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Banks weigh on FTSE as Fed stays 'patient' on rates

Banks weigh on FTSE as Fed stays 'patient' on rates

The FTSE 100 is set to snap a three-day winning streak, as banks weighed on the index after US Federal Reserve policymakers calling for a 'patient' approach to raising interest rates.

The UK blue-chip index edged 19 points, or 0.3%, lower to 7,413, with banks among the fallers, on the prospect of lower interest rates continuing to hold back margins.

Standard Chartered (STAN) fell 1.9% to 761.4p, Royal Bank of Scotland (RBS) dropped 1.7% to 259.3p, HSBC (HSBA) lost 1.1% to 740p and Barclays (BARC) was down 1.2% at 198.4p.

Investors focused on Fed policymakers' concern that inflation could remain below the central bank's 2% target for longer than expected, outlined in minutes from the open market committee released yesterday.

'Many participants... saw some likelihood that inflation might remain below 2% for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside,' read the minutes.

'They observed that the committee could afford to be patient under current circumstances in deciding when to increase the federal funds rate further and argued against additional adjustments until incoming information confirmed that the recent low readings on inflation were not likely to persist.'

Strategists at Deutsche Bank said that 'while the tone of the minutes was actually fairly balanced much of the focus was on the inflation references and particularly the dovish elements.'

Kingfisher (KGF) was the biggest faller on the index, down 5.9% at 291p as the owner of the B&Q and Screwfix stores reported a 1.9% fall in quarterly sales.

'Screwfix continues to prosper but its double-digit increase in like-for-like sales and modest [price inflation failed to offset a softer performance at B&Q,' said Russ Mould, investment director at AJ Bell.

'The group continues to adapt to new processes as under its transformation programme and a significant amount of change is planned for the second half while also remaining cautious on the outlook for the business in the UK and France.'

A number of stocks traded without entitlement to their latest dividend, also weighing on the index. They included Ashtead (AHT), British American Tobacco (BATS), Imperial Brands (IMB), Reckitt Benckiser (RB), Schroders (SDR), Merlin Entertainments (MERL), Pearson (PSON), Legal & General (LGEN) and Segro (SGRO).

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