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LONDON MARKET CLOSE: US debt ceiling deal optimism lifts FTSE 100

26th May 2023 16:48

(Alliance News) - Stocks in London were mostly lower at the close on Friday, though the FTSE 100 ended in the green amid glimmers of hope that the impasse in US debt ceiling negotiations may soon draw to an end.

The FTSE 100 index closed up 56.33 points, or 0.7% at 7,627.20 on Friday, but finished the week 1.7% lower.

The FTSE 250 ended down 46.66 points, or 0.3%, at 18,794.09, and ended the week down 2.6%. The AIM All-Share closed down 1.40 points, or 0.2%, at 791.14 - closing the week 2.6% lower.

The Cboe UK 100 ended up 0.7% at 761.95, the Cboe UK 250 closed down 0.4% at 16,343.67, and the Cboe Small Companies ended up 0.5% at 13,312.03.

Bloomberg reported on Friday that Republican and White House negotiators are edging closer to an agreement to raise the US debt limit.

The two sides have narrowed differences in talks over recent days, Bloomberg said, though the details remain "tentative" and a final deal is still not in hand.

Only seven days remain until June 1, the earliest possible point when the government estimates it could run out of money to service its debts. However, members of the House of Representatives have already begun hitting the road for the Memorial Day recess after their final vote Thursday morning and are not due to return until June 4.

On Thursday, President Joe Widen declared that there would be no default, adding that his negotiations with Republican Speaker Kevin McCarthy had been "productive."

Stocks in New York were higher at the London equities close, with the Dow Jones Industrial Average up 0.8%, the S&P 500 index up 1.0%, and the Nasdaq Composite 1.7% higher.

The dollar was stronger at the close, supported by the news of an emerging debt ceiling deal and expectations that interest rates in the US will remain higher for longer.

The pound was quoted at USD1.2325 at the London equities close on Friday, down slightly from USD1.2330 at the close on Thursday.

The euro stood at USD1.0703, lower against USD1.0723. Against the yen, the dollar was trading at JPY140.65, higher compared to JPY139.85 late Thursday.

"For the third week running, the dollar looks primed to notch up decent gains against most other major currencies...its strength can be chalked up to changes in yield gaps, with US yields generally rising more than those elsewhere as investors re-embrace the "higher for longer" story," said James Reilly, assistant economist at Capital Economics.

Figures from the Bureau of Economic Analysis showed that US inflation pressure accelerated last month, and consequently pouring more cold water on hope that the Federal Reserve might cut interest rates.

The US core personal consumption expenditures index grew 4.7% year-on-year in April, picking up speed from 4.6% in March.

Annual core PCE, the Fed's preferred inflationary reading, had sat at 4.7% in each of January and February, following an uptick from 4.6% in December. It had then abated to the December level in March.

Another year-on-year reading of 4.6% was expected for April, according to FXStreet cited consensus, so the reading came in slightly hotter than forecast and has poured some cold water on hope that the Federal Reserve will soon cut interest rates.

According to the CME's FedWatch Tool, markets see a 44% chance of rates remaining the same at the Fed's next meeting in July. Only one week ago, markets saw an 83% chance for this outcome.

In London, mining stocks ended the day as the top blue-chip performers. Rio Tinto closed up 3.7%, Anglo American up 2.5%, and Antofagasta up 2.9%.

Russ Mould, investment director at AJ Bell, said the rally in mining stocks was driven by the first cabinet-level talks between the US and China "in months".

US Commerce Secretary Gina Raimondo met her Chinese counterpart Wang Wentao on Thursday.

The two "had candid and substantive discussions on issues relating to the US-China commercial relationship," the US Department of Commerce said in a statement. This included "the overall environment in both countries for trade and investment and areas for potential cooperation," it said.

Wang's visit to Washington represents a rare trip for a senior Chinese official to the US.

Brent oil was quoted at USD76.63 a barrel at the London equities close on Friday, up from USD76.15 late Thursday. Gold was quoted at USD1,939.81 an ounce, lower against USD1,945.11 at the close on Thursday.

In the FTSE 250, Asos lost 2.9%. The online fashion retailer said that it has raised GBP75 million through a share placing, in order to support its Driving Change agenda to return the company to sustainable profit and cash generation by the second half of this year.

AJ Bell's Mould said that the danger is that Asos hasn't raised enough this time around and will have to "dig out the begging bowl again before too long".

"Asos and other pure online plays did well during the pandemic as there was no alternative and people were less likely to make returns. That situation has now reversed leaving the company exposed to a difficult combination of rising costs and shrinking demand, as well as mounting competition," he said.

Elsewhere in London, Sabre Insurance jumped 8.0% to 135.20 pence after Hamburg-based investment bank Berenberg raised the motor insurance provider's stock to 'buy' from 'hold' and raised its target to 153p from 93p.

On Thursday, Sabre said it expects to deliver high single-digit growth in gross written premiums, with its motor business expected to produce low double-digit growth.

Kin & Carta plunged 9.0% as the business consultancy predicted muted revenue in the year ending July 31.

Kin & Carta said it expects revenue in financial 2023 to be flat to about 2% higher compared to the year before, reflecting recent currency movements, which resulted in net revenue headwinds in the second half of about GBP3.0 million.

Chief Executive Officer Kelly Manthey said: "Although we're maintaining a pattern of quarter-by-quarter net revenue growth, it isn't as strong as we'd expected. The market is more difficult with clients cautious about committing to large programme spends. Normally we see a significant acceleration in our second-half revenue growth, but this has not materialised."

On AIM, Itsarm shares more than doubled to 0.58p after shareholders voted against the company placing itself into voluntary liquidation.

Itsarm has been a cash shell since March. At the time, it sold its only operating subsidiary, digital fashion brand In The Style Fashion, for GBP1.2 million.

At the end of April, Itsarm announced plans to place itself in liquidation and cancel its shares from trading on London's AIM. However, on Friday, shareholders voted against the resolution and the company will therefore remain quoted on AIM as a cash shell.

In European equities on Friday, the CAC 40 in Paris ended up 1.4%, while the DAX 40 in Frankfurt ended 1.3% higher.

On Monday, financial markets in the UK and the US will be closed.

The week picks up pace with a US consumer confidence reading on Tuesday, before the latest nonfarm payrolls data on Friday. Minutes from the European Central Bank's most recent meeting are released on Thursday.

By Heather Rydings, Alliance News senior economics reporter

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