London’s FTSE 100 rallied on Friday, as budget nerves calmed, with investors hoping US nonfarm payrolls will not throw a spanner in the works at the end of an eventful week.
The FTSE 100 index traded up 66.55 points, 0.8%, at 8,176.65. The FTSE 250 was up 49.99 points, 0.3%, at 20,438.95, and the AIM All-Share was up 1.38 points, 0.2%, at 738.48.
The Cboe UK 100 was up 0.8% at 820.05, the Cboe UK 250 rose 0.3% to 18,021.80, and the Cboe Small Companies was up 0.1% at 16,441.93.
In European equities on Friday, the CAC 40 in Paris and the DAX 40 in Frankfurt each added 0.7%.
The pound was quoted at $1.2918 early Friday afternoon, rising from $1.2870 at the London equities close on Thursday. It had traded above the $1.30 mark before Wednesday’s budget announcement, however.
The UK manufacturing economy made a soft start to the final quarter, falling into contraction territory for the first time since April, numbers on Friday showed.
The seasonally adjusted S&P Global UK manufacturing purchasing managers’ index dropped to 49.9 points in October from 51.5 in September, also falling short of the flash tally of 50.3. A touch below the 50-point mark that separates growth from decline, Friday’s reading suggests the manufacturing sector is in contraction.
It is the first time the manufacturing PMI has landed below 50 points since April, S&P Global said.
‘The UK manufacturing economy continued to face rising headwinds at the start of the final quarter of 2024. A lack of market optimism, slower economic growth, stretched supply chains and concerns about the impacts of possible announcements in the UK budget (which were unknown at the time of the survey) led to reduced intakes of new work and a near-stalling of output growth,’ S&P Global commented.
UK Chancellor Rachel Reeves is seeking to calm the markets and provide reassurance of the nation’s stability after her budget borrowing spree sparked jitters.
The budget increased state spending by almost £70 billion per year – a little over 2% of gross domestic product – funded by increased taxes and borrowing.
The scale of extra borrowing – around £32 billion a year on average – saw yields on government bonds increase as the market responded to the chancellor’s plans.
Reeves has played down the impact, saying that ‘markets will move on any given day’ and sought to offer reassurance of her commitment to ‘economic and fiscal stability’.
XTB analyst Kathleen Brooks commented: ‘The selling in the UK bond market on Thursday was mostly concentrated in the short to end of the UK bond market. The 30-year Gilt yield rose at a more moderate pace.
‘It suggests that pension fund Liability Driven Investment, is relatively protected for now. However, if the sell off continues, or if the 30-year yield plays catch up, then another LDI crisis cannot be ruled out.’
LDIs which were at the heart of the post-mini-budget turmoil in 2022. A concern at the time was whether some LDI managers amassed enough liquidity to meet margin calls. These types of investment managers assist pension funds in managing risk.
A margin call occurs when an investor’s portfolio account falls below a required amount. In order to shore things up, they would typically need to deposit cash to get it back above the level required. A broker may also force the investor to sell assets. Managers had been forced into a quickfire sale of UK government bonds, putting more pressure on gilt prices after that mini-budget announcement in 2022.
A calmer mood on Friday boosted those that struggled in the fallout of Wednesday’s budget. Schroders fell 3.9% on Thursday but was up 4.0% on Friday. Legal & General was 1.4% higher, after a 1.7% decline on Thursday.
Stocks in New York are called to open higher. The Dow Jones Industrial Average and S&P 500 are called up 0.4%, while the Nasdaq Composite is called 0.5% higher.
US jobs data is released at 1230 GMT.
According to FXStreet cited consensus, the US labour market is expected to have added 113,000 jobs in October, down from 254,000 in September.
Tickmill analyst Joseph Dahrieh commented: ‘While a strong ADP report was released, a steep decline in NFP could contribute to dovish sentiment and weigh on the dollar. Conversely, a stronger-than-expected job report could continue to support a bullish outlook for the greenback moving forward.’
The euro stood at $1.0866, up from $1.0859 at the European equities close on Thursday. Against the yen, the dollar was trading at JP¥152.72, rising from JP¥152.45.
In London, Reckitt shares surged 8.5% as investors cheered a vital legal ruling in the US over infant formula, a matter which has cast a dark cloud over the stock in recent months.
On Thursday, Reckitt’s Mead Johnson, as well as New York-listed Abbott Laboratories, were cleared by a US jury over claims they hid risks their premature-infant formulas can cause a bowel disease that severely sickened a baby boy. It was the companies’ first trial win in litigation over the products.
The ruling in the Whitfield case in the Missouri State Court was welcomed by Mead Johnson.
Barclays on Friday said the latest verdict for the Whitfield will ease investor nerves.
‘This was the best case scenario for Reckitt. Following considerable investor nervousness yesterday on news plaintiffs were seeking $6bn of damages we expect today’s share reaction to be strongly positive,’ Barclays said.
‘We think this verdict may make Reckitt more attractive to risk adverse investors.’
Rising on the FTSE 250, Close Brothers was up 2.3%, looking set to end a seven-day losing streak. Shares had tumbled 25% last week Friday alone, as the merchant bank noted the outcome of a motor finance case that saw a UK court side with consumers.
The Court of Appeal ruled in favour of the appeals of three claimants, Johnson, Wrench and Hopcraft, against FirstRand Bank and Close Brothers Group - the so-called Hopcraft case.
Secure Trust Bank, also exposed to the motor finance arena, tumbled 17% on Friday, however.
The Solihull, England-based retail bank cautioned that it will take longer than expected to recover value from defaulted vehicle finance balances.
Secure Trust now expects underlying continuing pretax profit to ‘fall materially below market expectations by between £10 million and £15 million’ in 2024.
Brent oil surged to $74.18 a barrel early Friday afternoon, rising from $72.67 at the time of the London equities close on Thursday. Gold was quoted at $2,752.12 an ounce, up from $2,742.90.
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