LONDON MARKETS: FTSE 100 Ends Choppy Day Lower As Pound, Fed Decision Take Center Stage

Retail shares extend gains after strong August sales report

U.K. stocks closed slightly lower Wednesday as a brief surge in the pound yanked the benchmark FTSE 100 to session lows, but retail shares added to gains after monthly British retail sales leapt past expectations.

All the moves were made before Wednesday's marquee event for global markets took place: the U.S. Federal Reserve's September policy decision.

The FTSE 100 index ended down 0.1% at 7,271.95 after swinging between gains and losses through the day. On Tuesday, the London benchmark rose 0.3%. (

Retail stocks on Wednesday extended gains after U.K. retail sales in August grew 1% month-over-month ( as consumers picked up items at department stores and purchased home-improvement products. That figure was well above FactSet's consensus estimate for a 0.2% increase. Sales growth of 2.4% year-over-year was also above expectations.

Shares of department-store chain Marks & Spencer Group PLC (MKS.LN)(MKS.LN) jumped 2.4%, and apparel and home furnishings seller Next PLC (NXT.LN) climbed 1.9%.

Home improvement retailer Kingfisher PLC (KGF.LN) ended up 5.6%, leading in price performance Wednesday. Kingfisher said it is on track to meet targets in the second year of its five-year restructuring plan, as it raised its dividend. But first-half profit fell 6% (, and the company stayed cautious in its outlook for its core U.K. and French markets.

Pound: The FTSE 100 dropped by as much as 0.4% in morning trade as the pound sprang toward levels last seen in June 2016, after the U.K.'s Brexit referendum. Pound strength can eat into earnings made overseas by multinational companies that are heavily weighted on the FTSE 100, therefore pressure shares of those companies.

Sterling hit an intraday high of $1.3608 after the sales report from the Office for National Statistics.

"U.K. retail sales rose a far better-than-expected 1% in August, that figure ostensibly increasing the likelihood of a Bank of England rate hike," said Spreadex financial analyst Connor Campbell, in a note.

But Campbell noted two factors that likely resulted in the pound quickly lost grip of $1.36. "First is the fear that the increase in spending is being fueled by a rise in consumer credit, an issue the Bank of England has repeatedly warned on in recent months," he wrote.

"Then there was the latest round of economic projections from the OECD, which puts the U.K. at the bottom of the G-7 GDP table with expectations of just 1% growth in 2018," which compares with a growth forecast of 1.9% in the eurozone, and a 2.1% rise in Germany, he added.

The pound traded at $1.3557 at the time of the European close, compared with $1.3511 late Tuesday in New York.

Fed ahead: As well, investors were looking ahead to the U.S. Federal Reserve's policy decision. That's was expected at 7 p.m. London time, or 2 p.m. Eastern Time, and will be followed by a news conference hosted by Chairwoman Janet Yellen at 2:30 p.m. Eastern.

The Fed is widely expected to say it will start reducing its $4.5 trillion portfolio of government securities. An interest-rate hike isn't expected at the end of the central bank's two-day meeting, and investors only see a 56% chance the Fed will raise rates in December (, according to CME Group.

"According to their last projection, the Fed expected seven rate hikes by the end of 2019. However, in the new forecast, the market is widely expecting them to drop one interest rate hike," said Naeem Aslam, chief market analyst, at ThinkMarkets UK, in a note.

"Anything which deviates from the Fed's plan would spark concern for the markets. We do think that another rate hike by the end of this year still has 40% chance, however the upcoming economic data is going to keep traders on their toes, due to the massive footprints of hurricanes," he said, referring to the recent Hurricanes Irma and Harvey.

Read:'Extremely dangerous' Hurricane Maria makes landfall in Puerto Rico (

Stock movers: Babcock International Group PLC (BAB.LN) shares surged 5.8% after the infrastructure-support company backed its fiscal 2018 forecast (

Diageo PLC (DEO) (DEO) shares fell 2.8% after the liquor maker said it expects first-half organic sales growth to be hit by the later timing of the Lunar New Year ( and by the expected effect of a ban on selling alcohol along highways in India.

(END) Dow Jones Newswires

September 20, 2017 12:11 ET (16:11 GMT)