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FTSE rallies but pound drops as Fed’s Powell flags rate peak

UK stock market advances 0.75% after surprise suggestion from US Federal Reserve chairman Jerome Powell that US interest rate rises may be nearing an end.

FTSE rallies but pound drops as Fed’s Powell flags rate peak

The UK stock market rallied 0.75% – with the FTSE 100 rising 52 points to 7,049 – after an overnight advance on Wall Street prompted by the surprise suggestion from US Federal Reserve chairman Jerome Powell (pictured) that the US may be nearing an end to its rate-rising cycle.

Powell, who has been repeatedly attacked by US President Donald Trump for a series of quarterly rate hikes by the Fed, said the central bank's policy rate was now 'just below' a neutral level.

Andy Scott of JCRA, a financial risk management consultancy, said it was hard to to believe Powell would let the president pressure him. ‘But at the same time, the economic data from the US over the past month has remained robust, so it does make you wonder why he appears to be signalling now a lower path for interest rates than in October.’

The Fed is still expected to raise rates again next month. Its benchmark rate of 2-2.25% is within a quarter percentage point of the Fed's neutral range but several quarter point hikes below its estimated 'median' point of 3%, which explains why, as recently as last month, Powell said US interest rates were still a 'long way' from neutral.

After falling in response to Powell's comment, the dollar later regained as traders cautiously bought back into the greenback ahead of this weekend's G20 summit when Trump is due to meet Chinese president Xi Jinping to discuss trade tensions between the two countries. 

Wall Street opened lower when trading resumed this afternoon with the S&P 500 0.3% off at 2,734.

Anina Mitra, senior sovereign analyst at BNY Mellon Investment Management, said the market was roughly 50:50 on whether the US and China could reach a deal. She believed the most probable outcome was a meeting concluding with deliberate ambiguity over whether or not further tariff increases would start in January.

'I suspect there will be pressure to sign some kind of deal, but if US Trade Representative Robert Lighthizer has his way it will be an agreement where the US removes the tariffs only when it is verifiable that China has implemented its commitments,' Mitra said.

The pound fell 0.4% to $1.2776 against the dollar as markets continued to mull over the Bank of England's warning yesterday of a heavy hit to the UK economy from a disorderly exit from the European Union next March.

Mining stocks led the FTSE 100 higher with Antofagasta (ANTO), Fresnillo (FRES), Randgold Resources (RRS) and Glencore (GLEN) among the top risers with gains of between 4.7% and 3%. 

Property companies dominated the blue chip fallers after shopping centre specialist Intu Properties (INTUP) warned it would cut its dividend following the collapse of takeover talks with a consortium of investors. 

Its shares plunged 38% or 74p to a record low of 118p with British Land (BLND) and Land Securities (LAND) – rivals with retail heavy portfolios – sliding 5.4% and 4% respectively.

The FTSE 250 was relatively subdued up 0.2% or 28 points at 18,668 and the FTSE Small Cap was basically flat, up five points at 5,388.

However, the broader FTSE All-Share index rose 22 points or 0.6% to 3,861 buoyed by a separate Bank of England stress test which found the UK’s seven biggest lenders could withstand a no-deal exit from the EU.

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