The pound has broken back above the 1.31 handle against the US dollar this morning to trade at a 10-month high. The FTSE 100 is lower by 12 points on the day as the benchmark continues its recent struggle to find a clear direction.
Devil is in the detail for the Fed
An ever so slightly less hawkish than expected message from the US central bank last sent the US dollar tumbling to a 14-month low. The markets looked through hints that the process of balance sheet reduction (a form of monetary tightening) could begin as soon as the next meeting in September and seemed to focus instead on the dropping of “somewhat” from the line on inflation from the prior statement which now reads as “running below 2 percent”. Whilst this is clearly a minor alteration it was taken as a sign that the inflation outlook form the Fed has been adjusted lower and therefore further rate hikes are less probable.
US dollar continues its decline
Yields on US bonds fell and the greenback extended recent losses as the GBPUSD shrugged off an uninspiring UK GDP print yesterday morning to end the US session on its highs and back above 1.31. The US dollar index is now not far from levels last seen in 2014 despite the Fed being in the midst of a hiking cycle and the buck currently sits some 10% below the highs seen in December last year, when Trump’s victory and promise of pro-growth economic policies saw a rapid appreciation and the currency rise to its highest level in over a decade.
AstraZeneca (LON:AZN) plunge weighs down the FTSE
US stock markets reacted positively to Fed statement with yet more records falling in New York. This positivity has failed to boost shares this side of the Atlantic however, with a dramatic drop of around 15% in AstraZeneca’s stock weighing on the FTSE 100. Early trading in London saw some sharp selling after the drugmaker said trials of a lung cancer treatment did not meet expectations. The firm also reported its results for the second quarter which could be described as broadly in line with expectations, with a 10% drop in sales offset to some extent by a similar size beart in earnings per share. However the failure of the highly anticipated lung cancer drug, known as Mystic, has usurped the financials and seen investors rushing for the exit.
Lloyds (LON:LLOY) drops despite posting biggest profit this decade
Shares in Lloyds Bank have fallen by more than 2% after the lender missed analysts expectations in its results for the 6 months to June 30th. An increase in pre-tax profit of 4% was smaller than expected, with the figure of £2.54bn significantly below estimates of a rise to around £2.9bn. PPI costs continue to haunt the business with a further £1bn set aside today - far more than the £400m expected by city analysts. Whilst the results missed forecasts, they were positive in historic terms with the rise in profit the biggest seen in eight years. This morning’s release suggests that the firm, which is the UK’s biggest retail bank, seems to remain on the right track however it also serves as a timely reminder that the recovery from the financial crisis is far from complete and investors shouldn’t get ahead of themselves in thinking it will be plain sailing ahead.