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LONDON MARKET MIDDAY: US tech gains lift mood ahead of Jackson Hole

22nd Aug 2023 12:06

(Alliance News) - Stocks in London were on the up heading into Tuesday afternoon, as a tech rally in the US lifted the mood in Europe, helping the FTSE 100 eat into some of its August loss.

The large-cap index is down roughly 5% so far this month, amid a general summer lull and interest rate worries on both sides of the Atlantic. The outlook for US monetary policy may be clearer by the end of the week, with Federal Reserve Chair Jerome Powell speaking at the Jackson Hole event, which kicks off on Thursday.

Favourable UK public borrowing data supported the pound, meanwhile, and the dollar largely struggled.

"The Federal Reserve starts to take on a more prominent role today, with comments from [Tom] Barkin, [Austan] Goolsbee, and [Michelle] Bowman laying the groundwork for Powell's Jackson Hole appearance. Markets continue to feel that a September hike is largely unlikely, with just a 13% chance attributed to such a move. However, with markets pricing in a 43% likeliness of a November hike, we could see some dollar volatility if Powell or his colleagues opt to shift the tone this week," Scope Markets analyst Joshua Mahony commented.

Barkin and Goolsbee head up the Federal Reserve banks of Richmond and Chicago, respectively. Bowman is a member of the Fed's Board of Governors.

The FTSE 100 index traded 48.41 points, 0.7%, higher at 7,306.23. The FTSE 250 was up 168.34 points, 0.9%, at 18,067.33, and the AIM All-Share climbed 3.78 points, 0.5%, at 732.99.

The Cboe UK 100 was up 0.7% at 728.29, the Cboe UK 250 added 0.8% to 15,853.77, and the Cboe Small Companies was down 0.5% at 13,415.83.

In European equities, the CAC 40 in Paris surged 1.2% and the DAX 40 in Frankfurt was up by a stellar 1.1%.

Sterling was quoted at USD1.2764 midday Tuesday, higher than USD1.2732 at the London equities close on Monday.

UK public sector net borrowing, excluding public sector banks, reached GBP4.3 billion in July. This was GBP3.4 billion more than in July 2022. However, it was below the Office for Budget Responsibility's GBP6.0 billion forecast.

The Office for National Statistics noted it was the fifth-highest July borrowing figure on record. The ONS said monthly borrowing was only higher in July 2020, following the outbreak of the coronavirus pandemic, as well as the July months from 2009 through 2011, during the global financial crisis.

Total borrowing for between April and July stood at GBP56.6 billion, GBP13.7 billion higher on-year, but shy of the OBR's GBP68.0 billion forecast.

It offers hope that there may be wriggle room for Chancellor Jeremy Hunt to enact tax cuts ahead of the next general election. The next election must occur before late-January 2025.

However, rising bond yields could pour cold water on tax cut hopes, however, Pantheon Macroeconomics analyst Gabriella Dickens commented.

"The chancellor could increase borrowing in the near-term and pencil in unspecified spending cuts further down the line to ensure his fiscal rules still were being met. But the turmoil last October suggests markets likely will be less willing to tolerate plans that aren't credible, particularly given the current economic backdrop of high CPI inflation," Dickens added, referring to market turbulence following the mini-budget announcement last autumn, which saw then chancellor Kwasi Kwarteng, and eventually former prime minister Liz Truss, leave their posts.

The euro traded at USD1.0887 heading into Tuesday afternoon, unmoved from USD1.0887 late Monday. Against the yen, the dollar was quoted at JPY145.67, down versus JPY146.31.

The main focus this week continues to be on Jackson Hole, the Kansas City Fed's annual symposium, attended by top central bankers from around the world.

The chair of the Federal Reserve, Powell, will address the conference on Friday and investors will be on the alert for the language surrounding the future path of interest rates.

Stocks in New York are called to open higher. The Dow Jones Industrial Average is called up 0.2%, the S&P 500 up 0.4% and the Nasdaq Composite 0.6% higher.

Nvidia shares are up 1.7% in pre-market dealings, after surging 8.5% overnight. Nvidia is at the heart of an artificial intelligence boom, and expectations going into its second-quarter results on Wednesday are high.

London-listed Scottish Mortgage Investment Trust, which has Nvidia in its portfolio, traded 1.2% higher on Tuesday afternoon.

Elsewhere in a day of broad-based gains on the FTSE 100 so far, retailer JD Sports added 1.6%, and miners Rio Tinto and Anglo American rose 2.3% and 2.5%.

There was a more muted 0.2% gain for miner BHP. In the financial year ended June 30, the Melbourne-based diversified mining group said revenue fell 17% year-on-year to USD53.82 billion from USD65.10 billion. The decline was mostly due to "significantly" lower prices across iron ore, metallurgical coal, and copper.

In iron ore and copper - BHP's two largest segments - prices fell 18% and 12% respectively from the prior year.

BHP said attributable profit from total operations plunged 58% to USD12.9 billion from USD30.90 billion. The prior year had included an exceptional gain of USD7.1 billion related to the net gain of the merger of BHP's Petroleum business with Woodside, which had completed during the year, BHP noted.

BHP announced a final dividend of 80 US cents, bringing the total payout for the financial year to 170 cents. This was down sharply from the 325 cents the year before.

"The relatively muted reaction on the part of investors to [the dividend cut] reflects an acceptance that last year was something of a one-off as the invasion of Ukraine led to a short-term bump in commodity prices. Today's results from BHP reflect a move back to something like reality," considered AJ Bell analyst Russ Mould commented.

Wood Group added 4.8%. In the first half of 2023, the engineering and consulting business said revenue climbed 17% year-on-year USD2.99 billion from USD2.56 billion. Pretax loss narrowed to USD26.0 million from USD30.5 million. The firm expects revenue growth to continue, but at a slower rate, reaching around USD6 billion in 2023 overall. This would be up from USD5.44 billion in the previous year.

Elsewhere in London, Cake Box rose 3.8%. It said sales momentum has increased in recent weeks, while input cost inflation has eased, and the retailer said its chair since listing will step down in the autumn.

In a trading update ahead of its annual general meeting on Tuesday, the Enfield, England-based chain of fresh cream cake shops said like-for-like sales were up 6.8% in the first 17 weeks of the financial year that began on April 1. This represents a pick-up from 5.4% growth in the first 11 weeks.

Looking ahead, Cake Box said it is on track for annual revenue growth in line with market expectations.

Non-Executive Chair Neil Sachdev plans to step down at the company's half-year results in November. Sachdev has been chair since Cake Box's initial public offering on AIM in June 2018. The company will start to look for a replacement.

Gold was quoted at USD1,902.16 an ounce early Tuesday afternoon, up from USD1,888.81 at the time of the European equities close on Monday. Brent oil was trading at USD84.04 a barrel, down from USD84.98.

Still to come on Tuesday's economic calendar, there's US existing homes sales data at 1500 BST.

By Eric Cunha, Alliance News news editor

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