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LONDON MARKET CLOSE: Stocks end higher on hopes of interest rate peak

8th Sep 2023 17:08

(Alliance News) - Stocks in London closed in the green on Friday, with markets riding high on the hopes that interest rates in the UK may soon hit their peak.

The FTSE 100 index closed up 36.47 points, or 0.5% at 7,478.19 on Friday, and ended the week 0.2% higher.

The FTSE 250 ended up 79.34 points, or 0.4%, at 18,463.19 but finished the week down 0.4%. The AIM All-Share closed up 7.76 points, or 1.1%, at 743.44 and ended 0.3% higher over the past five days.

The Cboe UK 100 ended up 0.5% at 744.98, the Cboe UK 250 closed up 0.5% at 16,079.88, and the Cboe Small Companies ended up 0.5% at 13,025.85.

The Bank of England's next interest rate decision is expected on September 21.

This week, interest rate expectations in the UK have shifted dramatically following some weak economic data and dovish rhetoric from central bank chief Andrew Bailey.

On Wednesday, BoE Governor Andrew Bailey hinted that the UK central bank was close to ending a prolonged policy of raising interest rates amid expectations 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 the comments made investors have doubts "for the first time" about whether the BoE will hike rates at all at its September meeting, having previously expected another one or two hikes.

Figures from KPMG and REC UK helped further support this belief that rates may soon hit their peak. The report showed that the UK jobs market slowed sharply in August, as the weaker economic outlook depressed recruitment activity.

For Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, the contraction suggested "heat" may coming out of the economy in a "more pronounced way". This, she argued, would suggest interest rates are having the "desired effect" and adds weight to the argument that rates are "near the top of the cycle."

"A looser labour market helps to keep wage expectations and bargaining power down, which in turn can help to keep inflation on a more favourable trajectory," she explained.

However, what was good news for markets was bad news for the pound, which remained weak on Friday.

Sterling was quoted at USD1.2477 at the London equities close on Friday, up a touch from USD1.2470 at the close on Thursday. The currency has now remained below the USD1.25 for two consecutive.

In London, Melrose Industries was the worst blue-chip performer at the close on Friday, closing down 4.4%, giving up most of its gains from Thursday's session.

The aerospace manufacturer had ended 5.3% higher on Thursday after it upgraded its full-year guidance on the back of strong interim results.

In the FTSE 250, Petershill Partners plunged 14%, making it the index's worst performer at the close on Friday.

The investment vehicle - operated by Goldman Sachs Asset Management - swung to a profit of GBP129.3 million in the first half of the year, but said lower partner realised performance fees caused its total income to fall.

Analysts at Jefferies said the half-year results reflected the "slower pace" of private markets activity in the period, with the cut to partner fee-related earnings reflecting the "slower deployment environment" pushing back fee activations.

Computacenter surged 15% after the computer services firm reported higher half-year profit and revenue, and said it expects to grow earnings per share for the 19th year in a row in 2023.

Computacenter said its pretax profit for the six months that ended June 30 totalled GBP122.8 million, up 14% from GBP107.8 million a year previous. Revenue increased 27% to GBP3.58 billion from GBP2.83 billion, with growth seen across all three of the firm's main businesses.

Elsewhere in London, Wagamama-owner Restaurant Group added 7.6% as it announced that Chair Ken Hanna will step down at the firm's annual general meeting in 2024, expected in May.

interactive investor's Victoria Scholar said: "Following the optimistic update, Hanna clearly decided now is a good time to depart, rather than engaging in a dispute with activist investors that could detract from the company's gathering momentum."

In recent months, Restaurant Group has faced pressure from activist investors including Oasis Management and Irenic Capital Management.

On Wednesday, Restaurant Group said it swung to a pretax profit of GBP2.3 million in the half-year to July 2, from a loss of GBP28.5 million a year prior. Revenue rose 10% to GBP467.4 million from GBP423.4 million.

On AIM, Gear4Music jumped 29% after Chief Executive Andrew Wass told the firm's annual general meeting that trading in the financial year that began on April 1 has been in line with board expectations.

"We are prioritising increasing gross margins and cost base reduction to improve profitability, ahead of revenue growth. We are pleased with the progress being made in these areas, which has included driving significant cost efficiencies in our software development unit," Wass said.

In European equities on Friday, the CAC 40 in Paris ended up 0.6%, while the DAX 40 in Frankfurt ended up 0.4%.

Stocks in New York were higher at the London equities close, with the Dow Jones Industrial Average up 0.3%, the S&P 500 index up 0.4%, and the Nasdaq Composite up 0.6%.

The Nasdaq recovered after finishing 0.9% lower on Thursday after shares in Apple tumbled 2.9% amid reports of significant Chinese restrictions on iPhones at government offices and state-backed entities.

Apple shares were 1.4% higher at the time of the London equities close on Friday, however, as sentiment towards the iPhone maker recovered.

The US dollar lost some of its strength on Friday but remained firm overall. The currency's strength in recent days comes as a run of above-expectation US data suggests that the US Federal Reserve will be in no mind to relax its hawkish stance at its next meeting this month.

The euro stood at USD1.0715, higher against USD1.0702. Against the yen, the dollar was trading at JPY147.64, higher compared to JPY147.23 late Thursday.

"Following the above-expected ISM Services index on Wednesday, yesterday it was the turn of the weekly initial jobless claims to drop back to the lowest levels since February and question the narrative that tightness in the US labour market is easing," said Chris Tuner at ING.

"With activity data staying strong, it seems the market may be more minded to buy into the idea of another 'skip' - i.e. the Fed not hiking in September but hiking again later in the year."

Brent oil was quoted at USD90.70 a barrel at the London equities close on Friday, up from USD90.31 late Thursday. Gold was quoted at USD1,921.00 an ounce, higher against USD1,919.30 at the close on Thursday.

In Monday's UK corporate calendar, there are half-year results from Vistry, WANdisco and MP Evans.

The economic calendar next week has UK unemployment data on Tuesday, a US inflation print on Wednesday and the European Central Bank's next interest rate decision on Thursday.

By Heather Rydings, Alliance News senior economics reporter

Comments and questions to [email protected]

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