London open: Insurers start to recover after Osborne’s annuities shake-up
The FTSE 100 was trading 0.4% lower at 6,546 in early trading.
Yellen, speaking last night after the Federal Open Market Committee voted to taper its asset purchase programme by another $10bn a month to $55bn, signalled that the first rate hike could come six months after quantitative easing (QE) ends.
Stocks on Wall Street quickly dropped in the aftermath with the Dow Jones Industrial Average, Nasdaq and S&P 500 all finishing around 0.6-0.7% lower. Meanwhile, US bond yields surged, while the dollar strengthened against its major counterparts.
If the central bank continues to taper at the same rate over the next month months, QE should come to an end in October or November, which means that interest rates could rise as soon as April or May. Ahead of this week’s meeting, analysts had widely expected a rate hike to come towards the end of 2015.
While Yellen’s comments came as a surprise to many, the message delivered about the economy was upbeat, as policymakers lowered their forecasts for unemployment which is set to fall to 6.1-6.3% by the year-end.
The Fed also adjusted its forward guidance to put less emphasis on joblessness as a goalpost for when tightening will begin. Instead – similar to Governor Mark Carney’s revamped forward guidance at the Bank of England – the Fed will look at a broad range of economic indicators in their decision.
“We are unquestionably going to have to get used to a world of higher interest rates next year as the Bank of England and the Federal Reserve normalise monetary policy,” said Senior Analyst Angus Campbell from FxPro.
“Even the ECB has become less dovish after avoiding a widely expected rate cut at their last meeting,” he said.
Next rises, financials gain
Next rose after the High Street retailer reported annual profit that met the top end of its guidance, driven by growth in online sales. The company achieved an 11.8% rise in pre-tax profit to £695m in the year through January 2014, reaching the upper range of the company’s forecast of £684m-700m.
Financial stocks were performing well this morning, including RBS, Standard Chartered and HSBC. RBS was helped by an upgrade to ‘hold’ by Investec.
Insurers Legal & General and Aviva were also making small gains, recovering after a sell-off yesterday on the back of a shake-up to the annuities market announced by George Osborne in his 2014 Budget.
Bookmakers William Hill and Ladbrokes, however, continued to fall after the Chancellor revealed an increase to the duty on fixed-odds betting terminals.
Manufacturing outfit Smiths Group, which yesterday disappointed with its interim results, was extending losses after HSBC lowered its rating on the stock to ‘underweight’.
Engineering firm Babcock was also suffering from a downgrade by Citigroup to ‘neutral’.
Heading the other way was electricity provider SSE after receiving a ratings upgrade from Morgan Stanley. Sector peer United Utilities, however, fell after underwhelming with a trading update this morning, which said it expects higher profits and revenues in the year to March 31st.
FTSE 100 – Risers
SSE (SSE) 1,477.00p +2.71%
Royal Bank of Scotland Group (RBS) 306.70p +1.72%
Next (NXT) 6,690.00p +1.67%
Aviva (AV.) 496.40p +1.22%
London Stock Exchange Group (LSE) 2,026.00p +0.95%
HSBC Holdings (HSBA) 597.00p +0.88%
Glencore Xstrata (GLEN) 302.70p +0.46%
Petrofac Ltd. (PFC) 1,382.00p +0.44%
Prudential (PRU) 1,345.00p +0.41%
Sports Direct International (SPD) 853.50p +0.41%
FTSE 100 – Fallers
Admiral Group (ADM) 1,451.00p -2.36%
Resolution Ltd. (RSL) 327.90p -2.12%
Centrica (CNA) 324.50p -2.11%
Hargreaves Lansdown (HL.) 1,480.00p -1.60%
Mondi (MNDI) 1,055.00p -1.49%
National Grid (NG.) 818.50p -1.39%
CRH (CRH) 1,628.00p -1.39%
United Utilities Group (UU.) 784.00p -1.38%
WPP (WPP) 1,221.00p -1.37%
InterContinental Hotels Group (IHG) 1,866.00p -1.37%
FTSE 250 – Risers
St James’s Place (STJ) 903.00p +4.33%
Evraz (EVR) 64.10p +2.31%
Kenmare Resources (KMR) 14.55p +2.18%
AL Noor Hospitals Group (ANH) 926.00p +2.09%
Savills (SVS) 627.50p +1.87%
Alent (ALNT) 332.60p +1.40%
JD Sports Fashion (JD.) 1,570.68p +1.27%
Wetherspoon (J.D.) (JDW) 852.00p +1.19%
Premier Farnell (PFL) 222.50p +1.14%
Rathbone Brothers (RAT) 1,779.00p +1.08%
FTSE 250 – Fallers
Partnership Assurance Group (PA.) 129.00p -9.79%
Perform Group (PER) 248.90p -4.27%
Intu Properties (INTU) 309.50p -4.24%
Hellermanntyton Group (HTY) 310.00p -4.02%
Ladbrokes (LAD) 135.10p -3.77%
888 Holdings (888) 139.00p -2.66%
Kazakhmys (KAZ) 247.90p -2.36%
Workspace Group (WKP) 552.50p -2.21%
Essar Energy (ESSR) 63.10p -2.17%
Bwin.party Digital Entertainment (BPTY) 122.50p -2.00%