London pre-open: Stocks seen muted as investors eye Fed announcement

London stocks were set for a muted open on Wednesday as investors looked ahead to the latest policy announcement from the US Federal Reserve.

The FTSE 100 was expected to open unchanged at 7,275.

The Fed is widely expected to stand pat on interest rates, but the central bank may well start winding down its balance sheet.

CMC Markets analyst Michael Hewson said: “There’s been a great deal of anticipation about this week’s Federal Reserve rate meeting particularly since the FOMC looks set to pull the trigger on the beginning of the paring down of its $4.5trn balance sheet. This doesn’t appear to be in any doubt, nor does the fact that the bank is expected to keep rates unchanged, given that inflation still remains on the weak side, and the damage impact of hurricanes Harvey and Irma continues to be assessed.

“The main question surrounds the timing of when the next rate rise is likely to come, and for this there is a school of thought that suggests the market is under-pricing the prospect that we could get one more hike this year, in December.

“This is why particular attention is likely to be focussed on the dot plot projections of where US policymakers see the potential glide path for rates into next year. It is unlikely that Fed officials will want to take the prospect of a December move off the table, so it would be a surprise to see any changes to the short term predictions, but there is a whole raft of factors that could delay the prospect of a move in December, and see fewer projected increases into 2018.”

Retail sales are at 0930 BST and the FOMC rate announcement is at 1900 BST.

On the corporate front, Kingfisher posted better profits than were expected for the first half of the year but the do-it-yourself retailer remained cautious on the second half backdrop in the UK and France.

The FTSE 100 group, which had released most of its sales figures already that showed continued weaker sales in France and disruption to its UK business from product availability, reported retail profit in the six months to 31 July up 0.5% to £467m, underlying pre-tax profit up 1% to £440m and adjusted pre-tax profit down 6% to £394m.

Diageo issued an update on its trading, claiming its business continued to strengthen through improved marketing, innovation and commercial execution, as investors prepared for the company’s annual general meeting.

The FTSE 100 distilling giant said it remained “well set up” to deliver in line with its own expectations.

“We expect the H1 organic net sales growth rate will be impacted by the later timing of Chinese New Year and by the expected impact of the highway ban in India,” chief executive Ivan Menezes noted.

In an update for the period from 1 April, Babcock said trading is in line with its expectations and the outlook for the year is unchanged. Revenue visibility has continued to improve, with 89% of revenue now in place for 2017/18 and around 57% for 2018/19.

Meanwhile, the order book and bid pipeline of opportunities are stable and continue to provide the group with the confidence to grow revenue as expected over the medium term.