LONDON MARKETS: FTSE 100 Set For First Loss In 3 Sessions As Home Builders, HSBC Fall

By Carla Mozee, MarketWatch Features Dow Jones Newswires

Investors look ahead to BOE meeting on Thursday

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U.K. stocks fell for the first time in three sessions on Monday, with homebuilders under pressure and HSBC PLC moving lower following the lender's quarterly earnings report.

What markets are doing: The FTSE 100 index fell 0.3% to 7,486.54, with the consumer goods and financial sectors losing the most. The benchmark on Friday rose 0.3% (http://www.marketwatch.com/story/ftse-100-steps-higher-as-pound-slips-again-2017-10-27), trimming its weekly fall to 0.2%.

Meanwhile, the pound traded at $1.3195, up from $1.3127 late Friday in New York.

What's moving markets: The major event this week will be Thursday's Bank of England meeting, at which Governor Mark Carney and his colleagues may raise the key rate by a quarter percentage point to 0.5%.

Meanwhile, Monday's session got under way with news of ratings downgrades in the housing sector at Barclays.

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What strategists are saying: "No action [at the Bank of England] would be an unpleasant surprise for the market, after the U.K.'s headline inflation hit 3% level in September," said Ipek Ozkardeskaya, senior market analyst at London Capital Group, in a note.

"It is important to keep in mind that a 25bp hike is extensively priced in, therefore the BOE's tone will matter the most. A dovish hike (one-off action) could send cable below the 1.30 support, even if the BOE raises rates on Thursday," she said.

Home builders: Shares of homebuilders suffered around the bottom of the index following ratings downgrades issued by Barclays, including a cut of Berkeley Group Holdings PLC and Persimmon PLC (BKG.LN) to underweight ratings from equal weight.

Berkeley shares slumped 2%, off session lows, and Persimmon (PSN.LN) lost 1%. Taylor Wimpey PLC (TW.LN), whose shares were cut to equal weight from overweight, lost 0.5%.

"We are not signaling that we believe house-building fundamentals have deteriorated. Or that we expect the greater likelihood of rate rises (within sensible parameters) to upset the apple cart. However, very strong share price performance leaves little scope for disappointment and we believe expectations of further government measures could be overblown," said Barclays analyst Jon Bell in a research note.

The upcoming U.K. budget may include more measures to address the country's shortage of affordable houses and encourage more buying by first-time homeowners.

"With pressure to fix the housing supply shortage mounting, the [U.K.] Chancellor [Philip Hammond] may well have something up his sleeve in the Budget for home buyers that could be a big boost for the sector," said Neil Wilson, senior market analyst at ETX Capital.

Barclays held Barratt Developments PLC at an overweight rating. Its shares (BDEV.LN) were off 0.6%.

Corporates: HSBC (HSBA.LN) (HSBA.LN) was down 1.7% even as the banking heavyweight swung to a third-quarter profit of $3.24 billion (http://www.marketwatch.com/story/hsbc-swings-to-324b-profit-as-asia-bet-pays-off-2017-10-30) as revenue in Asia rose from increased customer borrowing and a growing deposit base.

EasyJet PLC (EZJ.LN) rose 2.2% after the budget carrier late Friday said it's buying assets from now defunct Air Berlin PLC. (http://www.marketwatch.com/story/easyjet-to-buy-assets-from-air-berlin-2017-10-28-124852653)

Budget woes?: Chancellor Hammond on Nov. 22 will deliver the U.K. budget on behalf of the Conservative-led government. The Institute for Fiscal Studies in a report published Monday (https://www.ifs.org.uk/publications/10010) said a downgrade by the Office for Budget Responsibility of its productivity growth forecast could lead to a total U.K. deficit of GBP36 billion in 2021-2022 -- nearly GBP20 billion higher than the OBR's forecast issued in March.

"Of course, it is possible that the economy, or the public finances, will perform much better than expected. But given all the current pressures and uncertainties -- and the policy action that these might require -- it is perhaps time to admit that a firm commitment to running a budget surplus from the mid 2020s onwards is no longer sensible," said IFS in its report.

(END) Dow Jones Newswires

October 30, 2017 08:09 ET (12:09 GMT)