FTSE edges 0.3% higher as UK economy returns to growth, investors forecast US rates peak, 12 Oct 2023 09:11

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FTSE edges 0.3% higher as UK economy returns to growth, investors forecast US rates peak

12 October 2023, 09:11

Data showed a slight return to growth for the UK economy in August / Image source: Adobe

Stock prices in London were higher at the open on Thursday, as data showed a slight return to growth for the UK economy in August, and investors weighed the likelihood that US interest rates have peaked.

The FTSE 100 index opened up 24.25 points, 0.3%, at 7,644.28. The FTSE 250 was 18.67 points, 0.1%, at 17,894.91, and the AIM All-Share was up 1.83 points, 0.3%, at 697.52

The Cboe UK 100 was up 0.3% at 763.61, the Cboe UK 250 was up 0.2% at 15,566.45, and the Cboe Small Companies was down 0.1% at 13,043.93.

In European equities on Thursday, the CAC 40 in Paris was up 0.3%, while the DAX 40 in Frankfurt was up 0.3%.

In early economic news, the UK economy returned ever-so-slightly to growth in August, as expected.

The Office for National Statistics estimates that gross domestic product rose 0.2% in August from July, after contracting by a revised 0.6% in July from June. August’s reading was in line with FXStreet-cited market consensus. July’s decline was downwardly revised from 0.5% shrinkage.

The ONS said that services output, which rose 0.4% during the month, was the only positive contributor to growth in August.

The FTSE 100’s miners were on the up amid an improving outlook in China after the country’s sovereign wealth fund bought up shares in banks, providing a boost to market confidence. Rio Tinto rose 1.6%, Glencore added 1.4% and Anglo American rose 2.0%.

Housebuilder Taylor Wimpey fell 4.2% as its stock went ex-dividend.

In the FTSE 250, Mobico, the transport provider formerly known as National Express, plunged 20% following a disappointing trading update, as it announced the suspension of final dividends.

Mobico said it now expects annual earnings before interest and tax to come within a range of £175 million to £185 million, having previously guided for operating profit of £200 million to £215 million.

The transport firm also said it was preparing its North American school bus business for a potential disposal.

‘The board is keenly aware of the importance of dividends to shareholders and the decision to suspend the final dividend was not taken lightly. The board will continue to consider the dividend position as progress is made on deleveraging,’ said Mobico CEO Ignacio Garat.

Elsewhere on the main market, Restaurant Group shares surged 37% to 66.35 pence.

The Glasgow-based owner of Wagamamas said it has agreed to be acquired by funds managed by private equity firm Apollo Global Management Inc, soon after itself having sold off an underperforming business.

Apollo is a New York-based alternative asset manager. Via acquisition vehicle Rock BidCo Ltd, it is offering to pay 65p per Restaurant Group share in cash. The offer values the equity of Restaurant Group at £506 million and the company as a whole, including debt, at an enterprise value of £701 million

The company said its board unanimously recommends the offer to shareholders, and acceptances for it already have been received from shareholders representing 19.9% of its total.

In the US on Wednesday, the he Dow Jones Industrial Average closed up 0.2%, with the S&P 500 up 0.4% and the Nasdaq Composite up 0.7%.

Investors will also be reflecting on the latest minutes from the last Federal Open Market Committee’s most recent meeting. A majority of Federal Reserve officials expect one more interest rate increase before the end of the year and signalled monetary policy would remain restrictive for some time, the meeting showed.

While there was some debate on the need for a further tightening of the monetary policy screw, all FOMC participants ‘agreed that policy should remain restrictive for some time until the committee is confident that inflation is moving down sustainably toward its objective.’

‘We spent the week hearing that the Fed may have done hiking the interest rates, and that the recent surge in the US long-term yields should give room to the Fed to sit down and evaluate,’ Swissquote Bank’s Ipek Ozakardeskaya considered.

Sterling was quoted at $1.2312 early Thursday, higher than $1.2309 at the London equities close on Wednesday. The euro traded at $1.0629, higher than $1.0622. Against the yen, the dollar was quoted at JP¥149.10, up versus JP¥149.01.

Later in the day, there will be US inflation figures. Annual headline inflation is expected to cool to 3.6% in September from 3.7% in August, as core inflation is expected to fall to 4.1% from 4.3%.

In Asia on Thursday, the Nikkei 225 index in Tokyo closed up 1.8%. In China, the Shanghai Composite closed up 0.9%, while the Hang Seng index in Hong Kong was up 2.0% in late dealings. The S&P/ASX 200 in Sydney closed marginally higher.

Sentiment in Asia was boosted by news that China’s massive sovereign wealth fund has bought stakes in the country’s biggest banks, fuelling speculation it could broaden its reach to support beleaguered mainland markets.

China’s Central Huijin Investment – an arm of the $1.4 trillion China Investment Corp – had bought $65 million of shares in the country’s banking giants.

Analysts said the purchase of stakes in Bank of China, Agricultural Bank of China, China Construction Bank and Industrial and Commercial Bank of China was aimed at boosting sentiment in mainland markets, which have been hit by worries over the stuttering economy. Huijin was also said to be planning to further boost its holdings.

Gold was quoted at $1,880.09 an ounce early Thursday, rising from $1,872.58 on Wednesday. Brent oil was trading at $85.73 a barrel, a touch lower than $85.84.

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