Stocks in London ended higher on Friday, as a tricky week for equities ended in decent fashion, on the back of numbers showing a slowdown in US inflation pressure.
The US personal consumption expenditures reading will be music to the ears of those that want the Federal Reserve to take its foot off the monetary policy brake pedal.
The European Central, which like its US counterpart also decides on rates next week, received a somewhat muddier picture on Friday. Inflation figures from Germany and France were a mixed bag.
Elsewhere, Shell and BP climbed on decent earnings from US oil majors, while Numis agreed to a Deutsche Bank buyout.
The FTSE 100 added 38.99 points, or 0.5%, at 7,870.57. The FTSE 250 index rose 177.13 points, 0.9%, at 19,425.14, and the AIM All-Share climbed 7.31 points, or 0.9%, at 829.94.
For the week, the FTSE 100 lost 0.6%, though the FTSE 250 added 0.8%. The AIM All-Share fell marginally.
The Cboe UK 100 rose 0.4% at 786.44, the Cboe UK 250 added 0.9% to 17,044.60, and the Cboe Small Companies added 1.6% to 13,462.80.
In European equities on Friday, the CAC 40 in Paris rose 0.1%, while the DAX 40 in Frankfurt was added 0.8%.
US core personal consumption expenditures increased 4.6% year-on-year in March. The pace slackened from 4.7% in February but topped an FXStreet-cited market forecast of 4.5%. February’s number was upwardly revised from 4.6%.
The core figure, which is the Federal Reserve’s preferred inflationary gauge, does not include food or energy.
The headline PCE figure was tamer as well, last month. The yearly PCE inflation rate ebbed to 4.2% in March from 5.1% in February. It was below an FXStreet-cited forecast of 4.6%. February’s figure was upwardly revised from 5.0%.
The figure comes just days before the US Federal Reserve next meets. According to the CME FedWatch tool, there is an 86% chance that the central bank lifts US interest rates by 25 basis points to a range of 5.00% to 5.25% on Wednesday next week.
The Fed is largely expected to pause hikes thereafter.
After the Fed on Wednesday, the European Central Bank announces its latest interest rate decision on Thursday.
In March, the ECB lifted rates by 50 basis points. It took the interest rate on the main refinancing operations, the interest rate on the marginal lending facility, and the deposit facility to 3.50%, 3.75% and 3.00% respectively.
Germany’s yearly inflation rate came in shy of expectations in April, according to a flash estimate from Destatis on Friday.
The nation’s annual inflation rate ebbed to 7.2% in April, from 7.4% in March. It undershot an FXStreet-cited forecast of 7.3%.
In France, however, the consumer price index rose 5.9% from a year before in April. This was a greater rise than the 5.7% reported in March. A eurozone inflation is due on Tuesday.
In a busy day for eurozone data, Eurostat estimated the single currency area’s economy grew by 0.1% in the first quarter from the previous quarter. It had stagnated at the end of 2022.
However, the reading was less robust than anticipated, as market analysts had been expecting growth of 0.2%, as cited by FXStreet.
Elsewhere among central banks, The Bank of Japan announced a review of its longstanding monetary easing measures, but said it would maintain them for the time being.
The BoJ left its negative interest rate in place and did not adjust the band in which rates for 10-year government bonds fluctuate. Focus going into the meeting had been on what the BoJ, now led by Kazuo Ueda, would do on yield curve control.
No major policy overhaul had been expected from former economics professor Ueda, who took over this month from Haruhiko Kuroda, the architect of the bank’s signature ultra-loose strategy.
The pound was quoted at $1.2575 at late Friday in London, higher compared to $1.2492 at the stock market close on Thursday. The euro stood at $1.1040, up against $1.1024 at the close on Thursday. Against the yen, the dollar was trading at JP¥136.18, sharply higher compared to JP¥133.95.
In London, Shell and BP added 2.3% and 2.1%. The stocks were reported by well-received earnings from New York-listed oil majors Chevron and Exxon. The duo were up 0.5% and 1.9% at the time of the London equities close.
Both reported a first-quarter revenue decline on weaker commodity prices, but profit improved markedly.
BP reports on Tuesday, before Shell on Thursday.
‘The price of oil and gas might be coming down, but that’s not put a hitch in the stride of ExxonMobil. The US giant has benefited from surging global demand for oil and gas and it’s been in a position to up production and take advantage of that trend, helping Q1 profits surge to record breaking levels. But there are question marks over the direction of travel for the global economy with US GDP numbers out this week flashing warning signs. ExxonMobil has cut costs and is expanding its refining business, something which also cushioned competitor Chevron from falling prices,’ AJ Bell analyst Danni Hewson commented.
‘With both BP and Shell in the hot seat next week, expect further discussion about levels of windfall taxes and scrutiny of any comments on changes to green investment. All four companies’ share price ended what’s been a pretty volatile week in the green.’
Stocks in New York were higher. The Dow Jones Industrial Average and S&P 500 index each rose 0.4%, and the Nasdaq Composite edged up 0.1%.
Back in London, Prudential closed up 4.4% as its first quarter was boosted by an easing of Covid-19 curbs in China.
The Asia-focused insurer said annual premium equivalents - a measure of the new policies sold - jumped 29% to $1.56 billion. New business profit climbed 26% to $743 million.
‘The strength of our distribution capabilities and the diversification of the business across country, product and channel contributed to our performance in the first quarter. 10 out of the 13 life insurance markets in Asia, as well as Africa, achieved double-digit growth in new business profit,’ Chief Executive Officer Anil Wadhwani said.
‘Business momentum, particularly in Hong Kong, has continued to date in the second quarter and we maintain our prudent approach to asset allocation and credit risk.’
At the other end of the large-cap index, NatWest dropped 4.0% as its net interest margin outcome overshadowed a first-quarter earnings hike.
NatWest’s first-quarter net interest margin improved year-on-year to 2.25% from 1.51%. It was up from the 2.11% achieved in the fourth quarter. However, NatWest had been expected to achieve a net interest margin of 2.34% for the first quarter, according to company-compiled consensus.
NatWest said its first-quarter pretax profit totalled £1.82 billion, up 49% from £1.22 billion. Total income climbed 29% year-on-year to £3.88 billion from £3.01 billion.
The negative reaction to the first-quarter earnings showed NatWest, bailed out by the state during the great financial crisis, still has work to win over the investors again, AJ Bell analyst Russ Mould commented.
‘Given its history of state ownership and uneven recovery from the credit crunch, NatWest has to work hard to earn the trust of the market and updates like today’s do not help,’ Mould commented.
Elsewhere in London, Numis jumped 67% as it backed a £410 million takeover offer from Frankfurt-listed Deutsche Bank.
Deutsche Bank will pay 350p per share, giving Numis a value of £410 million. The price represents a 72% premium to Numis’s closing price of 204p on Thursday.
‘We have been evaluating how to accelerate the growth of our business in the UK and, as a leading UK franchise with a long history of successfully delivering superior client service and growth, Numis represents a compelling strategic fit,’ Deutsche’s Head of Corporate Bank & Investment Bank Fabrizio Campelli said.
Elsewhere in the banking space, the Fed called for greater sector oversight while admitting to its own failures in a widely-anticipated report published into the collapse of Silicon Valley Bank last month.
‘Following Silicon Valley Bank’s failure, we must strengthen the Federal Reserve’s supervision and regulation based on what we have learned,’ Federal Reserve vice chair for supervision Michael Barr said in a statement accompanying the report.
Barr said SVB’s management failed to adequately manage risk prior to the bank’s swift collapse, while Fed supervisors failed to take forceful enough action after they had identified issues at the Californian high-tech lender.
Brent oil was quoted at $79.87 a barrel late Friday in London, up from $78.08 late Thursday. Gold was quoted at $1,990.27 an ounce, higher against $1,984.30.
Financial markets in London, Frankfurt, Paris and Shanghai are closed on Monday. Markets in Shanghai only re-open on Thursday.
Tuesday’s economic calendar has a slew of manufacturing purchasing managers’ index readings, including the eurozone at 0900 BST and the UK at 0930 BST.
The week picks up pace with the Fed decision on Wednesday, before the ECB on Thursday.
Tuesday’s local corporate calendar has first-quarter results from lender HSBC.
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