London Markets: FTSE 100 moves lower as oil shares fall, Fed steps into the spotlight

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U.K. stocks slipped Wednesday, with investors entering wait-and-see mode ahead of the U.S. Federal Reserve’s decision on interest rates and the release of British inflation figures.

How markets are performing

The FTSE 100 index

UKX, -0.07%

fell 0.2% to 7,689.85, led by the oil and gas and telecom groups. But the industrial group was the best performing sector. On Tuesday, the blue-chip benchmark fell 0.4%.

The pound

GBPUSD, -0.2917%

bought $1.3357, down from $1.3370 late Tuesday in New York. Against the euro

GBPEUR, -0.2636%

sterling fetched €1.1376, down slightly from €1.1384 in the prior session.

What’s driving markets

Attention is turning to the Fed, which will issue a monetary policy decision later Wednesday. Moves by the U.S. central bank are closely watched by traders as it impacts interest rates and investment decisions worldwide.

But ahead of that, investors were pulling down oil and gas shares as oil prices

CLN8, -0.23%

  fell following the release of U.S. supply data. The American Petroleum Institute reported Tuesday that U.S. crude supplies rose by 833,000 barrels for the week ended June 8, confounding expectations for a drop in stockpiles.

And on Wednesday, the IEA said it expects oil supply growth outside the Organization of the Petroleum Exporting Countries to slow slightly next year, with the U.S. showing the biggest gain.

Also ahead of the Fed, data on U.K. consumer price inflation in May are due at 9:30 a.m. London time, or 4:30 a.m. Eastern Time, from the Office for National Statistics. Inflation is expected to have risen to 2.5%, according to a FactSet consensus estimate.

The Bank of England takes into account that data when setting monetary policy. But a recent run of than weaker-than-expected economic figures have raised questions about when the central bank will resume lifting rates. Its last rate hike of 25 basis points to 0.5% was in November, the first rate increase in a decade.

For the Fed itself, investors have priced in expectations that the Fed will lift the target range for the federal funds rate by 25 basis points to 1.75% to 2%, from 1.5% to 1.75% on Wednesday. That would be the second rate hike this year. The decision is due at 7 p.m. London time, or 2 p.m. Eastern Time.

Brexit bill under debate

Meanwhile, debate continues in the House of Commons on the bill that takes the U.K. out of the European Union. A key amendment put forth by the House of Lords was defeated Tuesday, considered a win for Prime Minister Theresa May. That amendment would have given Parliament the final say on terms of the U.K.’s exit from the EU if no deal could be reached with European Union negotiators.

Prime Minister Theresa May’s Conservative government still runs the risk of losing its bid to overturn some of the amendments if enough Conservative lawmakers decide to vote alongside opposition parties.

What strategists are saying

“A [Fed] rate increase today is almost guaranteed and fully priced in dollar’s performance so the key takeaway from the meeting will be whether the Fed intends to keep tightening further — with September coming into focus — or whether they will opt not to commit to another move at this stage,” said Konstantinos Anthis, head of research at ADS Securities, in a note.

“The performance of the U.S. economy suggests that the Fed have what they need in order to send a bullish message which will underpin the greenback’s performance. If [Fed Chairman] Jerome Powell discusses the progress in the U.S. economy and acknowledges the uptick in inflation — confirmed by yesterday’s CPI report — traders will take that as a signal that a September rate hike is on the table and the dollar will surge,” he said

Stock movers

Oil producers BP PLC

BP., -0.35%

BP, -2.12%

 and Royal Dutch Shell PLC

RDSB, -0.52%

RDS.B, -1.63%

 fell 0.3% and 0.5%, respectively, as oil prices fell.

Just Eat PLC shares

JE., -7.95%

 slid 7% after rival Deliveroo late Tuesday outlined expansion plans, including signing up about 5,000 more U.K. restaurants to its roster.

Dixons Carphone PLC

DC., -3.69%

 fell 3.2% after the consumer electronics retailer said there’s been a data breach involving 1.2 million personal records and 5.9 million payment cards.

Glencore PLC shares

GLEN, +1.81%

 rose 1.5% after the mining heavyweight unveiled a $5.6 billion restructuring of its troubled Congo copper company, Katanga Mining Ltd. which resolves dispute with Congo’s state-run mining company.

Carla Mozée is a reporter for MarketWatch, based in London. Follow her on Twitter @MWMozee.

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