Stock markets lacked direction as investors waited for US Federal Reserve chairman, Janet Yellen, to speak after the central bank’s two-day meeting tonight.
In the UK the FTSE 100 closed 18 points or 0.3% higher at 6,784 after minutes from the Bank of England’s monetary policy committee showed the UK’s interest rate setters were in a less hawkish mood than had been thought.
The pound initially fell and then rebounded after the minutes revealed all nine MPC members had voted to keep interest rates unchanged at 0.5% this month. After last week’s warning from Bank of England governor Mark Carney that the cost of borrowing might have to rise sooner than expected, there had been expectations that one or two committee members may have pressed for change.
The minutes did, however, note surprise that markets had not anticipated a rise in interest rates this year.
Azad Zangana, European economist at Schroders, said ‘the messages from the minutes were mixed and somewhat puzzling’. Nevertheless, he brought forward his forecast for the first interest rate rise to February.
Other forecasters are pricing in a rise in either November or December.
Philip Shaw of Investec Economics speculated that Carney’s comments in his Mansion House speech had been prompted by the sharp drop in unemployment to 6.6%, which the MPC members would not have seen when they met earlier this month.
The potential for a more negative reaction remains however, as Yellen prepares to answer questions this evening following a two-day meeting of the Federal Open Markets Committee, the US equivalent to the MPC.
On Wall Street the S&P 500 drifted unchanged at 1,941 as investors awaited for an update on the Fed’s wind down of its emergency bond-buying programme and for an indication of when it might start to raise interest rates.
Shire (SHP) advanced another 2.9% to £37.69 as bid speculation swirled round the healthcare company.
Xaar (XAR) dropped a further 6.9% to 500p after yesterday’s profits warning.
Among smaller companies Premier Foods (PFD), maker of Mr Kipling cakes and Bisto gravy, slid 9% after cutting forecast sales for its key brands, blaming a ‘subdued’ grocery market. It promised to cut costs to avoid a fall in profits.