British shares traded sideways on Wednesday as investors' anticipation of a rate rise from the US Fed drove financial stocks higher while high-yielding consumer stocks suffered. The FTSE 100, mid-cap and small-cap indices all held steady by 0920 GMT, reflecting the broader European market which tread water ahead of the rate decision.
The prospect of rising rates in the United States drove sector performance on Wednesday, boosting financials while dragging on housebuilders and consumer stocks. "The market does seem to have rotated a little bit into HSBC and financials. It's a little bit of an inflation trade coming back on with a return to the banks," said Colin McLean, CEO of SVM Asset Management in Edinburgh.
Financials were the best performers, led by HSBC, whose international footprint makes it easier for it to benefit from higher US rates. The stock was the strongest boost to the index. Barclays and RBS also gained slightly.
Housebuilders, which have benefited from historically low interest rates, fell 1.1 to 1.4 percent. Barratt Development, Taylor Wimpey and Persimmon all fell.
Ashtead fell back from the previous session's rally, down 5.2 percent at the bottom of the FTSE. Serco jumped 13 percent after the contractor reported a much rosier outlook for 2018 profit, saying it would come in at the top end of its range.
"We note that with the provisions utilisation continuing as expected, free cash generation is set to turn positive through 2018 - at last a positive and addressable valuation metric emerges," wrote ShoreCap analyst Robin Speakman. "In sum, encouraging, but still with tough markets evident," he added, reiterating the broker's 'hold' recommendation.
Dixons Carphone jumped 6 percent after reporting strong Black Friday trading and maintaining the first-half dividend. These positives outweighed a slump in profits caused by weaker mobile phone markets. In small-caps, shares in material technology firm Zotefoams were boosted up 15 percent after the company announced a partnership with Nike to supply it with foam technology.
The gap between valuations of the FTSE 100 and US benchmark S&P 500 has widened strongly since the Brexit vote, analysts at Man Group found. While this is partly down to US stocks becoming more expensive, it could also reflect investors' Brexit anxiety, they said, adding the trend could reverse if last Friday's negotiations breakthrough was a turning point. "Certainly international investors have been shunning the FTSE until Brexit is sorted. Money will come back when that happens," said SVM's McLean.
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