London pre-open: Stocks to fall after hawkish Fed, ahead of BoE

(Sharecast News) - London stocks were set to fall at the open on Thursday following a downbeat session on Wall Street, where stocks slid and bond yields surged after the Federal Reserve kept rates unchanged but delivered a hawkish outlook.

The FTSE 100 was called to open around 53 points lower.

The federal funds rate was left unchanged, as was widely expected, but interest rate forecasts were revised upwards for the next three years, with the dot plot graph showing that nine of the Fed's 18 policymakers expect at least one rate hike before the end of 2026 - though new chair Warsh abstained from submitting a projection. Back in March, no Fed participants expected a hike.

In the press conference following the decision, Warsh said policymakers were still "unambiguously and unanimously" committed to bringing inflation back to the Fed's 2% target. However, he added that "the Committee will deliver price stability", which markets took to mean the Fed is prepared to hike rates if necessary.

"The Fed did not hike, but Warsh made hikes believable again. That was enough to force the front end, the dollar and risk assets to reprice," said Stephen Innes at SPI Asset Management. "This was a hawkish hold, not a policy move. The message was that the bar for a hike is lower, while the bar for a cut has moved higher."

On home shores, figures from the Office for National Statistics showed the unemployment rate unexpectedly eased in April.

The rate was estimated to be 4.9% in the three months to April, up 0.3 percentage points on the year but down 0.3 percentage points on the last quarter. The market had been expecting no change.

Average earnings, meanwhile, ticked higher, rising 4.4% or 3.4% once bonuses were stripped out. Regular earnings increased 5.1% in the public sector, but by a more modest 2.9% in the private sector, the lowest rate in five and a half years.

A number of measures did point to some softening in the labour market, however. Payroll numbers continued to fall, by 0.5% year-on-year, with new recruits at their lowest level in five years. The claimant count for May was also higher, at 1.7m.

But Liz McKeown, director of economic statistics at the ONS, said: "The labour market remained broadly stable in the latest quarter.

"Overall employment was little changed, with some signs of workers moving into self-employment."

Looking to the rest of the day, investors will eye the latest policy announcement from the Bank of England, which is widely expected to leave rates on hold at 3.75% at midday.

The latest developments in the US-Iran conflict were also set to be in focus after Donald Trump and Iranian President Masoud Pezeshkian digitally signed a memorandum of understanding. The US president signed the MOU before a dinner in Versailles, France, with French President Emmanuel Macron and others. Trump said the deal averts a ""worldwide depression".

In corporate news, Tesco held annual guidance after reporting a rise in like-for-like sales in the first quarter.

Sales in the 13 weeks to 30 May rose 1.8% compared with "an exceptionally strong prior-year period supported by record-breaking weather and competitor disruption", Tesco said in a trading statement, adding that the war in Iran and Lebanon continues to create uncertainty for customers.

The supermarket chain still expects annual adjusted operating profit of between �3.0bn and �3.3bn.

Premier Inn owner Whitbread backed its full-year outlook as it said forward bookings in the UK remain ahead of last year, supported by peak leisure bookings.

In an update for the 13 weeks to 28 May, the company said group like-for-like sales rose 2% to �727m, with positive trading performance in both Premier Inn UK and Premier Inn Germany, partially offset by an expected reduction in UK food and beverage sales.