London open: MPC may surprise with dovish tone, analysts say

London's top flight index dropped sharply early on Thursday morning, following a bruising session on Wall Street and with investors and traders focused on the Monetary Policy Committee announcement at noon.

As of 08:38GMT the Footsie was down by 89.76 points to 5,871.21.

To take note of, looking back to yesterday's US session some traders pointed out possible hints in yesterday's sector performance Stateside that weakness in energy was filtering through to other sectors of the stockmarket.

Markets were also watching for any changes to the tone of the Bank of England chief's remarks following recent volatility in capital markets and the gyrations in oil and the pound.

Ahead of the MPC announcement, Lloyd's Bank told clients that: "overall, while the MPC will weigh the net influence of recent developments – including the recent weakening of sterling – in the updated projections of the February Inflation Report, the likelihood of a more gradual uptrend in inflation than previously expected could prompt a more dovish tone overall from the minutes.

"On balance, we still expect Ian McCafferty to plump for a vote for an immediate policy tightening. However, the risk is that he could abandon his solitary call for an early move, as he did in January of last year."

The earliest headlines were again rife with geopolitical news following the multiple bomb blasts registered in Indonesia's capital of Jakarta.

Overnight, China's central bank left the yuan's fixing unchanged. That saw the Shanghai Stock Exchange's Composite Index finish the session higher by 1.97% to 3,007.649.

Indonesia's central bank on the other hand unexpectedly cut rates on Thursday. At a regularly scheduled policy meeting the country's monetary authority lowered its main policy rate by 25 basis points to 7.25%.

Economists had expected the central bank to keep it unchanged.

The US Fed's Beige Book, also released overnight, threw up some interesting insights, such as the recent weakness in automobile sales, some analysts said. Those were seen as one of the chief reasons behind recent oil price weakness, as per a research report from Barclays's Kevin Norrish dated 12 January.

"Of interest, auto sales "were somewhat mixed, as activity has begun to drop off from previously high levels in some districts"," Deutsche Bank's Jim Reid pointed out to clients on Thursday morning.

JP Morgan and Intel Corp. were set to update markets on their performance in the fourth quarter.

A speech from the president of the US Federal Reserve bank of St.Louis, James Bullard, in the afternoon would also be closely tracked for any dovish slant.

The possibility also existed that the European Central bank's Mario Draghi or Benoit Coeure might make some policy-relevant remarks later in the day.

Shire looking to beat targets

Shire chief executive Flemming Ornskov revealed that the drug developer's internal plans for the merger with Baxalta are much more positive than it set out publicly. Speaking at JP Morgan's healthcare conference in San Francisco, Ornskov stated that Shire’s “internal synergy goals are much higher” than the $500m target set out in the merger announcement earlier this week.

An impressive like-for-like improvement over the Christmas period helped Tesco limit the third-quarter sales decline to 1.5%, beating market forecasts. Group LFL sales rose 2.1% and UK LFLs 1.3% in the six weeks to 9 January, helped by the abandoning of its three '£5 off £40' national coupon campaigns from the prior year.

Christmas sales at Argos for the 18 weeks to 2 January have dropped 2.2%, but a 5% increase in sales at Homebase has limited the damage to Home Retail Group. The company has been in the sights of supermarket Sainsbury’s in recent months and also announced last night it is in talks to sell off Homebase to an Australian conglomerate. Sales for the DIY and home furnishings business totalled £434m for the period, contributing to year-to-date sales over the last 44 weeks of £1.25bn. At Argos, total sales came in at £1.837bn for the quarter, with year-to-date sales at £3.58bn.

Luxury fashion retailer Burberry said underlying third quarter sales rose 1% to £603m, with comparable sales unchanged year-on-year against a fall of 4% in the second quarter – below the company's internal expectations. “In what remains a challenging external environment, and ahead of Lunar New Year, we currently expect adjusted profit before tax for FY 2016 to be broadly in line with market forecasts, supported by a further reduction in the performance-related pay charge, additional discretionary cost savings and an FX benefit,” the company said in a trading statement.

In a trading update for the 16 weeks to 2 January, Primark owner Associated British Foods said group revenue fell 2% from the same period last year, but was up 3% at constant currency. Total sales at Primark were 7% higher at constant currency but up 3% at actual exchange rates as due to the weakening euro against the pound. The group said it continues to expect currency pressures to lead to a modest decline in adjusted operating profit and adjusted earnings for the full year.

Full year adjusted operating profits at betting firm William Hill were in line with expectations at £290m although group revenues fell 1% to £1.59bn. In a trading update, the company also announced the head of its online operations, Andrew Lee, would be leaving “at some point in 2016”.

Market Movers
techMARK 3,117.90 -1.58%
FTSE 100 5,879.09 -1.37%
FTSE 250 16,497.50 -1.19%

FTSE 100 - Risers
Tesco (TSCO) 166.85p +5.40%
Burberry Group (BRBY) 1,144.00p +2.88%
Anglo American (AAL) 234.20p +1.19%
BHP Billiton (BLT) 623.30p +0.60%
Sainsbury (J) (SBRY) 249.10p +0.57%
Randgold Resources Ltd. (RRS) 4,277.00p +0.54%
Smiths Group (SMIN) 895.50p +0.34%
Associated British Foods (ABF) 3,045.00p +0.13%
Berkeley Group Holdings (The) (BKG) 3,701.00p +0.03%

FTSE 100 - Fallers
Merlin Entertainments (MERL) 409.20p -4.79%
Ashtead Group (AHT) 998.50p -4.27%
InterContinental Hotels Group (IHG) 2,393.00p -3.82%
easyJet (EZJ) 1,636.00p -3.20%
Johnson Matthey (JMAT) 2,491.00p -3.19%
Barclays (BARC) 195.60p -3.02%
Carnival (CCL) 3,790.00p -2.80%
International Consolidated Airlines Group SA (CDI) (IAG) 574.00p -2.63%
TUI AG Reg Shs (DI) (TUI) 1,223.00p -2.63%
Whitbread (WTB) 4,028.00p -2.61%

FTSE 250 - Risers
B&M European Value Retail S.A. (DI) (BME) 273.60p +6.58%
JD Sports Fashion (JD.) 1,100.00p +3.97%
Home Retail Group (HOME) 155.00p +3.75%
Ibstock (IBST) 217.00p +1.64%
Enterprise Inns (ETI) 102.40p +1.09%
Electra Private Equity (ELTA) 3,740.00p +1.05%
3i Infrastructure (3IN) 170.80p +0.77%
OneSavings Bank (OSB) 332.40p +0.76%
GCP Infrastructure Investments Ltd (GCP) 118.20p +0.68%
P2P Global Investments (P2P) 995.00p +0.51%

FTSE 250 - Fallers
Restaurant Group (RTN) 536.50p -15.91%
Computacenter (CCC) 830.50p -4.54%
Worldwide Healthcare Trust (WWH) 1,802.00p -4.05%
Allied Minds (ALM) 340.60p -3.76%
Vedanta Resources (VED) 215.00p -3.76%
CLS Holdings (CLI) 1,705.00p -3.62%
Cineworld Group (CINE) 496.00p -3.31%
Tullow Oil (TLW) 124.90p -3.10%
Smith (DS) (SMDS) 373.50p -3.09%
WH Smith (SMWH) 1,659.00p -3.04%