exposure to China and their share price dropped by a quarter in 2023, currently sitting at a key area of support that also marked the COVID lows.”
Prudential shares were down 6% at the time of writing.
Burberry was another heavy faller after European peer Kering posted a profit warning on weaker Chinese sales.
Melrose was the top gainer as UBS hiked its price target to 770p. Melrose was 4.1% higher at 646p.