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LONDON MARKET CLOSE: FTSE 100 outperforms on bets of peak in UK rates

7th Sep 2023 16:56

(Alliance News) - The FTSE 100 ended in the green on Thursday, after a weak start to the day, as the narrative around the future of UK interest rates shifted following dovish words from central bank chief Andrew Bailey.

The FTSE 100 index closed up 15.58 points, or 0.2% at 7,441.72 on Thursday. Meanwhile, the FTSE 250 ended down 67.97 points, or 0.4%, at 18,383.85 and the AIM All-Share closed down 1.30 points, or 0.2%, at 735.68.

The Cboe UK 100 ended up 0.2% at 741.07, the Cboe UK 250 closed down 0.4% at 16,008.30, and the Cboe Small Companies ended up 0.2% at 12,958.70.

Bank of England Governor Andrew Bailey hinted on Wednesday that the UK central bank was close to ending a prolonged policy of raising interest rates amid the expectation that inflation will fall substantially by the end of the year.

"I think we are much nearer now to the top of the cycle," Bailey told a panel of cross-party lawmakers gathered to question the BoE chief on the state of the UK economy with UK inflation the highest among G7 nations.

Francesco Pesole at ING said markets are now "for the first time" starting to have doubts about whether the BoE will hike rates at all at its September meeting, having previously expected another one or two hikes.

Sterling slumped on Thursday as the dovish comments called into question the need for further interest rate hikes in the UK.

The pound was quoted at USD1.2470 at the London equities close on Thursday, down from USD1.2500 at the close on Wednesday.

In contrast, the US dollar strengthened against the euro as traders bet that rates in the world's largest economy would stay higher for longer.

The euro stood at USD1.0702, lower against USD1.0715. Meanwhile, against the safe-haven yen, the dollar was trading at JPY147.23, lower compared to JPY147.67 late Wednesday.

Ricardo Evangelista, senior analyst at ActivTrades, pointed to the release of US economic data on Wednesday as emphasising the "resilience" of the US economy.

"Service sector activity expanded at a faster pace than predicted, and so did prices. This is a scenario that entails the continuation of inflationary pressures and creates scope for further monetary tightening from the Fed. Against this background, the strength of the dollar doesn't surprise, as traders price in the rising probability of another interest rate hike when the Federal Reserve meets later in the month," he said.

The Institute for Supply Management's services purchasing managers' index registered 54.5 points in August, up from 52.7 points in July. It was the eighth month of consecutive growth and came in above FXStreet-cited consensus of 52.5 points.

In London, Melrose Industries finished the day as the top blue-chip performer, ending 5.3% higher on Thursday after it upgraded it full-year guidance on the back of some strong interim results.

The aerospace manufacturer said it traded ahead of expectations in the first half of 2023, with revenue up 20% year-on-year to GBP1.63 billion and its pretax loss narrowing significantly to GBP62 million from GBP314 million.

As a result, Melrose upgraded its annual guidance. It guides for Aerospace adjusted operating profit between GBP375 million and GBP385 million, over 8% higher than prior guidance. It is also expecting revenue between GBP3.35 billion and GBP3.45 billion.

China-exposed stocks were among the worst performers in the FTSE 100, meanwhile. Prudential, Rio Tinto, Anglo American finished 3.0%, 2.6%, and 2.9% lower, respectively.

The stocks were knocked following weak trade data from China which showed the country's exports and imports sank again in August.

The figures were the latest indication that China's post-Covid recovery has run out of steam, and further increased pressure on authorities to introduce fresh stimulus after months of debilitating data.

In the FSTE 250, Synthomer plunged 25% after it announced a rights issue of around GBP276 million of shares in an attempt to stall its debt stack.

The chemicals firm also reported a sharp drop in interim revenue and profit. Pretax profit fell by 86% to GBP16.7 million from GBP115.5 million a year prior, while revenue from continuing operations fell by 12% to GBP1.08 billion from GBP1.23 billion.

Looking ahead, Synthomer said for the remainder of 2023, it does not anticipate a material recovery in customer demand, but expects around GBP20 million in self-help measures to be delivered in the second half of the year.

Elsewhere in London, Funding Circle jumped 9.3% despite swinging to a pretax loss of GBP16.6 million in the first half of 2023 from a profit of GBP1.6 million the year prior.

Funding Circle said the half-year results were in line with its expectations and highlighted that its UK Loans business is profitable, recording GBP1.4 million in pretax profit in the first half. The company also said its US Loans business was growing and its FlexiPay arm was showing "great momentum".

On AIM, CVS Group plunged 18% as the UK competition watchdog launched a review into the country's household veterinary sector amid concern that pet owners are not getting value for money.

FTSE 250-listed peer Pets at Home also suffered, finishing 9.2% lower on Thursday.

"There are certain things households don't scrimp on, and patching up our furry companions is one of them. That makes vet services a very attractive business, but the sector is now under the watchful eye of the Competition & Markets Authority," said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

"The size of the market's reaction shows how much of a hurdle this investigation could be for companies focused on pets."

In European equities on Thursday, the CAC 40 in Paris ended flat, while the DAX 40 in Frankfurt ended down 0.1%.

Stocks in New York were largely lower at the London equities close, with the Dow Jones Industrial Average up 0.1%, the S&P 500 index down 0.5%, and the Nasdaq Composite was down 1.2%.

"It was unlikely to be a great open to the session for Wall Street with Apple suffering heavy losses. The news of a ban on iPhone usage by Chinese government officials wiped more than 3% off the tech giant, and cast a shadow over the entire market on a day when sentiment was already fragile thanks to fears about more rate hikes," explained Chris Beauchamp, chief market analyst at IG.

Apple was down 3.0% at the time of the London equities close.

Brent oil was quoted at USD90.31 a barrel at the London equities close on Thursday, down from USD90.01 late Wednesday. Gold was quoted at USD1,919.30 an ounce, higher against USD1,915.77.

In Friday's UK corporate calendar, there are half-year results from Petershill Partners and Computacenter, as well as a trading statement from Berkeley.

The economic calendar has the UK KPMG and REC report on jobs overnight and German inflation data at 0700 BST.

By Heather Rydings, Alliance News senior economics reporter

Comments and questions to [email protected]

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