London close: FTSE rises ahead of Fed interest rate decision

The FTSE 100 finished higher on Wednesday, rebounding from earlier declines, as investors weighed UK economic data and awaited the Federal Reserve’s latest policy decision.

UK economic growth slowed to 0.4% in the first quarter of 2016 from 0.6% the previous quarter, the Office for National Statistics revealed.

The first quarter rise in gross domestic product was in line with expectations but marked the weakest pace of growth since the end of 2012, driven by weaker growth in services activity and declines in construction and industrial output.

On an annual basis, first quarter GDP climbed 2.1%, in line with the previous quarter's growth but above the 2.0% that was forecast.

The Bank of England has warned that growth could slow further in the second quarter amid uncertainty leading up to the 23 June referendum on Britain's membership in the European Union.

“We expect GDP growth to be limited to 0.3% quarter-on-quarter in the second quarter, amid heightened uncertainty in the run-up to the 23 June referendum on EU membership,” said Howard Archer, chief UK and European economist at IHS Global Insight.

Investors are now looking ahead to the Federal Reserve’s interest rate decision, announced at 1900 BST. The Fed is widely expected to keep interest rates unchanged amid a slowdown in global economic growth.

Many analysts are pricing in no chance of a rate hike over the next few meetings, and less than one full hike by the end of the year amid worries about the slowdown in the global economy.

The wording of the Fed’s policy statement will be closely scrutinised for clues on the timing of the next rate hike, although Chair Janet Yellen is expected to remain dovish.

“Tonight’s FOMC statement should not provide anything new from a policy standpoint, with markets implying the chances of a rate hike stand at 0% probability, with a cut at 2%,” said Joshua Mahony market analyst at IG.

“The interesting part of today’s meeting will instead be the tone and language with regards to future rate hikes. With markets showing a 21% implied probability of a June hike, the committee will want to align expectations with the likeliness of it happening.”

Ahead of the announcement, official data showed the US trade deficit in goods shrank to $56.9bn in March, a 10.3% improvement on February’s final reading of $63.4bn. The figures from the Commerce Department marked the lowest deficit in more than a year.

US pending home sales increased more than expected in March to reach their highest level in nearly a year, the National Association of Realtors said. The pending home sales index, based on contracts signed last month, climbed 1.4% to 110.5.

Elsewhere, the latest findings by market research group GfK showed German consumer sentiment is set to improve markedly in May from April. GfK said the overall index was forecasting 9.7 points for May compared to 9.4 points the month before, with growth for both economic and income expectations as well as propensity to buy. Economists had been expecting the index to be unchanged at 9.4.

Meanwhile, oil prices wavered after official data showed US crude oil inventories rose more than expected last week.

The US Energy Information Administration said domestic crude inventories rose by 2.0m barrels to 540.6m barrels in the week to 22 April, more than the 1.7m increase expected by analysts.

Earlier, data from the American Petroleum Institute revealed US crude inventories decreased by 1.1 million barrels last week.

At 1640 BST, Brent crude rose 0.69% to $46.05 per barrel and West Texas Intermediate climbed 0.27% to $44.16 per barrel.

In company news, GlaxoSmithKline’s shares reacted positively to a rise in first-quarter sales and core earnings per share amid healthy demand for the company’s new drugs.

Worldpay’s shares jumped after UBS upgraded the stock to ‘buy’ from ‘neutral’, saying the pullback in the shares provides an opportunity.

Tesco’s shares led the fallers after JP Morgan said the firm's ability to generate cash flow in the foreseeable future "could be more constrained than we thought before the results"

Standard Chartered reversed the previous day’s rally as Deutsche Bank downgraded the bank to ‘sell’ from ‘hold’ and cut the price target to 454p from 460p following the company’s first-quarter results on Tuesday.

Market Movers

FTSE 100 (UKX) 6,319.91 0.56%
FTSE 250 (MCX) 17,083.71 0.82%
techMARK (TASX) 3,101.68 0.60%

FTSE 100 - Risers

Anglo American (AAL) 696.90p 4.45%
Worldpay Group (WI) (WPG) 269.40p 4.30%
International Consolidated Airlines Group SA (CDI) (IAG) 555.00p 3.64%
easyJet (EZJ) 1,513.00p 3.56%
Centrica (CNA) 240.10p 3.40%
Paddy Power Betfair (PPB) 9,015.00p 2.85%
SSE (SSE) 1,536.00p 2.67%
Royal Dutch Shell 'B' (RDSB) 1,815.50p 2.63%
Kingfisher (KGF) 370.30p 2.60%
Royal Dutch Shell 'A' (RDSA) 1,810.00p 2.49%

FTSE 100 - Fallers

Tesco (TSCO) 175.40p -4.39%
Prudential (PRU) 1,385.00p -1.74%
Legal & General Group (LGEN) 237.30p -1.41%
Sky (SKY) 952.00p -1.40%
Standard Chartered (STAN) 565.00p -1.12%
St James's Place (STJ) 908.00p -1.09%
Lloyds Banking Group (LLOY) 69.25p -1.07%
Hargreaves Lansdown (HL.) 1,288.00p -0.92%
Old Mutual (OML) 187.50p -0.85%
GKN (GKN) 288.20p -0.83%

FTSE 250 - Risers

Centamin (DI) (CEY) 108.80p 7.62%
Balfour Beatty (BBY) 248.20p 4.99%
Ophir Energy (OPHR) 86.30p 4.73%
Paysafe Group (PAYS) 386.50p 4.46%
TalkTalk Telecom Group (TALK) 273.60p 4.43%
Amec Foster Wheeler (AMFW) 505.50p 4.12%
Cairn Energy (CNE) 223.90p 3.95%
Aldermore Group (ALD) 192.30p 3.95%
Acacia Mining (ACA) 331.90p 3.65%
IP Group (IPO) 190.40p 3.53%

FTSE 250 - Fallers

McCarthy & Stone (MCS) 234.90p -6.23%
Stagecoach Group (SGC) 258.20p -3.66%
Weir Group (WEIR) 1,126.00p -2.68%
Polar Capital Technology Trust (PCT) 573.50p -2.30%
Rotork (ROR) 178.50p -2.19%
Kaz Minerals (KAZ) 178.20p -2.09%
Electrocomponents (ECM) 265.80p -1.95%
Essentra (ESNT) 822.50p -1.79%
Elementis (ELM) 226.40p -1.78%
Galliford Try (GFRD) 1,299.00p -1.59%