London pre-open: Stocks seen flat as investors digest hawkish Fed hike

Stocks in London were set to open little changed on Thursday as investors digested a 25 basis points rate hike by the Federal Reserve, as anticipated, but a more hawkish tone than expected.

The FTSE 100 was called to open three points higher than Wednesday’s close at 6,952.

On Wednesday, the Fed raised the range of its main policy rate to between 0.50% and 0.75% and signalled that more interest rate increase were on the cards for next year than it had projected at the meeting in September.

Rate-setters in Washington DC were unanimous in their decision to tighten policy.

According to the newly-submitted 'dot-plot' graphs of interest rates projections from the Federal Reserve's board members and regional Fed presidents, the median expectation is for three quarter-point interest rate hikes in the following year, up from two previously.

A further three hikes were projected in 2018, followed by another three in 2019.

CMC Markets’ Michael Hewson said: “This appears to be playing out in exactly the same way as it did a year ago when the dot plot charts also projected a faster rate path trajectory of at least four rate rises. That we are sitting here now having only seen one rate rise, you would have thought they would have been slightly more cautious in their outlook, and allowed themselves a little more wriggle room, even if the outlook economically is somewhat different.

“While it is never wise to take the dot plot projections at face value, quite frankly they’ve been a lousy guide to what the Fed has actually done in the past few years, they do nonetheless paint a picture of how US policymakers see the US economy, though it is important to note they pay no regard to how external events can and do influence Fed policy. In terms of that move in the dots, maybe Fed officials are more concerned about the prospects for a rise in inflation next year than they are letting on, given the potential boost a fiscal stimulus could bring, which was something they didn’t have to consider last year.

In corporate news, Centrica published a trading update on Thursday, prior to entering its close period on 1 January, saying it was continuing to make good progress against its strategic priorities and now expected to exceed the 2016 targets originally set out at its 2015 preliminary results:

The FTSE 100 firm said adjusted operating cash flow was now expected to be in the range £2.4bn-£2.6bn.

Group capital investment, including small acquisitions of less than £100m each, was now expected to be around £900m, below the £1bn limit set as part of the group’s financial framework, and full year adjusted earnings per share should now be around 16.5p.

Distribution and outsourcing company Bunzl expects revenue to increase for the year mainly due to several acquisitions and after slow growth in the first three quarters.

Revenue for the year ended 31 December, is expected to rise between 14% and 15% at actual rates, while at constant currency it is expected to nudge up between 4% and 5%.

Royal Dutch Shell’s chief financial officer Simon Henry will retire after more than seven years in the role, to be succeeded by Jessica Uhl, who will take on the job with effect from 9 March.

Henry will remain on the board as CFO until Uhl starts and will be available to her and the board to help with the transition until the end of June.