The FTSE 100 is set to open about 0.6% lower after the US Federal Reserve held interest rates steady and Donald Trump renewed his attacks on Iran. London's blue chip index reached a record 10,951 points on Wednesday morning before falling back to 10,864. Strong results from Shell, Lloyds Banking Group and BAE Systems are likely to moderate the drop.
Futures prices suggest the FTSE 100 will drop by about 0.6% when London opens, a day after the index set a new high.
The UK blue chip index rose as high as 10,951 points on Wednesday morning, but fell back later in the day to 10,864.
Deutsche Bank points to the Fed and to Warsh
Analysts at Deutsche Bank led by Peter Sidorov said the market moves were triggered by the on-hold Fed decision and, in their words, "a relative lack of detail from Chair Warsh".
Kevin Warsh was appointed by Trump after courting the US president with an agenda to lower interest rates. That has put him in a very tricky position, because investors expect inflation to rise because of the US-Israeli attacks on Iran, which have caused oil prices to soar.
Wall Street's late slide sets the tone
Bond yields rose after the Fed meeting, suggesting investors doubt whether the Fed can control inflation. Sidorov and his colleagues wrote that the rise in yields weighed on equities after some big intra-day swings.
The S&P 500 closed 1.52% lower after a sharp drop in the final hour of trading, having traded more than half a percent down before the FOMC decision. Chip stocks weighed on equities as well, with the Philly semiconductor index slumping 5.33%.
UK earnings cushion the drop
However, the declines in London are likely to be moderated by some strong results on a busy day for UK corporate news, with BAE Systems, Lloyds Banking Group, London Stock Exchange Group and Shell among the reporting companies.
Rolls-Royce raised its profit guidance again and now expects £4.7bn to £4.9bn in underlying operating profit and £3.8bn to £4.0bn in free cash flow for the full year.
Next comes the Bank of England interest rate decision at 12pm BST, with a consensus of 3.75%, unchanged from the previous 3.75%.
Source: The Guardian
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