The FTSE 100 was higher at the close on Thursday following a ‘dovish’ 25 basis point hike from the European Central Bank, which investors hoped might be its last.
‘This time, the ECB decided to compromise: a dovish hike, mainly aimed at strengthening credibility and probably bridging growing divergences between ECB hawks and doves,’ said Carsten Brzeski at ING.
The FTSE 100 index closed up 147.09 points, or 2.0% at 7,673.08 on Thursday. The FTSE 250 ended up 338.20 points, or 1.8%, at 18,899.70. The AIM All-Share closed up 3.93 points, or 0.5%, at 744.68.
The Cboe UK 100 ended up 2.0% at 765.74, the Cboe UK 250 closed up 1.3% at 16,418.02, and the Cboe Small Companies ended up 1.9% at 13,378.62.
Thursday’s decision by the ECB Governing Council took the interest rate on the main refinancing operations, the marginal lending facility, and the deposit facility to 4.50%, 4.75% and 4.00%, respectively.
It means the Frankfurt-based central bank has hiked its policy rates by a cumulative 450 basis points during the current tightening cycle.
The ECB said that, based on its current assessment, it believes interest rates have reached levels that, when maintained for a ‘sufficiently long duration’, will make a ‘substantial contribution to the timely return of inflation to the target.’
In a press conference shortly after the decision, Lagarde emphasised this wording when asked whether Thursday’s decision meant the door was open for more hikes.
‘Sufficiently restrictive - that’s number one. For as long as necessary - that’s number two. Those are really the two parameters that are going to guide us, not forgetting the three components that have guided our reasoning so far,’ Lagarde said.
ING’s Brzeski said the ECB would be ‘crazy’ to completely rule out further hikes.
‘Inflation has simply taken too many unexpected turns and the ECB has been wrong too often in the past. This is why today’s meeting still leaves the possibility of picking up hiking at a future stage. However, such a scenario is highly unlikely,’ he said.
‘A further weakening of the economy and more traction in a disinflationary trend will make it very hard to find arguments for additional rate hikes any time soon...Even if the door to future rate hikes remains open, today’s rate hike will soon be remembered as the final hike of the ECB’s most aggressive rate hike cycle in history.’
European equities ended higher on Thursday in the wake of the decision, with the CAC 40 in Paris ending 1.4% higher and the DAX 40 in Frankfurt closing up 1.0%.
The euro slumped against the dollar, meanwhile, trading at $1.0671 at the time of the London equities close, down sharply from $1.0744 at the same time on Wednesday.
In London, mining stocks were the top-performing stocks at the close on Thursday after JPMorgan offered some positive commentary for the iron ore sector.
The bank said steel demand in China has proven ‘more resilient’ than it initially expected, as infrastructure demand offsets poor property sector demand and excess output finds its way to the export market.
Consequently, JPMorgan on Thursday raised Rio Tinto shares to ’neutral’ from ’underweight’ and lifted its price targets for Rio, BHP and Anglo American.
Rio shares closed up 4.8%, BHP up 1.9% and Anglo up 7.9%. Mining peers Glencore and Antofagasta added 4.5% and 2.2%, respectively, in a positive read across.
JPMorgan said Anglo American remains its ‘top pick’, due to its ‘stronger value unlock potential’.
‘Investor sentiment is already broadly more cautious for [platinum group metals] and diamonds in our view, thus offering a better turnaround potential for Anglo American over [the second half of 2023] versus its diversified peers,’ the US bank explained.
The FTSE 100’s oil majors also enjoyed a good session on Thursday, with Shell and BP ending 2.4% and 3.4% higher, respectively, amid surging oil prices.
Brent oil was quoted at $93.49 a barrel at the London equities close on Thursday, up from $92.15 late Wednesday.
In the FTSE 250, Trainline jumped 11% after the online rail ticket seller unveiled a £50 million share buyback and reported higher ticket sales and revenue in the first half of its financial year.
In six months that ended August 31, total net ticket sales jumped 23% year-on-year to £2.65 billion, driving revenue up 19% to £197 million from £165 million.
As a result, Trainline reconfirmed guidance for the financial year as a whole. It expects annual net ticket sales growth of between 13% and 22% in financial 2024, and revenue growth between 13% and 22%.
‘Investors are getting on board the love train for online rail ticketing platform Trainline. Despite another period marred by industrial action, the group has seen an eye-catching increase in ticket sales, suggesting it is gaining traction with travellers not just in the UK but overseas too,’ said AJ Bell investment director Russ Mould.
Elsewhere in London, Kier Group added 5.4% as it announced it plans to resume dividend payments in its current 2024 financial year, after reporting a jump in annual profit for financial 2023.
The company reported that pretax profit in the year ended June 30 jumped to £51.9 million from £15.9 million a year prior. Revenue rose 7.5% to £3.38 billion from £3.14 billion.
‘The group is well positioned to continue benefiting from UK government infrastructure spending commitments and we are confident in sustaining the strong cash generation evidenced this year,’ said Chief Executive Andrew Davies.
Stocks in New York were higher at the London equities close, with the Dow Jones Industrial Average up 0.7%, the S&P 500 index up 0.7%, and the Nasdaq Composite up 0.8%.
The pound was quoted at $1.2414 at the London equities close on Thursday, down from $1.2496 at the close on Wednesday. Against the yen, the dollar was trading at JP¥147.11, down from JP¥147.42 late Wednesday.
Gold was quoted at $1,908.80 an ounce, lower against $1,912.70.
In Friday’s UK corporate calendar, there are full-year results from Petra Diamonds and half-year results from VH Global Sustainable Energy Opportunities.
The economic calendar has US industrial production data at 1415 BST, as well as Chinese retail sales and house price data overnight.
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