London close: Stocks fall ahead of FOMC interest rate decision

London stocks dropped on Thursday as investors turned their attention to the Federal Reserve’s announcement on interest rates due after the close.

The market sees a less than 25% chance that the Fed will raise rates. The Federal Open Market Committee publishes its decision at 1900 BST following a two-day policy meeting.

“Today’s FOMC announcement is arguably the biggest in years and despite months of data, opinions and debates, we appear no clearer on whether the Fed will actually raise interest rates or not,” said Craig Erlam, senior market analyst at Oanda.

“It’s been almost a decade since the Fed last raised interest rates and in that time, the markets have become hooked on record low interest rates and appear in denial about the need to raise them. Fed Chair Janet Yellen has given numerous warnings that they plan to raise rates this year and they have clearly fallen on deaf ears.”

UBS analysts said they don’t see a rate hike coming this month. “US data have sent mixed signals, China risks have intensified and US financial conditions have unexpectedly tightened. Given market pricing, a decision to raise rates would be a surprise," the Swiss broker's Global Macro Strategy team said in a research report sent to clients.

Thursday data

Ahead of the FOMC announcement, the initial jobless claims report came in better than forecast. According to the Labor Department, new claims declined by 11,000 to 264,000 in the week to 12 September, to reach their lowest level since mid-July. Analysts had expected jobless claims to hold steady at 275,000.

Construction on new US homes slowed down in August after a strong start to the summer, according to the Commerce Department. Housing starts fell 3% last month to 1.13m, against expectations for a decline to 1.16m.

Back on home soil, UK retail sales figures showed a less than expected rise in August. Sales climbed 3.5% year-on-year last month, missing forecasts for a 3.8% increase and marking a slowdown from the prior month’s 4.1% gain.

“Sluggish growth of retail sales adds to the recent flow of economic data which point to a slowing in the UK economy,” said Chris Williamson, chief market economist at Markit.

“Industrial production fell 0.4% for a second successive month in July, and business surveys such as the PMI have indicated the weakest pace of economic growth for two years in August. Put all the information together and it’s pointing to the economy growing by 0.4% in the third quarter, down from 0.7% in the second quarter.

Among company stocks, engineers and oil services groups were leading the fallers.

Rotork plunged after the valve-control systems maker said its expects a fall in full-year revenue and operating profit, due to weak trading and the deferral and cancellation of projects.

Engineers Smiths Group and Weir fell to the bottom of the pile on negative read-through from Rotork. Weir was also suffering on the back of a demotion from the FTSE 100 on Friday.

Babcock was another engineer whose shares slumped, due to a downgrade by Exane BNP Paribas.

Premier Farnell tumbled after the technology product distributor reporting a 13.7% fall in interim pre-tax profits to £30.6m as it warned that slowing momentum would mean the company's second half operating profits coming in at lower than forecasts.

Antofagasta fell as the company and Codelco suspended operations at two major cooper mines in Chile.

Kier Group slumped despite reporting a jump in pre-tax profit for the year ended 30 June as revenue rose thanks to a solid performance in all its divisions.

Reckitt Benckiser gained on speculation that the company was among the beneficiaries that might become a target for a Pfizer takeover.

Market Movers

techMARK 3,066.03 -0.47%

FTSE 100 6,200.63 -0.46%

FTSE 250 17,062.89 +0.01%

FTSE 100 - Risers

Compass Group (CPG) 1,037.00p +1.87%

Associated British Foods (ABF) 3,189.00p +1.63%

GKN (GKN) 285.70p +1.42%

London Stock Exchange Group (LSE) 2,458.00p +1.36%

International Consolidated Airlines Group SA (CDI) (IAG) 604.50p +1.09%

Aberdeen Asset Management (ADN) 338.00p +1.05%

Standard Chartered (STAN) 741.70p +0.90%

TUI AG Reg Shs (DI) (TUI) 1,242.00p +0.89%

Marks & Spencer Group (MKS) 496.10p +0.71%

Whitbread (WTB) 4,682.00p +0.67%

FTSE 100 - Fallers

Smiths Group (SMIN) 1,083.00p -4.07%

Sainsbury (J) (SBRY) 225.30p -2.55%

Fresnillo (FRES) 591.50p -2.47%

Hargreaves Lansdown (HL.) 1,204.00p -2.43%

Antofagasta (ANTO) 590.00p -2.40%

Weir Group (WEIR) 1,288.00p -2.28%

Babcock International Group (BAB) 931.50p -2.26%

Rio Tinto (RIO) 2,350.50p -1.88%

HSBC Holdings (HSBA) 503.50p -1.87%

Anglo American (AAL) 737.00p -1.64%

FTSE 250 - Risers

Ocado Group (OCDO) 347.00p +8.61%

Northgate (NTG) 498.50p +7.09%

Serco Group (SRP) 110.80p +4.73%

AO World (AO.) 157.80p +3.82%

Allied Minds (ALM) 495.00p +3.77%

Brewin Dolphin Holdings (BRW) 288.20p +3.41%

Foxtons Group (FOXT) 243.40p +3.14%

SSP Group (SSPG) 300.20p +3.09%

Riverstone Energy Limited (RSE) 956.00p +2.80%

Regus (RGU) 314.40p +2.78%

FTSE 250 - Fallers

Premier Farnell (PFL) 111.90p -16.05%

Rotork (ROR) 193.60p -10.37%

Hunting (HTG) 440.50p -6.50%

Kier Group (KIE) 1,410.00p -4.47%

Interserve (IRV) 580.00p -3.65%

Zoopla Property Group (WI) (ZPLA) 209.20p -3.59%

Petrofac Ltd. (PFC) 818.50p -3.36%

Petra Diamonds Ltd.(DI) (PDL) 107.80p -2.80%

Electrocomponents (ECM) 182.50p -2.77%

Lonmin (LMI) 22.17p -2.76%

FTSE TechMARK - Risers

Oxford Biomedica (OXB) 8.70p +5.45%

Oxford Instruments (OXIG) 595.50p +4.47%

Electronic Data Processing (EDP) 65.50p +3.56%

Ricardo (RCDO) 898.00p +2.05%

NCC Group (NCC) 259.25p +1.97%

Dialight (DIA) 651.00p +1.72%

Spirent Communications (SPT) 75.75p +1.68%

SDL (SDL) 369.25p +1.23%

KCOM Group (KCOM) 91.25p +0.83%

Sepura (SEPU) 174.25p +0.72%

FTSE TechMARK - Fallers

Filtronic (FTC) 6.50p -3.70%

E2V Technologies (E2V) 233.25p -0.64%

Consort Medical (CSRT) 926.50p -0.43%