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LONDON MARKET CLOSE: Rate cut euphoria lifts FTSE 100; New York slips

22nd Mar 2024 16:53

(Alliance News) - London's FTSE 100 ended higher on Friday, boosted by a favourable Bank of England interest rate outlook, though trade elsewhere was mixed as a rally in New York showed signs of exhaustion.

A busy week for equities has seen interest rate holds from the US Federal Reserve and the Bank of England, which the market interpreted as dovish, a cut from the Swiss National Bank and a historic hike from the Bank of Japan.

The FTSE 100 index climbed 48.37 points, 0.6%, at 7,930.92, its best closing level in over a year. The FTSE 250 slipped 16.99 points, 0.1%, at 19,724.32, and the AIM All-Share ended down 1.12 points, 0.2%, at 739.52.

For the week, the FTSE 100 added 2.6%, the FTSE 250 rose 1.1% and the AIM All-Share climbed 0.2%.

The Cboe UK 100 rose 0.6% to 793.64 on Friday, while the Cboe UK 250 lost 0.2% to 17,115.32. The Cboe Small Companies also gave back 0.2%, ending the day at 14,615.29.

In European equities on Friday, the CAC 40 in Paris closed down 0.3%, while the DAX 40 in Frankfurt ending 0.2% higher.

"The FTSE 100 continued Thursday's outperformance to a ten-month-high following the Bank of England's shift to a dovish stance. The 8,000 mark is now within reach as investor money finally heads to the undervalued UK stock market despite retail sales unexpectedly falling flat," IG analyst Axel Rudolph commented.

The FTSE 100 first topped the 8,000 point mark in February of last year. Its intraday high is 8,046.99 points, also achieved in February 2023.

The pound was quoted at USD1.2596 at the time of the London equities close Friday, lower compared to USD1.2665 on Thursday. The euro stood at USD1.0808, down against USD1.0859. Against the yen, the dollar was trading at JPY151.43, lower compared to JPY151.69.

Sterling hit a roughly five-week low on Friday. The euro briefly traded its lowest level since early-March.

On Thursday, the Bank of England took a step closer to cutting interest rates, possibly as soon as June, as its tone was seen to soften and two 'hawks' jumped ship.

At its March meeting, the BoE's Monetary Policy Committee kept the benchmark bank rate at 5.25%. It was the fifth successive hold, following one in September, which ended a streak of 14 consecutive hikes since December 2021, and three more in November, December and February.

But there was a 'dovish' twist to the voting make-up, as two members of the MPC dropped their call for interest rates to increase.

Instead, eight members of the MPC voted to leave rates unchanged, with previous 'hawks' Jonathan Haskel and Catherine Mann joining the no change camp.

"Markets are largely reading this as an acknowledgement that cuts aren't too far away, and now increasingly convinced the BoE will start easing in June (20bp priced in), along with starting to speculate on a May move (7bp priced in)," analysts at ING commented.

Mann speaks at an event in Belfast on Monday.

In New York, the Dow Jones Industrial Average was down 0.5% at the time of the closing bell in Europe. The S&P 500 was 0.1% lower, while the Nasdaq Composite was a touch higher. All three benchmarks hit record highs on Thursday on interest rate euphoria, after the Federal Reserve's projections on Wednesday suggested three rate cuts are still in the offing this year.

Capital Economics analyst Andrew Hunter commented: "The Fed wasn't as hawkish as we had expected this week and, assuming the recent upturn in core inflation proves temporary, there is still a good chance that interest rate cuts will begin in June."

On the back foot in New York, Nike shares were down 7.3%.

Nike said revenue in the quarter ended February 29 inched up 0.3% to USD12.43 billion from USD12.39 billion a year earlier. Net income, however, fell 5.5% to USD1.17 billion from USD1.24 billion. Basic earnings per share fell to USD0.77 from USD0.80.

The results were better than expected.

However, there was a sting in the tail when Chief Financial Officer Matthew Friend spoke to analysts.

He gave more detail on the outlook for the coming financial ending May 2025.

"First, we expect revenue and earnings to grow versus the prior year, with operating margins expanding, excluding the impact of the restructuring charges in fiscal '24."

"However, we are prudently planning for revenue in the first half of the fiscal year to be down low single digits."

Nike's share price fall spilled over to London-listed sportswear retail. JD Sports fell 6.3%, while Sports Direct owner Frasers Group shed 1.4%. JD Sports reports annual earnings on Thursday.

Phoenix Group surged 8.4%.

In 2023, the London-based life insurance provider reported total cash generation of GBP2.02 billion, up 35% from GBP1.50 billion the year prior. This was above the company's upgraded target of GBP1.8 billion, which was also the market consensus.

Phoenix announced an ambition to grow operating cash generation by around 25% to GBP1.4 billion in 2026 from GBP1.1 billion in 2023, after which it is expected to grow at a mid-single digit rate over the long term.

These "ambitious" growth targets will support a new "progressive" and sustainable dividend policy, it said.

Edison analyst Neil Shah commented: "Phoenix Group Holdings has benefitted from solid performance in each of its associated sectors at the beginning of 2024. Moody's predicts that UK life insurance will have a good 2024: rising wages, falling unemployment, and automatic enrolment have helped to revive the sector – which had suffered owing to falling real incomes. Additionally, the UK became the 3rd largest pension asset management market in the world last year. It is too early to see the shape of Chancellor [Jeremy] Hunt's proposals to drive more capital from pension funds into UK equities; but from these results, Phoenix Group Holdings looks well-placed to absorb any turbulence in the sector."

JD Wetherspoon lost 6.1%.

The Watford, Hertfordshire-based pub chain said in the six months to January 28, pretax profit fell by more than half to GBP26.1 million from GBP57.0 million. This was amid property losses of GBP15.1 million, compared to GBP11.2 million the previous year.

However, revenue rose 8.2% to GBP991.0 million from GBP916.0 million the year before.

Chair Tim Martin said: "The company currently anticipates a reasonable outcome for the financial year, subject to our future sales performance."

Accrol shares surged 13%. It has a market capitalisation of around GBP122 million.

The private-label toilet roll manufacturer agreed to a GBP127.5 million takeover offer from paper and pulp firm Navigator. Navigator describes itself as "one of Portugal's leading players on the world stage".

The buyer said Accrol represents "a compelling opportunity to enter the UK market" due to the company's "competitive advantages, complementary values and strong alignment to Navigator".

Navigator has a market capitalisation of around EUR2.80 billion. The Lisbon listing is part of the Portuguese capital's benchmark PSI-20 index.

Brent oil was quoted at USD85.52 a barrel Friday, largely unmoved from USD85.50 late Thursday. Gold was quoted at USD2,165.58 an ounce at the time of the London equities close Friday, down against USD2,178.10 on Thursday.

Monday's economic calendar has the Chicago Fed national activity index report at 12:30 GMT. Just before that, Atlanta Fed President Raphael Bostic is due to speak.

The UK corporate calendar has annual results from B&Q and Screwfix owner Kingfisher, and a trading statement from water utility Pennon Group.

By Eric Cunha, Alliance News news editor

Comments and questions to [email protected]

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