The Morning Call - Fed raises rates to 1.25%, pledges to reduce balance sheet

Highlights of the Day

Asian Markets

Asian equities turned cautious after the U.S. Federal Reserve raised interest rates for the second time this year, as was widely expected by markets. Lower oil prices took a toll on energy-related shares across the region, while Japan’s benchmark slipped as the yen gained against the dollar

U.S. Markets

U.S. stocks mostly fell while the dollar cut its losses after the Federal Reserve delivered a widely expected U.S. interest rate hike. A slide in technology stocks weighed on the technology index as investors worried about the pace of economic growth after the rate increase and weaker-than-expected inflation data.

Today's News

The Federal Reserve hiked its benchmark interest rate for the third time since December to a range from 1% to 1.25%, as the chairwoman of the US central bank assessed that the world’s biggest economy was “doing well”. A summary of Fed members’ projections for the economy and monetary policy suggests plans for another quarter-point rate hike this year, and three in 2018. The Fed’s monetary policy committee said that it would begin gradually reducing its holdings of $4.5 trillion in government bonds and mortgage-backed securities this year. The balance sheet will initially shrink by $10 billion a month. Chairwoman Janet Yellen said that pruning the Fed’s holdings, built up by some $3.7 trillion during so-called quantitative easing efforts to spur private investment from 2008-14, is part of a “normalization process” for monetary policy.

UK Prime Minister Theresa May plans to meet leaders of Northern Ireland’s five main political parties on Thursday, officials said, amid concerns that her planned deal to form a working government in Westminster could undermine efforts to revive power sharing in the territory. May and Northern Ireland Secretary James Brokenshire will meet the party leaders in London “to build on the political discussions that restarted on Monday in Belfast,” Brokenshire said. “There is very little time left. An agreement to restore devolved power-sharing government in Stormont must be reached by the 29 June deadline,” he said, referring to the seat of Northern Ireland’s devolved government.

DFS Furniture has warned that full-year earnings are likely to be below market forecasts after a a greater-than-expected weakening in the trading environment. In the group’s half year results announcement on 30 March, it highlighted the expectation of a softer market environment in the second half of its financial year. An update said: “The trading environment has however recently weakened beyond our expectation, with significant declines in store footfall leading to a material reduction in customer orders. “We believe these demand effects are market-wide, in line with industry indicators, and are linked to customer uncertainty regarding the general election and the uncertain macroeconomic environment.

Underlying pre-tax profits at WS Atkins rose by 18.4% to £164.6m in the year to the end of March. The group continued to improve its underlying operating margin along with revenue that rose 11.8% to £2.08bn (2016: £1.86bn) up 4.3% on a constant currency basis. Underlying operating profit increased 15.7% to £171.5m (2016: £148.2m), at an improved underlying operating margin of 8.2% (2016: 8.0%). Operating cash flow in the year was £100.4m (2016: £116.1m), representing 65.2% (2016: 81.0%) of operating profit on a reported basis. Chairman Allan Cook and chief executive Prof Dr Uwe Krueger said: “We delivered a strong set of results this year with underlying profit before tax improving by 18.4% to £164.6m.

Sky and Virgin Media have announced a strategic partnership that will enable businesses both big and small to benefit further from advanced TV advertising across both Virgin TV and Sky platforms. They said advertisers would be able to target a potential audience over time of more than 30m viewers; putting it on par with leading social networks. “By using market-leading targeting technology, underpinned by in-depth customer data, the partnership will transform the scale of addressable TV advertising in the UK and Ireland, giving brands the ability to target audiences whilst utilising the attractive, quality, trusted, and brand safe environment of TV,” the pair said. The partnership covered both targeted linear and video on demand (VOD) TV advertising, with Virgin Media making use of technology developed by parent company, Liberty Global, as well as Sky’s ground-breaking and award winning Sky AdSmart.

Safestore has boosted its H1 pretax profit to £55.0m, from £49.1m, with dividend rising to 4.2p a share, from 3.6p. It said it remained on course to meet directors’ FY expectations. This was as revenue grew to £57.4m, from £53.6m. CEO Frederic Vecchioli said Safestore performed well in the first half of the year and continued to build on the strong earnings and dividend growth achieved over the last four years. “Notwithstanding the uncertain macro-economic backdrop, the group continues to generate a record number of enquiries across its entire platform,” he said. “In addition to solid growth in our existing business, our recently acquired Space Maker business and the five new stores opened during the last twelve months are trading well. I am delighted to announce the addition of another site in Paris, at Combs-la-Ville, which opened earlier this month.”

UK Commercial Property Trust Ltd said it has acquired a single-let office building in Sheffield from Edison Property Investment Co for £20.2m, reflecting a net initial yield of 5.0%. The 61,638 square feet building has been let to Capita Business Services Ltd, part of Capita PLC, on a lease with annual indexed linked rent increases and 22 years to expiry. The lease delivers a rent of £1.1m, and the deal is expected to increase the trust’s exposure to long term, secure and growing income streams.

Mobile phone users registered in the European Union will be able to use their devices while travelling or vacationing anywhere within the bloc without having to pay roaming charges starting Thursday. The milestone was reached after a 10-year process to abolish roaming charges within the EU, based on the principle that EU residents shouldn’t be charged more for using their phones when crossing national borders inside the European single market.

Oil prices Crude futures stabilized, near 7 month lows, following sharp declines in the U.S., but investor sentiment continued to be battered by data showing that the market remains awash in surplus oil.

Gold was trading down in early trade after the Federal Reserve increased interest rates but was less dovish than expected following a two-day meeting.

Companies Reporting this week

Day	Companies
Today:	Atkins (WS) Consort Medical John Laing Environmental Assets Group Limited Liontrust Asset Management Majestic Wine
Tomorrow:	Real Estate Credit Investments * Record

Early Market Movements

Market	Index	Change	% Change
UK 100	7,438.4	-36.0	-0.5%
UK 250	19,812.4	-162.3	-0.8%
GER 30	12,802.4	-3.6	-0.0%
FRA 40	5,225.71	-17.58	-0.3%
U.S. 30	21,374.56	+46.09	+0.2%
U.S. 500	2,437.9	-2.4	-0.1%
OIL (BRENT)	47.00	+0.00	+0.0%
GOLD	1,261.07	+0.21	+0.0%

UK Risers & Fallers (8:15am)

Company	Price	Change	% Change
Petrofac	420.85	+15.75	+3.9%
HSBC	684	+3.3	+0.5%
Intu Properties	272.5	+1.1	+0.4%
NewRiver Reit	344.85	-24.15	-6.5%
Persimmon	2305	-117	-4.8%
Next	4164	-137	-4.8%

Latest Broker Views

Company	Broker	Recommendation	Price	Target
Ashmore Group	Berenberg	Buy	353.65	400.00
BT Group	Deutsche Bank	Sell	298.00	265.00
Rolls Royce Group	Deutsche Bank	Sell	890.50	525.00
Petrofac	Jefferies	Buy	420.20	835.00

Forthcoming Economic Data

Time/Date	Previous	Forecast	Outcome
8:30am: U.K. Retail Sales m/m	2.3%	-0.9%	–
11:00am: MPC Official Bank Rate Vote	1-0-7	1-0-7	–
11:00am: Official Bank Rate	0.25%	0.25%	–
12:30pm: U.S. Unemployment Claims	245k	241k	–