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FTSE 100 Live: US interest rates in big jump as Fed hikes by 0.75%

·14-min read
 (Evening Standard)
(Evening Standard)

US interest rates are going up today in another big bound in the Federal Reserve‘s aggressive fight against inflation.

The action from policymakers comes amid fears of a hard landing for the US economy.

Sterling weakened to a fresh 37-year low against the US dollar earlier today as UK public finances also showed the government made record debt interest payments of £8.2 billion in August.

FTSE 100 Live Wednesday

  • French energy giant UK makes £9.5bn swoop to take over Aveva

  • Debt interest payments hit August record

  • Stamp duty speculation boosts housebuilding shares

Federal Reserve hikes US interest rates by 0.75%

19:02 , Michael Hunter

It’s 0.75% -- the Federal Reserve has hiked US interest rates by the same margin as in the last two meetings as it continues its fight against inflation with the third-successive rise of that size. When it adopted a 0.75% hike in June, it was for the first time since 1994.

It voted unanimously for the move, stopping short of super-sized step of 1%.

Wall Street’s S&P 500 slipped after the announcement, by 12 points to 3845.0.

The dollar strode higher, with the Fed seen as the central bank both most determined to fight inflation and the one with the moat room to act, as economic data give it room to be hawkish. The index tracking the greenback against a range of other currencies rose 0.7% after the announcement, taking its advance over the year to over 18%.

FTSE 100 stays positive into US rate call with housebuilders up on reports of stamp duty cut

15:15 , Michael Hunter

The prospect of more tax cuts in the housing market lent support to housebuilders, helping the FTSE 100 move higher before an expected rate rise from the Federal Reserve, which was dominating sentiment in trading centres across the globe.

London’s main stock index was up almost 20 points at 7212.50, with Persimmon Homes top of the leaderdboard, up almost 5% at 1400p. Taylor Wimpey was up over 3% at 107p and Barratt Developments rose 3.5% to 419p.

The rally in the sector came after reports that Friday’s mini budget outlining the new prime minister’s tax and spending plans would include a cut in the stamp duty paid on home sales.

The Federal Reserve is expected to raise US rates again after the close of trade in London, at 7 p.m. UK time, by 0.75% or even 1%, in a move that will offer fresh insight into the next rounds in the global battle against inflation at central banks.

On Thursday, the Bank of England will announce its monetary policy decision, which was postponed from last week during the UK’s period of mourning for Queen Elizabeth II. City experts expect the BoE to adopt the 0.75% rate rise already seen three times this year in the US ahead of tonight’s announcement from the Fed, which will be covered on this edition of FTSE Live.

Wall Street stays positive with only two numbers in town ahead of Fed rate call -- will it be 0.75% or 1%?

14:33 , Michael Hunter

The wait for clarity on the size of the Federal Reserve’s September rate hike is in its final hours. All will be revealed at 7 p.m. London time, with Wall Street expecting a rise of at least 0.75%, while talk of a potential super-sized jump of 1% has eased.

That has helped New York stock markets rise in opening trade, with the S&P 500 up just over 20 points at 3879.30 in initial trade, with General Mills leading the gains with a rise of over 3% after it upped its profit guidance for the full-year on sustained strong demand for its breakfast cereals and pet foods.

New York stocks expected to rise with Fed call centre stage and odds of 1% hike easing

13:22 , Michael Hunter

New York share markets look set to tick higher at the start of a session that is likely to be defined by the size of an interest rate hike from the Federal Reserve.

The main question over the decision at the US central bank is how big the rise will be: 0.75%, as established at its last two meetings, or a super-sized 1% hike, as some experts in the City and Wall Street predict.

But into the start of trade on Wednesday, the CME’s Fedwatch tool put an 84% chance on the Federal Open Market Committee sticking with a hike of 0.75%. It adopted rises of that size in June, for the first time since 1994. That came as a relief to stock market investors, where rising rates cause volatility and can improve the returns on offer from investment that are less risky than shares.

According to futures trade, the S&P 500 will open up 15 points at 3887.25 at 2.30 p.m. London time, with the rate announcement due at 7 p.m. London time.

Jerome Powell, the Fed’s chairman, has repeatedly signalled his determination to tame inflation. Relatively robust economic data looks to give him more room for further aggressive action, while the latest reading of the US consumer price index rose again last week, failing to meet hopes that it would show the first decline since May 2020.

The Fed has lifted rates at every single one of its meetings since March in what has become the biggest rate tightening cycle since the 1980s. In 2020, CPI inflation was at 1.4%. It reached 7% in 2021.

Read a full preview of today’s Fed rate call here.

French energy giant UK makes £9.5bn swoop to take over Aveva

12:31 , Simon Hunt

UK software firm Aveva has been bought out by majority shareholder French energy company Schneider Electric in a deal valuing the business at £9.5 billion.

The £31 a share takeover is expected to be completed in the first quarter of next year.

Schneider will buy up an estimated 40% of the shares it does not already own in the London-listed FTSE 100 company, which employs 6400 staff.

It added that Aveva would continue to operate from its Cambridge base and confirmed employee redundancies would not be part of the acquisition process. Five years ago, both groups agreed to combine their software businesses.

Schneider said the deal would allow it to expand Aveva faster by “simplifying decision-making’.

Jean-Pascal Tricoire, boss of the energy business, which employs an estimated 4,000 in the UK, said: “By taking 100% ownership of Aveva, we will be able to grow the business faster by simplifying decision-making, enabling seamless interactions between teams, accelerating our investments in research and development and enabling a more coordinated sales strategy.”

Philip Aiken, chairman of Aveva, added: “Schneider has been a supportive shareholder and partner since 2018, I am confident that [it] will continue to build on that legacy in the future.”

City Pub Group shares get 10% boost but CEO warns of closures in the capital

11:38 , Simon Hunt

Shares in City Pub Group, which runs the Bow Street Tavern in Covent Garden and the Cock and Bottle in Notting Hill, rose 10% this morning after the firm said sales had surpassed pre-pandemic levels.

Revenues in the first half of 2022 more than doubled on the previous year to top £26 million, while the firm turned a profit of £1.3 million. The company pocketed £17 million in April after selling six pubs in a bid to bring down debt.

But boss Clive Watson warned venues across the capital face closure from spiralling costs and staff shortages.

read more here

Ten Entertainment shares up 6% after post-pandemic bowling boom

11:19 , Simon Hunt

A freeze in admission prices has helped bowling business Ten Entertainment sail past pre-pandemic performance with a more than doubling of profits.

The Bedford-based firm posted sales of £63.2 million in the first half of 2022, up 53% on 2019 levels, while pre-tax profits rose 121% to £15.7 million. The company was boosted by its earlier decision to secure 90% of its energy at 2020 prices up until 2024, which has helped it absorb cost inflation in wages and food prices.

Ten Entertainment shares rose 6% to 200p this morning.

read more here

FTSE 100 higher as builders and BAE Systems rally

10:28 , Graeme Evans

The valuations of Britain’s biggest housebuilders were boosted today by speculation over another round of government support.

A cut in the stamp duty paid on property purchases is reportedly due to be the “rabbit“ in Friday’s mini-budget, when new chancellor Kwasi Kwarteng will outline his plans for reviving the UK’s faltering economy.

His potential support for the housing market, disclosed in today’s Times, helped ease some of the City’s worst fears about the ongoing impact of sharply rising interest rates.

The housebuilding sector has lost well over a third of its value this year, but recovered some of yesterday’s latest hefty losses through gains of at least 3% for Taylor Wimpey and Persimmon at the top of the FTSE 100.

Barratt Developments also lifted 15p to 419.8p after broker Liberum published a new target price of 535p. It said: “We continue to expect a slowing, not collapsing, housing market and still see upside in depressed shares.”

Other beneficiaries of the stamp duty speculation included the estate agency businesses Savills and Foxtons, which cheered 7.5p to 913.5p and 0.4p to 36.9p respectively.

The wider London market posted a better-than-expected performance as the FTSE 100 index improved 45.11 points to 7237.77 and the FTSE 250 by 62.93 points to 18,591.07.

Energy prices continued to offer some protection for the FTSE 100, with BP and Shell shares up another 2% today. Other big risers included BAE Systems, which surged 5% or 43.6p to 815.4p on expectations of higher defence spending in response to Russian aggression.

In the FTSE 250, MoD technology supplier Qinetiq lifted 11.2p to 337.6p and Babcock International by 6p to 320.8p.

Gambling group Flutter Entertainment, whose operations include FanDuel in the US, fell 3% or 305p to 10,005p after analysts at Citigroup removed their “buy” recommendation. Rival Entain also dropped 32.5p to 1166p.

There was also further pain for Ocado shareholders after yesterday’s 9.5% decline as the grocery automation business fell another 11.4p to 595p.

No recovery until 2024 warns Sorrell

10:20 , Simon English

ADVERTISING guru Sir Martin Sorrell today likened the energy crisis to the financial crash of 2008 and warned there may be no signs of economic recovery until 2024.

He was talking as he revealed an £82 million loss at his tech start-up S4 Capital for the first half of the year. That follows a spectacular profit warning in July that saw the shares halve.

Today’s results calmed nervous investors somewhat – the stock rallied 12p to 156p.

On the economy, the man dubbed the Sage of Soho told the Standard: “It is going to be tough, whether it is a hard landing or soft landing, the energy stuff is going to have an impact for 2023 that will stretch into 2024 and the next US presidential election.”

On comparisons with the financial crisis, he said: “This is different. You have Putin. Climate change, inflation, interest rates, US-China relations or lack of them. When you look at all those things, it is probably uniformly tough. The financial crisis you could see your way through, this one is harder.”

S4 Capital has grown rapidly since Sorrell was ousted from WPP in an acrimonious departure four years ago.

read more here

£7m for JD Sports ousted boss Peter Cowgill

09:48 , Simon English

JD Sports today agreed a near £7 million pay-off deal with ousted executive chairman Peter Cowgill, who turned the sports shoe business from an also-ran into a FTSE 100 giant.

He will get £3.5 million over two years for a non-compete clause that prevents him from working for JD’s competitors or poaching its staff.

There is also a £2 million deal over three years for a “consultancy” agreement, a year’s salary at £900,0000 and as yet unknown bonus payment.

The deal comes one day after Cowgill’s arch rival Mike Ashley said he would step down from the board of Frasers, the parent group of Sports Direct. The pair dualled for many years.

There was a change of tone from JD about Cowgill, unceremoniously ousted in May over concerns he had too much control.

Today chairman Andy Higginson said: “I am pleased that we have been able to reach this amicable and constructive way forward with Peter covering the next three years. Peter has hugely valuable experience built over 18 years which we do not want to lose…This caps off what, by any measure, has been a remarkable period of executive leadership by Peter who has been such a core part of the business’s incredible success story to date.”

Housebuilders rally, Flutter shares hit by downgrade

08:49 , Graeme Evans

Shares in housebuilders including Taylor WImpey and Persimmon have rallied 3% after the Times reported that the government is planning to announce a cut to stamp duty as part of efforts to boost economic growth.

Higher building costs and the demand impact of rising borrowing costs mean the sector’s value has fallen by at least a third this year. Other firms on the blue-chip leaderboard today included Barratt Developments, which put back 12.5p to 417.3p.

The FTSE 100 index was 19.75 points higher at 7212.41 and the FTSE 250 index 29.39 points stronger at 18,557.5, amid subdued trading ahead of tonight’s US interest rates decision.

Paddy Power business Flutter Entertainment was among the biggest fallers in the top flight after analysts at Citigroup removed their “buy” recommendation. Shares fell 3% or 324p to 9986p, while rival Entain dropped 27.5p to 1171p.

Debt interest payments hit £8.2bn in August

08:24 , Graeme Evans

Government debt interest payments hit £8.2 billion in public sector finances for August, a record figure for the month reflecting the surge in RPI inflation to which index-linked gilts are pegged.

Today’s increase of £1.5 billion on the same month a year earlier contributed to higher-than-expected expenditure of £73.2 billion as public sector borrowing reached £11.8 billion in the month. The City had expected a headline figure of about £8.5 billion.

There was better news for new chancellor Kwasi Kwarteng in downward revisions to borrowing estimates for the 2021/22 fiscal year and in the first months of the current one.

However, the recently announced energy price guarantee and a package of tax cuts worth at least £25 billion a year will put further strain on the government finances.

Capital Economics said today it thinks borrowing will come in closer to £165 billion or 6.5% of GDP in 2022/23, rather than the £99 billion or 3.9% of GDP forecast by the Office for Budget Responsibility.

Rates rise worries fuel selling pressure

07:53 , Graeme Evans

The prospect of another aggressive rates rise kept up the pressure on Wall Street shares ahead of tonight’s decision by the US Federal Reserve.

The Dow Jones Industrial Average lost 1% last night and is at its lowest level in two months, a performance matched by the S&P 500 and tech-focused Nasdaq.

The declines reflected fears of a hard landing for the US economy if there’s another increase of at least 0.75% in the Fed funds rate later today.

The FTSE 100 index finished 0.6% lower last night and the FTSE 250 fell by 1.4%, with a pause in the selling pressure expected today as investors stay on the sidelines ahead of the decision and subsequent comments by Federal Reserve chair Jerome Powell.

Michael Hewson, chief market analyst at CMC Markets, said: “There are some voices calling for 100 basis points. However this could well come across as knee jerk and suggest that the Fed is panicking and could send completely the wrong message to markets.

“The Fed needs to show it is in control of events and raise rates by 75 basis points but also indicate that further substantial rate rises would be forthcoming until there is clear evidence that inflation is starting to come down at a sustainable rate.”