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LONDON MARKET MIDDAY: European equities up on hopes of US debt deal

19th May 2023 12:14

(Alliance News) - Stock prices in London were higher at midday on Friday, with markets upbeat following a positive consumer confidence reading in the UK and amid growing hopes of a debt ceiling deal in the US.

The FTSE 100 index was up 29.11 points, or 0.4%, at 7,771.41. The FTSE 250 was up 26.48 points, or 0.1%, at 19,324.73, and the AIM All-Share was up 1.27 points, or 0.2%, at 811.21.

The Cboe UK 100 was up 0.3% at 776.60, the Cboe UK 250 was up 0.1% at 16,862.20, and the Cboe Small Companies was up 0.3% at 13,585.99.

A survey showed that UK consumer confidence in the year ahead is continuing to recover, despite record levels of inflation weighing down on the country's households.

GfK's consumer confidence index rose by three points in May to minus 27, the fourth monthly increase in a row from January's minus 45.

Russ Mould, investment director at AJ Bell, said the print was "impressively resilient" and may become more "material" if inflation in the UK starts to retreat from double-digit highs.

UK annual consumer price inflation was 10.1% in March, above the 9.7% the Bank of England's forecast for the first-quarter average and well above its overall target of 2%.

Investors are increasingly optimistic that the US may avert a looming debt default after US Republican Kevin McCarthy said on Thursday he saw "the path" to a breakthrough in debt ceiling talks, suggesting a vote would be possible as early as next week.

"We're not there – we haven't agreed to anything yet – but I see the path that we could come to an agreement," the House speaker said in his most upbeat assessment yet of the stand-off between Republicans in Congress and Democratic President Joe Biden.

The dollar softened slightly at midday on Friday, but remained heightened overall, drawing strength from the stabilisation of US debt talks and the repricing of US Federal Reserve rate expectations.

"A US debt ceiling deal is inching closer, and while the rebound in equities has been somewhat contained, pressure on bonds remains substantial. Contributing to that were hawkish comments by Fed's Logan and lower-than-expected jobless claims, which translated into another round of Fed hawkish repricing. It's an ideal mix for the dollar – for now," said Francesco Pesole at ING.

The pound was quoted at USD1.2433 at midday on Friday in London, higher compared to USD1.2399 at the close on Thursday.

The euro stood at USD1.0794, higher against USD1.0764. Against the yen, the dollar was trading at JPY138.24, lower compared to JPY138.64.

A week ago, however, the pound was above USD1.25 and the euro above USD1.09. The dollar was below JPY135.

Dallas Fed President Lorie Logan told a banking conference in Texas on Thursday that the US Federal Reserve hasn't yet made the progress it needs to make and remains "a long way" from its 2% inflation target.

Logan joined three other members of the Federal Open Market Committee – which currently has just 11 voting members – in indicating that the Fed may need to raise rates again on June 13-14.

As a result, odds of a rate hold next month have fallen, according to the CME FedWatch Tool. There is now a 59% likelihood the Federal Open Market Committee leaves the federal funds rate range at 5.00% to 5.25%. The probability of this stood at 85% a week ago.

Still to come on Friday, Fed Chair Jerome Powell will talk at the 'Perspectives on Monetary Policy' panel at 1500 BST.

ING's Pesole said Powell will "probably have some interest in keeping the hawkish rhetoric alive" which, he added, should provide support to the dollar.

Stocks in New York were called to open higher, with the Dow Jones Industrial Average, the S&P 500 index and the Nasdaq Composite all seen up 0.1%.

In London, Flutter Entertainment, Anglo American and Scottish Mortgage Investment Trust were among the top blue-chip performers at midday. The stocks were 1.8%, 1.7% and 2.2% higher, respectively.

BT added 2.1% after finishing 5.1% lower on Thursday, as it posted a profit decline and announced it will slash its workforce by as much as 55,000 staff by 2030.

Burberry lost 2.9%, extending its losses after finishing 6.4% lower on Thursday. The luxury retailer had reported positive annual results but disappointed by not lifting guidance for the new year.

In the FTSE 250, drinks maker C&C plunged 15% as it announced on Friday a leadership shake-up and said it encountered "significant challenges" in implementing a complex enterprise resource planning system upgrade for the Matthew Clark and Bibendum, or MCB, businesses in Great Britain.

Referring to its drinks wholesaler Matthew Clark and its wine seller Bibendum, C&C said: "The implementation process has taken longer and been significantly more challenging and disruptive than originally envisaged, with a consequent material impact on service and profitability within MCB."

C&C expects a one-off hit of EUR25 million from the ERP disruption in financial 2024.

Elsewhere in London, Unbound plummeted 32% after it announce it is launching a strategic review that could result in the sale of the company.

The company warned that any underperformance against its trading expectations could worsen its cash position, and that a temporary working capital shortfall could arise in September and October this year. It added that it continues to work with its advisers and banking partners to raise additional funds or refinance its current facilities.

Unbound also outlined various operational changes, including a temporary halt to its loss-making direct-to-consumer sales in the US and the EU

In European equities on Friday, the CAC 40 in Paris and DAX 40 in Frankfurt both were up 0.6%.

Brent oil was quoted at USD76.71 a barrel at midday in London on Friday, up from USD76.23 late Thursday. Gold was quoted at USD1,965.62 an ounce, higher against USD1,953.31.

By Heather Rydings, Alliance News senior economics reporter

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