10th Apr 2025 16:58
(Alliance News) - The FTSE 100 rose by the most since the pandemic on Thursday in a relief rally after the pause in reciprocal US tariffs, although analysts warned of uncertainty ahead.
Morgan Stanley said the US economy is "living on the edge", while Peel Hunt called the about-turn on tariffs "a less bad outcome for the global economy rather than a genuinely positive one."
The FTSE 100 index closed up 233.77 points, 3.0%, at 7,913.25. The FTSE 250 ended 626.77 points higher, 3.5%, at 18,517.41. The AIM All-Share advanced 17.96 points, 2.9%, at 644.97.
The Cboe UK 100 ended up 3.3% at 789.37, the Cboe UK 250 rose 3.7% at 16,090.24, and the Cboe Small Companies ended 2.2% higher at 14,675.78.
In European equities on Thursday, the CAC 40 in Paris ended up 3.8%, while the DAX 40 in Frankfurt jumped 4.5%.
In New York, markets gave up a chunk of Wednesday's stellar gains. At the time of the London equities close, the DJIA was down 3.1%, the S&P 500 index was 3.8% lower, while the Nasdaq Composite was 4.7% worse off.
Morgan Stanley said the 90-day delay in reciprocal tariffs reduces immediate downside risk, but prolongs uncertainty.
"With the effective tariff rate at 23%, there is a narrow gap between a slow growth outlook and a downturn. The US economy is still living on the edge," the broker added.
The broker's baseline case is for "slow growth, firming inflation, and a paralysed Fed".
US Treasury Secretary Scott Bessent on Wednesday said the initial about-turn was Trump's plan all along.
But analysts suggested other forces were at play.
"Although President Donald Trump was able to resist the stock market sell-off, once the bond market began to weaken too, it was only a matter of time before he folded," Paul Ashworth, chief North America economist at Capital Economics said.
Discussing his change of heart, Trump said he thought "people were jumping a little bit out of line - they were getting yippy."
"I was watching the bond market," Trump said. "The bond market is very tricky."
Strategists at Panmure Liberum put it more bluntly: "The bond market shook and the President of the US caved."
"This tells investors that the President can be bullied into submission and we expect that in the future, Donald Trump will continue to fold whenever markets show enough stress."
On Thursday, there was good news on US inflation, although tariffs are expected to put upward pressure on prices in the coming months.
Data published by the Bureau of Labor Statistics showed annual consumer price index inflation slowed to 2.4% in March from 2.8% in February, more than the FXStreet-cited consensus, which had pencilled in a deceleration to 2.6%.
Monthly, consumer prices fell by 0.1% in March, after an increase of 0.2% in February. The consensus was for a 0.1% uptick in monthly consumer prices.
Notably, energy prices fell by 2.4% monthly in March after a 0.2% increase in February.
The data also showed that annual core inflation rose by 2.8%, less than February’s reading of 3.1% and below economists’ expectations of 3.0%.
ING said that, overall, the report is a "very pleasant surprise, which, on the face of it, gives the Fed room for manoeuvre if growth continues to soften."
But the broker thinks the Fed will be wary of tariff-induced price hikes and supply chain disruption, which ING estimates will still push inflation back to 4% in the second half of the year.
The pound was quoted higher at USD1.2965 at the London equities close on Thursday, compared to USD1.2786 at the close on Wednesday. The euro stood at USD1.1195, higher against USD1.1060 at the same time on Wednesday.
Against the yen, the dollar was trading lower at JPY144.41 compared to JPY144.86 late Wednesday.
Amid the bond market volatility, the Bank of England dropped plans to sell long-dated bonds next week and will instead sell shorter-maturity gilts in a move that will ease pressure on the UK’s long-term borrowing costs.
On the FTSE 100, gains were broad-based, with US-exposed lender Barclays up 8.4%, aerospace manufacturer Melrose up 4.5%, advertising firm WPP up 6.0% and miner Antofagasta up 6.1%.
But food retailers missed out on the rally after guidance from industry leader Tesco nibbled away at share prices.
Tesco fell 4.7% after announcing cautious guidance alongside a strong set of annual results as it gears up to tackle growing competition in the sector.
Tesco predicted pretax profit will fall in the financial year ahead. The Welwyn Garden City-based grocer expects adjusted operating profit of between GBP2.7 billion and GBP3.0 billion in the current financial year, down from GBP3.13 billion in the year just ended.
Tesco said the guidance "gives us flexibility and firepower to be able to respond to current market conditions", noting it has seen "a further increase in the competitive intensity of the UK market", in the last few months.
Chief Executive Officer Ken Murphy said: "We are setting ourselves up for the year ahead with the flexibility to continue to win in a highly competitive market."
"Essentially Tesco is prepared to take some short-term pain in order to protect its dominant position in the supermarket space and this is a strategy which could pay off over the long term," observed Russ Mould at AJ Bell.
Citigroup analyst Monique Pollard said that, at the mid-point, Tesco's new guidance was 9% below market consensus.
Tesco shares have come under pressure in recent weeks amid fears Asda could launch a price war.
This comes after returning Asda boss Allan Leighton laid out plans from the Leeds-based firm to reclaim market share by aggressively focusing on lower prices in order to win back shoppers.
Industry peer J Sainsbury fell 3.4%. RBC Capital Markets said Tesco's investment in its offer to maintain its competitive position is a "small negative" for the wider UK food retail sector.
Brent oil was quoted at USD63.32 a barrel at the London equities close Thursday, down from USD60.41 late Wednesday.
Gold was quoted lower at USD3,069.25 against USD3,085.53 at the close on Wednesday.
Friday's global economic calendar sees UK industrial production, economic growth and trade data, plus US wholesale price inflation figures.
By Jeremy Cutler, Alliance News reporter
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