Wednesday preview: Fed expected to stand pat on rates amid Brexit uncertainty

The Federal Reserve is expected to sit tight on interest rates in its policy decision on Wednesday ahead of Britain’s European Union referendum.

With uncertainty surrounding the EU referendum on 23 June and weak employment data for May, analysts see the Fed leaving interest rates at 0.50%.

Fed chair Janet Yellen on 6 June said the federal funds rate will need to rise “gradually over time” but was silent on the timing of an interest rate hike. Her dovish tone was viewed as a signal that a June rate hike was off the table.

Rabobank said it revised its expectations for the next rate hike to September, instead of June as previously estimated, following Yellen’s remarks and the much worse-than-forecast non-farm payrolls report released on 3 June. The bank sees a second rate increase in December.

“After the Fed had finally convinced the markets that it was serious about hiking in June/July, the markets are now again pricing in at most one hike this year and not before December (50.1% priced in according to fed funds futures),” Phil Marey, senior US strategist at Rabobank, said.

He said the Fed may consider a rate rise in July if employment data comes in strong in June but September is more likely.

While the Fed is not expected to raise rates on Wednesday, Yellen’s post-meeting press conference may give clues on the timing of the next hike.

“Perhaps her prepared speech may be more informative about the Fed’s changed plans after the May payrolls than her speech of last week which basically summarised all the uncertainties and risks that the Fed is facing,” Marey said.

Ahead of the Fed’s rate announcement, UK jobs data will be released on Wednesday. The UK is projected to have added 60,000 jobs in the three months to April, compared to 44,000 in the previous period. The unemployment rate is forecast to remain at 5.1%.

On the corporate front, Berkeley Group reports its full year results. Numis has pencilled in earnings per share of 265.9p, up slightly from 263.6p the previous year.

In March at Berkeley’s last trading update, the broker had upgraded its full year pre-tax profit forecast by 3% to £475m, despite the group absorbing an additional £25m of accelerated operating expenses relating to its 2011 long term incentive plan. Numis said despite the more challenging market backdrop it believes the outlook is “well underpinned by the strongest forward order book in the sector”.

“We expect Berkeley to end the year with around £4bn of total forward sales, against which over £1bn of deposits have already been secured suggesting the order book is well insulated against cancellations,” Numis analyst Chris Millington, said.

“In our view Berkeley continues to have considerable flexibility in its model with most of the high priced output forward sold and also growing exposure to the low end of the London market and the Home Counties, where conditions remain more favourable.”

Wednesday 15 June

INTERIM DIVIDEND PAYMENT DATE
Aeci 5 1/2% Prf, Diploma

QUARTERLY PAYMENT DATE
Canadian General Investments Ltd.

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Capacity Utilisation (US) (14:15)
FOMC Interest Rate (US) (19:00)
Industrial Production (US) (14:15)
MBA Mortgage Applications (US) (12:00)
Producer Price Index (US) (13:30)

FINALS
Berkeley Group Holdings (The), Oxford Instruments

AGMS
Attraqt Group , Christie Group, Downing Three VCT C Shares, Downing Two VCT 'C' Shs, HSS Hire Group , International Consolidated Airlines Group SA (CDI), Jimmy Choo , Kingfisher, Livanova , Manx Telecom , Mayair Group, Mytrah Energy Ltd, NB Global Floating Rate Income Fund Ltd GBP, NB Global Floating Rate Income Fund Ltd USD, NetScientific , OJSC OC Rosneft GDRS (Reg S), Toyota Motor Corp., UK Commercial Property Trust

UK ECONOMIC ANNOUNCEMENTS
Claimant Count Rate (09:30)

FINAL DIVIDEND PAYMENT DATE
Central Asia Metals, Morrison (Wm) Supermarkets, Share plc