London Markets: FTSE 100 faces first loss in 6 as investors weigh Fed’s next move

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U.K. stocks ebbed lower Thursday, following a five-session winning streak for the blue-chip market, with the focus on the U.S. Federal Reserve decision and its flagging of stronger inflation.

How markets are moving

The U.K.’s FTSE 100 index UKX, +0.09% was off 0.1% lower at 7,539.52, led by the consumer goods and telecoms groups. But the oil and gas and utility groups were among those moving higher. On Wednesday, the index rose 0.3% to finish at 7,543.20. That marked a fifth straight winning session.

The pound GBPUSD, +0.1105%  traded at $1.3610, compared with $1.3572 late Wednesday in New York.

What’s driving the market

U.K. equity investors were getting the first chance to react to the Federal Reserve’s statement released late Wednesday, in which policy makers said readings for both headline and core inflation have moved close to the central bank’s 2% target.

But traders found little clarity in the statement about how that view would change the expected pace of rate hikes from the U.S. central bank this year. U.S. stocks   DJIA, -0.72%  initially rose after the statement but eventually reversed course and finished lower, leaving the both the S&P 500 SPX, -0.72%  and the Dow Jones Industrial Average DJIA, -0.72%  down by 0.7%.

The prospect of higher borrowing costs for corporations and consumers, as well as dollar strength on expectations of rate hikes, can ripple through equity markets worldwide.

Meanwhile, investors will keep watch for any developments from Beijing, where U.S. and Chinese officials have begun discussions on tariffs and other trade issues. Mining shares, which can be sensitive to developments from China — a big buyer of metals — were largely higher Thursday.

Economic docket

A reading on U.K. services-sector activity is expected to come in at 53.3 for April, when the report is released at 9:30 a.m. London time, or 5:30 a.m Eastern Time.

Check out: What’s happening to London’s cranes? Brexit bites into U.K. constructions

Stocks in focus

Smith & Nephew PLC SN., -6.35%   stock dropped 7.6% after the medical device maker lowered its full-year guidance for revenue. The company said first-quarter revenue was flat on an underlying basis after a mixed performance.

Glencore PLC GLEN, +1.06%  shares rose 1.6%. The commodity and mining company said first-quarter production was largely in line with views across all commodity groups, with full-year guidance unchanged.

What strategists are saying

• “The monetary policy adopted by the Fed is very much dependent on the economic conditions and they surely do not want to derail the entire recovery in the U.S. by adopting an extraordinary hawkish monetary policy stance,” said Naeem Aslam, chief market analyst at ThinkMarkets, in a note.

• “Despite some skepticism around equity valuations, there’s still little to challenge shares as an asset class and a weak pound should underpin the U.K. market,” said Richard Hunter, head of markets at Interactive Investor, in a note.

“Sterling is down over 5% from its post-referendum peak just a fortnight ago, and it’s difficult to see much of a recovery near-term following poor GDP data, falling inflation, and a period of political instability as we near Brexit in 2019. It makes a rate rise by the Bank of England next week incredibly unlikely,” said Hunter.