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LONDON MARKET CLOSE: Europe and New York diverge after hawkish Powell

10th Nov 2023 16:53

(Alliance News) - Stocks in Europe suffered on Friday, as US interest rate worries cast a dark cloud over equity markets, though counterparts in New York had a more resilient start to the day.

The FTSE 100 index slumped 95.12 points, 1.3%, at 7,360.55. The FTSE 250 fell 184.76 points, 1.0%, at 17,853.09, and the AIM All-Share fell 3.17 points, 0.5%, at 701.09.

For the week, the FTSE 100 lost 0.8%, the FTSE 250 gave back 0.7%, though the AIM All-Share added 0.6%.

The Cboe UK 100 closed down 1.3% at 734.45, the Cboe UK 250 lost 1.2% at 15,450.97, though the Cboe Small Companies achieved a 0.2% gain at 12,857.04.

In European equities, the CAC 40 in Paris closed down 1.0%, while the DAX 40 in Frankfurt fell 0.8%.

In New York, the Dow Jones Industrial Average was up 0.4%, the S&P 500 added 0.7%, while the Nasdaq Composite shot up 1.1%.

"Following hawkish comments by Fed Chair Jerome Powell in which he stated that the central bank remains focused on combatting inflation and that he could not guarantee a halt to rate hikes, several Asian and European stock indices slid substantially ahead of the weekend. Despite Thursday's disappointing US 30-year treasury bond auction driving bond yields higher and US consumer sentiment falling for a fourth straight month, US indices remained in the green," IG analyst Axel Rudolph commented.

Sterling was quoted at USD1.2200 late Friday afternoon in London, dropping from USD1.2275 at the European equities close on Thursday. The euro traded at USD1.0670, lower than USD1.0709. Against the yen, the dollar was quoted at JPY151.49, up versus JPY151.00.

The higher for longer interest rate narrative may support the dollar and prevent counterparts from stealing a march as the year draws to a close.

Capital Economics analyst Jonathan Petersen commented: "In an otherwise quiet week, the greenback seems set to close higher against most major currencies, reversing much of its decline following the October payrolls data release. We think the dollar's rise is largely due to the renewed rise in US Treasury yields yesterday, which reflected the relatively hawkish tone in Chair Powell's comments and, to some extent, rising term premia from the latest Treasury auction.

"The Fed's commitment to 'higher for longer' was a key driver of the dollar's rally in Q3 and could keep the greenback on the front foot for some time. We think the strength of macro data out of the US – including next week's CPI data – will be the key determinant for the dollar: continued resilience would support 'higher for longer' in US rates and the dollar, while any signs of softening – as last week's payrolls report showed – could see the dollar falter amid a 'Goldilocks' backdrop."

Hurt by a stronger dollar, gold was quoted at USD1,938.67 an ounce at the time of the London equities close, down from USD1,961.11 on Thursday.

Gold miners Fresnillo and Endeavour Mining, down 4.9% and 2.5% in London, tracked bullion lower.

Also struggling in London, Ocado slumped 5.6%. The grocery chain and warehouse technology firm's stock market performance has ebbed and flowed, in line with wider risk sentiment recently. It has suffered a more than 5% decline this week. It had surged 12% a week earlier as markets cheered a favourable US jobs report.

BP and Shell rose 0.5% and 0.6%, rounding off a difficult week for the oil majors with a gain.

Brent oil traded higher at USD81.12 a barrel on Friday, up from USD80.69 at the European equities close on Thursday.

Capital Economics analyst Edward Gardner commented: "The big commodity price moves this week were to the downside, notably in oil markets. There were a mix of demand- and supply-side motives for the oil price falls. But, ultimately, we forecast that the oil market will be finely balanced over the coming months, and there is a risk that Opec+ decide to cut supply even further if prices fall by more. So, we are sticking with our forecast of Brent ending both this year and next year at around USD85 per barrel."

BAE Systems added 1.2%, while Babcock climbed 4.2%.

Babcock said that it signed a four-year GBP750 million contract with the UK Ministry of Defence's Submarine Delivery Agency.

The London-based aerospace and defence firm said the deal aims to deliver infrastructure required to support and sustain the UK's submarines "for decades to come". The contract includes a dock, logistics and modern support facilities.

Diageo shares suffered a bruising 12% decline. Diageo, whose financial year runs to June 30, warned that growth in its first half will be weaker than the second half just gone.

Sales in Latin America and the Caribbean will act as a drag on growth, with the region hit by low consumption due to macroeconomic pressures. Sales in the LAC market are nearly 11% of its net sales value.

"Macroeconomic pressures in the region are resulting in lower consumption and consumer downtrading. These impacts are slowing down progress in reducing channel inventory to appropriate levels for the current environment," it explained.

Consequently, organic operating profit growth for the first half of its financial year is anticipated to decline from the prior year. In the first half of financial 2023, it had climbed 9.7%.

Elsewhere in London, PensionBee surged 9.0% after it predictable a profitable fourth-quarter at the adjusted earnings before interest, tax, depreciation and amortisation level.

It hit this profit milestone in October, the online pension provider said.

"This performance has been driven by a combination of a growing customer base, strong net inflows from new and existing customers, the inherent scalability of its technology platform and sustainable cost discipline," PensionBee added.

Monday's economic calendar has the latest Rightmove UK house price index overnight. There are also a trio of speeches of UK interest, including words from Bank of England policymakers Sarah Breeden and Catherine Mann, and UK Prime Minister Rishi Sunak's annual foreign policy speech at Lord Mayor's Banquet.

The local corporate calendar has a trading statement from BAE Systems, while property investor British Land reports half-year results.

By Eric Cunha, Alliance News news editor

Comments and questions to [email protected]

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