London pre-open: Stocks seen lower after Fed outlook
London stocks were set to fall at the open on Thursday after the US Federal Reserve issued a downbeat outlook on the recovery.
The FTSE 100 was called to open 94 points lower at 6,235.
CMC Markets analyst David Madden said: “The Fed kept interest rates on hold at 0.0-0.25%, which met economists’ forecasts. The Fed will continue to purchases treasuries and mortgage-backed securities at its current rate of $80 billion per month and $40 billion per month respectively. Jerome Powell, the head of the US central bank, basically said that interest rates will remain at or near their current level until at least 2022. Mr Powell stated that rates will stay close to zero until the US is on track to achieve maximum employment.
“The US central bank released some economic predictions. This year the US economy is tipped to contract by 6.5%, while in 2021 and 2022 it will see growth of 5% and 3.5% respectively. By the end of 2020, the unemployment rate is anticipated to be 9.3% but then it is expected to drop to 6.5% next year and slide to 5.5% in 2022. In 2023, the level is projected to be 4.1%.
“It is worth remembering the pre-pandemic unemployment rate was 3.5%, so one gets a scale of how the labour market has been impacted by the health emergency. The economic projections are based on the idea the recovery will begin in the second half of this year and it should last two years.”
In corporate news, online retailer Ocado said it had successfully raised just over £1bn to exploit the rapid change in internet grocery shopping habits sparked by the coronavirus crisis.
Investors handed Ocado £657m through a placing and £350m via a debt issue of unsecured bonds due to mature in 2027.
The company cited industry data from Nielsen revealing online penetration of the UK grocery market had almost doubled to 13% in recent months compared with 7% before the pandemic broke out.
Telecoms group TalkTalk pulled guidance and set aside £15m for bad debts in 2021 in response to the coronavirus crisis but reported a rise in core earnings on the back of more reliable fibre internet connections.
The company reported a 9.7% rise in earnings before interest, tax, depreciation and amortisation to £260m.
It also declared a final dividend of 1.5p a share. TalkTalk added that it would be cutting back on the use of third party customer service call centres after lockdowns forced closures during the pandemic and the company was forced to moved to online contact.
“We will not be returning to pre-Covid-19 contact centre agent levels, further supporting our cost reductions,” the company said.
Unilever plans to unify its legal structure as a UK Plc to become a simpler company more able to make acquisitions and disposals in the wake of the Covid-19 crisis.
The Anglo-Dutch company will make the change through a cross-border merger between Unilever Plc and Unilever NV. Shareholders of the Dutch NV company will receive one Plc share for each of their shares.
The FTSE 100 consumer goods maker said there would be no change to operations or staffing levels in the UK or the Netherlands or the manufacture or supply of products after the unification.