London pre-open: Stocks seen up ahead of Powell speech

23rd Aug 2024 07:30

(Sharecast News) - London stocks were set to gain at the open on Friday as investors eyed a speech by Federal Reserve chairman Jerome Powell at Jackson Hole.

The FTSE 100 was called to open around 35 points higher.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said Powell is expected "to douse the jumbo rate cut expectations because there is no reason for the Fed to start cutting the interest rates by big chunks in the absence of a severe economic slowdown, market stress, or a crisis".

"This is at least what the data suggests and what other Fed members nudge toward, as well," she added.

"The swap markets continue to price in around 95bp cut from the Fed from September to the end of the year. A this-size cut means that the Fed should cut its rates every time it meets this year and cut by 50bp in one of the meetings. From where we stand right now, it seems more likely that this will not happen than the opposite.

"Therefore, the pricing must readjust to match at least a 75bp cut by the year end. The real risk here - for the doves - is if the Fed starts cutting rates in September and decides to pause - like did the European Central Bank (ECB) in July for example.

"If that's the case, if there is a pause to Fed rate cuts in November, then the year will end with only a 50bp cut for the Fed - and that could weigh heavier on risk appetite and give a serious positive jolt to the US dollar."

On home shores, a survey out earlier from GfK showed that consumer confidence remained stable in August, as improving sentiment towards personal finances was offset by the first fall in economic expectations in six months.

The GfK Consumer Confidence Barometer came in at -13, in line with the July reading and up from -25 in August of last year.

Three of the five sub-indices of the survey measuring people's personal finances improved in August while two measuring sentiment towards the economic environment worsened.

Notably, the sub-index measuring sentiment towards people's personal financial situation over the next 12 months jumped by three points to +6, which GfK client strategy director Joe Staton said could be due to the recent Bank of England interest-rate cut "and hopes of more to come".

Meanwhile, the major purchase index, which tracks the public's confidence in making major purchases such as furniture or electrical goods, improved to -13 from -16.

"The three-point jump in the major purchase index is great news for retailers with more shoppers agreeing that now is a good time to buy big-ticket items," Staton said.

However, two sub-indices measuring consumers' views on the economic situation both declined further into negative territory, with economic sentiment for the coming year falling four points to -15 - the first drop since February.

Nevertheless, Staton said that all the key numbers this month are "significantly more encouraging" than 12 and 24 months ago. "But as we move into autumn and winter, how much further will this slow improvement in the mood of the nation run?"

In corporate news, Direct Line Insurance said that it had identified a miscalculation in its 2023 Solvency II own funds related to the reinsurance arrangement, which did not affect IFRS figures.

Correcting the error, the company said its year-end solvency capital ratio was revised from 197% to 188%, still above its risk appetite range.

The group said it anticipated a solvency capital ratio of around 200% by June, thanks to strong capital generation, and had implemented measures to strengthen its control environment.

Evoke announced the acquisition of New Gambling Solutions (NGS), which operates Winner.ro, making it the number four online betting and gaming operator in Romania by combining 888.ro with Winner.

It said the deal involved a €10m cash consideration for a 51% stake in the enlarged Romania business, with an option to increase ownership to 100% after three years.

The transaction aligned with Evoke's strategy to focus on high-growth, regulated markets, expected to enhance earnings and reduce leverage from 2025 onward, while positioning Romania as Evoke's fifth core market.