London pre-open: Steep drop expected on FTSE

13th Nov 2013 07:25

City sources predict the FTSE 100 will open around 46 points below yesterday's close of 6,727, tracking US markets lower ahead of the release of the Bank of England's (BoE) highly anticipated Inflation Report. Sentiment on Wall Street was dampened last night by heightened speculation about a near-term tapering of quantitative easing (QE). This was in part fuelled by Dallas Fed President Richard Fisher, who told CNBC that "markets should bear in mind that this programme [QE] cannot go on forever". Meanwhile, Atlanta Fed President Dennis Lockhart warned that a taper could very well take place next month.Also in focus were analysts at Morgan Stanley, who reportedly said that they see a 40% chance of tapering in December and 60% probability in January.Finally, overnight the Chinese Communist Party (CCP) wrapped up the third plenary session of its 18th Congress, with some market commentary suggesting that it only provided very "general" guidelines for further reform. Morgan Stanley is now reportedly calling for two interest rate reductions this year from the People's Bank of China. Bank of England to unveil latest forecasts The report, which will lay out the central bank's economic forecasts and provide guidance on the future path of interest rates, comes hot on the heels of inflation figures out yesterday, which revealed the lowest reading since September 2012. UK inflation, as measured by the consumer price index, fell to 2.2% in October from 2.7% a month earlier, the Office for National Statistics said. Economists had forecast a reading of 2.5%.The decline was driven by the biggest fall in transport prices since July 2009."October's inflation figures suggest that the UK economy is hitting a sweet spot of accelerating GDP growth and declining price pressures. And inflation is likely to fall further in the near future," said Capital Economics.The BoE is now considerably closer to its inflation target of 2%, which it has exceeded since December 2009.It has fuelled speculation that the BoE might revise its key interest rate, currently at a record low of 0.5%. However, the central bank has insisted that it would keep the rate unchanged until unemployment falls below 7%.The unemployment rate for the third quarter is due on Thursday before the inflation report and is expected to hold steady at 7.7%.While Wednesday's focus will be squarely on the Bank's inflation report, a raft of corporate results will also be high on the agenda.One such stock is Tullow Oil, which said it is confident of exiting 2013 with oil production at record levels after "strong production across the group" in the third quarter. The FTSE 100-listed oil producer said it is on track to deliver an average of 84,000-88,000 barrels of oil equivalents per day (boepd) for 2013, up slightly from the 79,200 boepd produced in 2012.In other company news, AMEC, the international engineering and project management company, has scored a hook up and commissioning (HUC) support contract for GDF SUEZ E&P UK's Cygnus gas field development, the UK Southern North Sea's largest gas discovery in the last 25 years. The work will be part of a series of major platform installations, including the full spectrum of commissioning and completions support. Construction, services and property firm Kier Group said it remains on course to meet company expectations for the current financial year but while it is encouraged by signs of economic growth, it is experiencing inflationary cost pressures, particularly in its Construction businesses. The FTSE 250-listed firm said order books in Construction and Services are robust and are performing in line with its own forecasts.The London Stock Exchange reported a 44% rise in revenue to £504.2m for the first half with growth across all divisions. Total income for the six months through September increased 34% to £567.1m, boosted by the acquisition of European clearing house LCH.Clearnet in May.NR