Stocks in London ended higher on Thursday, with promising updates sending retailers Frasers and Dunelm higher, while in mainland Europe, the European Central Bank took centre-stage as it opted to leave rates unmoved.
The conviction remains that the ECB will cut at its September meeting, however. In the UK, signs of a softer labour market aided Bank of England rate cut expectations.
The FTSE 100 index ended up 17.43 points, 0.2%, at 8,204.89. The FTSE 250 ended up 140.82 points, or 0.7%, at 21,234.16, and the AIM All-Share ended up 0.87 of a point, 0.1%, at 787.67.
The Cboe UK 100 ended up 0.2% at 819.24, while the Cboe UK 250 added 0.8% at 18,526.79, and the Cboe Small Companies rose 0.4% at 17,352.99.
In European equities on Thursday, the CAC 40 in Paris rose 0.2% but the DAX 40 in Frankfurt lost 0.5%.
European Central Bank President Christine Lagarde did not commit to a September rate cut, stating the projections and data released ahead of that decision will set the tone at that meeting.
The Frankfurt-based official lender kept rates unchanged at its Thursday meeting.
The interest rate on the main refinancing operations, the marginal lending facility, and the deposit facility still stand at 4.25%, 4.50% and 3.75%, respectively.
The decision was widely expected, with the market more focused on any guidance for its next meeting in September. However, the Governing Council said it is ‘not pre-committing to a particular rate path’, reiterating its determination to bring inflation to target in a ‘timely manner’.
With June’s hold the move that was expected, observers looked to Lagarde’s post-decision press conference for any suggestion on what the ECB would do at the next meeting in September.
She gave little away, saying the September decision is ‘wide open’. Lagarde said there is not ‘any pre-determined rate path’.
Lagarde said the decision, as well as the meeting-by-meeting approach, was unanimous.
Deutsche Bank analyst Mark Wall commented: ‘The ECB remains on course for a second rate cut in September. Despite some recent inflation data being less friendly, the ECB has excused some as one-offs and others as absorbed in profit margins.
‘The ECB is taking comfort from the trends and looking through the noise, consistent with being ’data dependent, not data point dependent’.’
The pound was quoted at $1.2972 late Thursday afternoon in London, lower compared to $1.3008 at the equities close on Wednesday. The euro stood at $1.0908, down against $1.0934. Against the yen, the dollar was trading at JP¥156.70, higher compared to JP¥156.60.
UK earnings growth has fallen back further amid mounting signs of a weakening jobs market, but wages are outstripping inflation at the fastest pace for more than two-and-a-half years.
The Office for National Statistics said average regular earnings growth dropped to 5.7% in the three months to May – down from 6% in the previous three months and the lowest level since the quarter to September 2022.
With consumer price inflation taken into account, regular earnings rose by 3.2%, which is the highest since the three months to August 2021.
The ONS estimated that the rate of unemployment remained unchanged at 4.4% in the three months to May.
But the data suggested further signals that the employment sector is cooling, with 30,000 fewer vacancies at 889,000 in the quarter to June.
Wealth Club analyst Nicholas Hyett commented: ‘That could mean wage growth starts to fade from here, as we annualise pay rises made in the second half of last year.
‘If so, it would be among the last pandemic hangovers to fade, and could mean we see interest rates start to fall quite quickly.’
Rate cut hopes supported London-listed housebuilders. Persimmon rose 2.3%, while Berkeley added 1.1%.
In New York, the Dow Jones Industrial Average was down 0.3%, though the S&P 500 was down 0.5% and the Nasdaq Composite fell 0.9%.
US initial jobless claims were higher than expected in the recent week, numbers showed.
According to the Department of Labor, initial claims for unemployment benefits in the week ended July 13 rose to 243,000, from 223,000. The prior week’s reading was upwardly revised slightly from 222,000.
The latest reading was higher than the FXStreet cited consensus of 230,000.
Continuing jobless claims also increased, to 1.867 million for the week ended July 6 from 1.847 million a week prior. The reading was at the highest level since late November 2021. The prior reading was downwardly revised from 1.852 million.
‘Taking a step back from the noise in the data, jobless claims have drifted higher since the start of the year,’ commented Oxford Economics analyst Nancy Vanden Houten. ‘We think the rise so far is consistent with a cooling labour market that is characterized more by a slower pace of hiring rather than by higher lay-offs.
‘However, our now-cast estimate of the unemployment rate based on the claims data indicates the unemployment rate will likely remain above 4%.
‘The Fed is becoming increasingly focused on the downside risks to the labour market by delaying rate cuts much longer. Our baseline assumes the first rate cut will come in September.’
In the FTSE 100, Frasers gained 9.2%.
The retailer celebrated a ‘break-out year’ for building future growth, after posting adjusted pretax profit of £544.8 million for the twelve months ended April 28, up 13% from £481.8 million a year prior. This result was at the top of Frasers’ guidance range.
Meanwhile, pretax profit from continuing operations fell 21% to £507.0 million from £638.0 million, while revenue fell 0.9% to £5.54 billion from £5.59 billion. Looking ahead, the retailer expects adjusted pretax profit for financial 2025 of between £575 million and £625 million.
Elsewhere in the retail sector, furniture seller Dunelm shot up 8.5%.
The Leicester, England-based homewares retailer said total sales rose 4.1% to £1.71 billion in the financial year that ended June 29 from £1.64 billion it had reported for financial 2023.
In the fourth quarter, total sales were up 4.9% to £399 million from £380.5 million a year before.
Dunelm expects pretax profit for the year to be slightly ahead of current market expectations, which it cites as £200 million. This would be up 3.8% from £192.7 million in financial 2023.
Further, the new store opening programme was on track with six new stores opened in financial 2024, including one relocation.
Dunelm anticipates full-year gross margin to be 170 basis points, improved year-on-year due to net freight tailwinds. In financial 2023, the gross margin had been down by 110 basis points from financial 2022.
Chief Executive Officer Nick Wilkinson said: ‘Amidst ongoing consumer caution, our unrelenting focus on value and choice means the Dunelm proposition has continued to resonate with customers, and we saw both full-priced and discounted lines trade well during our summer sale period.’
On AIM, Alumasc added 17%.
The Kettering, England-based supplier of building and engineering products updated its annual underlying pretax profit expectations for the year ended June 30 to be at least £12.6 million, compared to £11.2 million a year prior.
This uplift was down to the ‘significant outperformance of UK construction markets’, Alumasc explained, with overall organic revenue growth of around 6.5%. Accordingly, financial 2024 revenue, operating margins, and profit are all expected to be ahead of financial 2023 across all three divisions.
Brent oil was trading at $84.99 a barrel late on Thursday, higher than $84.80 late Wednesday.
Gold was quoted at $2,465.41 an ounce, up slightly from $2,464.08.
Friday’s economic calendar has a UK retail sales reading at 0700 BST.
The local corporate calendar has a trading statement from Hargreaves Lansdown.
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