Wednesday 16 September 2020 2:50 pm

FTSE 100 falls but US stocks rise ahead of Fed decision

The FTSE 100 fell but US stocks opened higher as investors awaited the latest decision from the US Federal Reserve and digested more economic data.

London’s main stock index dropped 0.6 per cent to stand at 6,067 points just before 3pm. The FTSE 250 of mid-cap companies fell 0.1 per cent.

Read more: UK inflation falls sharply as Eat Out to Help Out slashes prices

Yet Wall Street’s tech-heavy Nasdaq index rose 0.1 per cent at the bell. The S&P 500 climbed 0.3 per cent and the Dow Jones industrial average rose 0.2 per cent. Sentiment was boosted by upbeat quarterly results from Fedex.

The pan-European Stoxx index rose 0.1 per cent, lifted by retail sales as Zara-owner Inditex posted a quarterly profit. Yet Germany’s Dax slipped 0.2 per cent and France’s CAC 40 was down 0.7 per cent.

On the currency markets, the pound was up 0.6 per cent against the dollar at $1.297. It has recovered somewhat from its Brexit-inspired sell-off – which saw it fall to $1.277 – in recent days.

FTSE 100 in ‘wait and see’ mode

The FTSE 100 had a choppy session ahead of the Fed decision. Investors had some economic data to chew on, with the latest figures showing inflation fell to 0.2 per cent in August. 

The drop was driven by the Eat Out to Help Out scheme, which gave diners 50 per cent off meals out in a bid to boost spending.

“The FTSE 100 enjoyed a strong start to the week but that is tailing away as UK inflation drops to its lowest level since 2015,” said Russ Mould, investment director at AJ Bell.

“Investors may be keeping their powder dry ahead of the latest meeting of the US Federal Reserve with the central bank widely expected to hold rates near zero.”

Read more: The Hut Group raises £1.88bn in biggest London stock market listing since 2015

Joshua Mahony, senior market analyst at trading platform IG, said: “Last week’s sharp losses for the pound came to the benefit of the FTSE 100. Yet we are now seeing a gradual GBP-USD strengthening to the detriment of market sentiment.”

A bright spot in the UK market was the IPO of The Hut Group, which sells retail brands. Its shares soared 30 per cent on the first day of trading after a £5.4bn listing. It was one of London’s biggest tech initial public offerings so far

Wall Street rises with Fed in focus

US stocks suffered a torrid two weeks beginning at the end of August, as investors second-guessed the stellar rally in big tech names and hit the sell button.

Yet they have rebounded so far this week, and continued to do so when Wall Street opened for action today.

Sentiment was boosted by strong results from global delivery firm and bellwether stock Fedex. Its shares jumped around six per cent after it reported a better-than-expected quarterly profit.

However, the real action will occur later on, when the US Federal Reserve unveils its latest interest rate decision and gives its view on the economy.

It is the Fed’s first meeting since chair Jay Powell announced it would be more tolerant of inflation overshooting the two per cent target. Analysts said the change allows the Fed to be more “dovish” – i.e. keep interest rates lower for longer.

Seema Shah, chief strategist at Principal Global Investors, said: “Investors will be eagerly awaiting explicit guidance about the parameters of the new inflation framework. 

“Unfortunately, recent Fed-speak suggests Powell may not share details on how long and how much inflation will need to be above two per cent before they decide to tighten.”

Shah added: “The new set of economic projections will also be in the spotlight.” She said that strong economic data from the third quarter suggests the Fed “may present a brighter economic outlook than was the case three months ago”.