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LONDON MARKET OPEN: UK economy returns to growth; water bills to rise

11th Jul 2024 09:03

(Alliance News) - Stock prices in London opened mixed on Thursday, as investors look ahead to a key US inflation reading following the end of US Federal Reserve President Jerome Powell's two day testimony.

Investors were also happy by the news that not only did the UK economy return to growth in May, but it surpassed expectations.

Amongst individual stocks, water utilities got a boost early Thursday, after Ofwat announced that water bills are expected to rise by GBP19 a year in England and Wales under draft proposals.

The FTSE 100 index opened up 13.36 points, 0.2%, at 8,206.87. The FTSE 250 was down just 0.88 of a point at 20,926.88, and the AIM All-Share was up 3.30 points, 0.4%, at 776.15.

The Cboe UK 100 was up 0.3% at 818.38, the Cboe UK 250 was up 0.1% at 18196.74, and the Cboe Small Companies was down 0.2% at 17,086.12.

In European equities on Thursday, the CAC 40 in Paris was up 0.5%, while the DAX 40 in Frankfurt was up 0.4%.

The UK economy returned to growth in May, according to data from the Office for National Statistics.

UK gross domestic product rose by 0.4% in May from April, having been flat on-month a month earlier. This was hotter-than-expected, with FXStreet pencilling in a 0.2% increase.

"The economy picked up pace in May, with overall growth twice what economists had expected," said Nicholas Hyett, investment manager at Wealth Club.

"The UK consumer looks to be in robust health, underpinning growth in retail and accommodation in May. Businesses attributed the strength in part to the warmest May on record, following an exceptionally wet April."

In the US on Wednesday, Wall Street rallied with the Dow Jones Industrial Average up 1.1%, the S&P 500 up 1.0% and the Nasdaq Composite up 1.2%. The S&P 500 rose above 5,600 for the first time extending its winning run to seven, while the Nasdaq Composite also hit another fresh high.

Jerome Powell said the central bank will not want to wait for inflation to cool to its 2% target before considering a rate cut. He was speaking on the second day of a testimony to lawmakers in Washington.

"We've said that you don't want to wait until inflation gets all the way down to two percent, because inflation has a certain momentum," Powell told the US House Financial Services Committee.

"If you waited that long, you've probably waited too long," he added. In such a scenario, inflation would go well below the target level – which is also an undesirable outcome."

On Thursday, there is US consumer price inflation data due out.

Thursday's data is expected to show the US annual inflation rate cooled to 3.1% in June, from 3.3% in May.

A hotter-than-expected reading could support the argument for higher interest rates for longer, while an in-line or cooler one could solidify expectations for a rate cut in September.

Ipek Ozkardeskaya at Swissquote Bank said: "Today's CPI update from the US will be very closely watched and determine the market mood, but investors will likely be less upset if they see any bump or blip in inflation as long as other economic data including growth and jobs continue to show further weakness."

The pound was quoted at USD1.2869 early on Thursday in London, higher compared to USD1.2846 at the equities close on Wednesday. The euro stood at USD1.0837, up against USD1.0827. Against the yen, the dollar was trading at JPY161.63, down compared to JPY161.74.

Water utilities rose on Thursday, following an announcement from Ofwat. The FTSE 100's Severn Trent and United Utilities added 2.3% and 2.1%, respectively. In the FTSE 250, Pennon Group jumped 6.7%.

The UK water watchdog Ofwat said that average water bills in England and Wales are expected to rise by GBP94 over next five years. This means that prices will increase by around GBP19 a year.

Ofwat Chief Executive Officer David Black said: "Customers want to see radical change in the way water companies care for the environment. Our draft decisions on company plans approve a tripling of investment to make sustained improvement to customer service and the environment at a fair price for customers."

Severn Trent also said its financial performance for the year remains on track and it continues to expect to perform in line with guidance.

Meanwhile, Pennon Group said that Steve Buck has stepped down as chief financial officer.

Buck will be succeeded by Laura Flowerdew, as the board enacts its internal succession plan. Flowerdew is chief customer and digital officer of Pennon Group and previously CFO at Bristol Water.

On London's AIM, Totally added 8.7%.

The Derby, England-based healthcare services provider announced three elective care contracts valued at about GBP8 million.

CEO Wendy Lawrence said: "We are delighted to confirm these contract extensions, many of which have been in review over the election period. There are now encouraging signs that the temporary election hiatus has lifted."

In Asia on Thursday, the Nikkei 225 index in Tokyo was up 0.9%. In China, the Shanghai Composite was up 1.1%, while the Hang Seng index in Hong Kong was up 2.2%. The S&P/ASX 200 in Sydney closed up 0.9%.

Brent oil was quoted at USD85.50 a barrel early in London on Thursday, up from USD85.40 late Wednesday.

Gold was quoted at USD2,381.50 an ounce, higher against USD2,379.50.

As well as CPI data from the US, the economic calendar for Thursday has the weekly US initial jobless claims data at 1330 BST.

By Sophie Rose, Alliance News senior reporter

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