London pre-open: Stocks seen down as Fed delivers hawkish hold

London stocks were set to fall at the open on Thursday after the US Federal Reserve left rates unchanged but signalled that two more hikes were on the way later this year.

The FTSE 100 was called to open 10 points lower at 7,592.

CMC Markets analyst Michael Hewson said: "With the Federal Reserve unwilling to step back from its commitment to a pause this month, and delivering on an expectation to keep rates unchanged, they compensated for that by raising their expectation this year for at least two more rate hikes, putting the terminal rate at 5.6%, with 12 Fed officials, projecting such a move.

"This unexpected hawkish shift saw US 2-year yields spike sharply as the market priced out the prospect of rate cuts later this year, which was never likely anyway, however we also saw the US central bank change their forecasts for unemployment to rise to 4.1% by the end of this year, down from 4.6%, while tweaking its PCE forecast to 3.2% from 3.3%."

He continued: "While yesterday’s post decision reaction shows that markets were caught the wrong side of last night’s decision, the bigger test will be in the economic data. If inflation continues to slow and jobs growth remains steady, the question needs to be asked as to whether the Fed will really pull the trigger on more rate hikes? It seems unlikely."

Later on Thursday, eyes will be on the European Central Bank as it delivers its latest policy announcement.

In corporate news, specialist international distribution and services group Bunzl said it expected underlying revenue growth in the first half of the year to be broadly flat.

It added that group adjusted operating margin was expected to be around the same as the first six months of 2022.

Revenue was expected to increase by 4 - 5% at actual exchange rates, and up to 1% on a constant currency basis.

"Growth at constant exchange rates is expected to be driven by acquisitions, although partially offset by the impact of the UK healthcare disposal," Bunzl said.

It added that underlying revenue in North America was expected to decline moderately, driven by volume weakness in its foodservice sector, some of which is anticipated to be temporary, and with reducing benefit from inflation over the period.

"Inflation is expected to drive good underlying revenue growth in Continental Europe and strong growth in UK & Ireland. Underlying revenue growth in Rest of the World is expected to be impacted by a decline in Covid-19 related sales."

Elsewhere, Legal & General said it has appointed António Simões as chief executive officer.

He joins from Banco Santander, where he has been regional head of Europe since September 2020.