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FTSE falls on strong pound despite dovish Fed
Fed injects some relief into markets by striking dovish tone, but sterling rally as UK growth holds up dents FTSE 100.
The FTSE 100 has fallen as a rally in the pound damped gains from a dovish statement from the US Federal Reserve.
The UK blue-chip index fell 23 points, or 0.4%, to 5,966, having breached the 6,000 mark earlier in the morning's trading, as the Fed kept interest rates on hold as expected and flagged 'global economic and financial developments' against the backdrop of falling markets.
But the statement disappointed those wishing for a more explicit backtrack on the path of future interest rate rises. When the Fed raised interest rates for the first time since 2006 in December, it projected up to four further interest rate rises this year, a pace that markets are not yet pricing in.
'The latest set of Fed minutes are on the dovish side, acknowledging that the US economy slowed into the end of last year, even as the labour market continued to make further gains,' said Rob Carnell, economist at ING.
'The greater concern about the global environment shown by the Fed should encourage investors to realise that they are not about to go crazy with rate hikes this year.'
Ian Kernohan, economist at Royal London Asset Management, agreed. 'Our base case remains that the Fed will lift rates again this year, but by less than the four hikes signalled in their most recent "dot plot",' he said.
The FTSE 100 was hit by a rally in the pound, which jumped 0.6% against the dollar to $1.432 on fresh data showing the UK economy grew 0.5% in the last three months of 2014, in line with expectations, and up from the third quarter's 0.4% growth.
A strong pound typically hurts companies in the FTSE 100, as they rely on overseas markets for around three-quarters of their revenues.
'Although this was in line with median expectations, given the singular focus on the downside risks in recent weeks, many in the market were no doubt braced for a weaker outturn,' said Adam Chester, head of economic research at Lloyds.
On the FTSE 100, oil stocks were in the ascendancy after the price of Brent crude jumped 2.5% to $33.92 a barrel on hopes major producers may cooperate to cut production.
Russian officials have said they will talk to Saudi Arabia and other members of the Opec cartel of oil producers about output cuts to boost prices, according to Reuters.
Anglo American (AAL) jumped to the top of the index, up 9.5% at 277.8p, after the miner said it produced more iron ore, one of its biggest earners, last year.
Ashtead (AHT) fell to the bottom of the index, down 5.9% at 908p as investors were unnerved by disappointing results from US tool hire rival United Rentals (URI.N).
Shares in Centrica (CNA) were also hit, down 4.1% at 201.4p after analysts at Societe Generale cut their rating on the British Gas owner to 'sell' from 'hold'.
On the FTSE 250, which bucked the FTSE 100's losses to trade 0.1% higher, FirstGroup (FGP) was a big faller, down 9.2% at 93p as the train and bus operator issued a profit warning, blaming wet weather and flooding in the UK. That dragged down shares in rival Go-Ahead (GOG) 4.4% lower at £24.14.
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by David Kempton on May 24, 2016 at 17:15