Equities surged in the wake of a cooler-than-expected US inflation reading, which for some all but ensures that the Federal Reserve’s next interest rate move will be a cut.
A hold by the US central bank next month is now completely priced in. According to the CME FedWatch Tool, there was a 15% chance of a hike a day ago, as investors digested hawkish comments from Fed Chair Jerome Powell from last week.
A stronger pound hit some of the FTSE 100’s heavyweights, so London’s flagship index only registered a solid gain, albeit one that was less inspiring than peers elsewhere.
The FTSE 100 index rose by 14.64 points, 0.2%, at 7,440.47. It represents a solid gain, though massively underperforming peers.
The FTSE 250 shot up 622.48 points, 3.5%, at 18,536.13, and the AIM All-Share rose 8.85 points, 1.3%, at 709.72.
The Cboe UK 100 rose 0.3% at 743.54, the Cboe UK 250 jumped 3.8% at 16,064.08, and the Cboe Small Companies surged 1.8% at 13,192.44.
In European equities on Tuesday, the CAC 40 in Paris surged 1.4%, while the DAX 40 in Frankfurt shot up 1.8%.
According to the Bureau of Labor Statistics, the consumer price index rose by 3.2% in October from a year before, slowing from a 3.7% increase in September. The inflation rate had been expected to cool only to 3.3%, according to FXStreet-cited market consensus.
The rate of inflation is now closer to the Fed’s 2% target.
The core annual inflation rate eased to 4.0% in October from 4.1% in September, a pace it had been expected to maintain last month.
The Fed earlier in November left the federal funds rate range unmoved at 5.25% to 5.50%, a 22-year-high, and where it has been since July.
But hiking expectations picked up slightly after Chair Jerome Powell struck a hawkish tone last week.
Powell said Thursday that the Fed was prepared to hike again if needed.
The Fed chair’s words gave the dollar some support towards the back end of last week, but the greenback was on the back foot on Tuesday, even prior to the inflation data.
Sterling was quoted at $1.2475 late Tuesday afternoon, higher than $1.2264 at the London equities close on Monday. The pound was trading around a two-month-high.
The euro traded at $1.0855 on Tuesday afternoon, up from $1.0696 at the London equities close on Monday. Against the yen, the dollar was quoted at JP¥150.85, down versus JP¥151.59.
Gold was quoted at $1,964.57 an ounce late Tuesday, up from $1,945.38 on Monday. The precious metal has an inverse relationship with the dollar.
In New York, the Dow Jones Industrial Average was up 1.7%, the S&P 500 surged 2.1% and the Nasdaq Composite jumped 2.3%, with tech shares benefitting from the cooler US inflation reading.
Interest rate sensitive stocks in London also shone. Warehouse investor Segro and housebuilder Taylor Wimpey added 6.4% and 8.1% as the property excelled in the wake of the US data, as rate worries eased.
It was not only in foreign currency and equity markets where moves were dramatic post-US data. The yield on the US 10-year Treasury eased markedly to as low as 4.43% following the data, from a high of 4.70% on Monday.
The stronger sterling meant the FTSE 100 was unable to rise as strongly as European peers. London’s blue-chip index is stacked with international earners.
Index heavyweights such as GSK, Shell and Unilever fell 1.7%, 1.4% and 0.9%.
A hefty 5.5% fall for Vodafone also kept a lid on the FTSE 100. The Newbury, Berkshire-based telecommunications provider said pretax profit in the six months to September 30 dived to €550 million from €1.69 billion a year prior. Revenue fell 4.3% to €21.94 billion from €22.93 billion.
It swung to a net loss of €155 million, from profit of €1.20 billion.
At the other end of the FTSE 100, DCC surged 12%. It said revenue and profit both fell in the latest half year but declared an increased dividend.
The Dublin-based sales, marketing and support services firm said pretax profit for the six months that ended on September 30 was £129.7 million, down from £312.3 million the previous year.
Revenue fell 11% to £9.62 billion from £10.84 billion. This was mainly due to lower average commodity prices, which caused DCC Energy revenue to decrease 9.7% to £2.3 billion.
DCC nonetheless declared an interim dividend of 63.04 pence per share, up 5.0% from 60.04 pence the year before.
Elementis rose 5.2%. It set out a lofty margin target and said it plans ‘above market revenue growth by 2026’.
The speciality chemicals firm, hosting a capital markets day in the wake of receiving calls from some shareholders for an immediate sale of the company, also said it is eyeing cost cuts.
London-based Elementis is looking for an adjusted operating profit margin above 19% as part of its 2026 financial targets. It achieved an adjusted operating profit margin of 13.6% in 2022, rising from 12.4% in 2021.
‘The 19% target operating margin will be achieved through our growth and efficiency programmes based on current market conditions, whilst a modest recovery in the demand environment could see the margin rise above this level,’ Elementis said.
It is also targeting delivering ‘$90 million of above market revenue growth by 2026’.
The capital markets day comes after Elementis has faced shareholder scrutiny recently.
In September, Franklin Mutual Advisors, an investment advisory firm parented by Franklin Templeton, published an open letter requesting that the Elementis board ‘initiate an immediate sale of the company’.
The targets announced by Elementis on Tuesday were not enough to win over Franklin.
‘The proposed targets are based on multiple assumptions several years into the future. The current management has been in charge for nearly eight years and consistently disappointed shareholders with value destruction and missed targets. We continue to believe that the company should start a formal sales process to maximize shareholder value,’ Franklin Mutual Series Senior Vice President-Portfolio Manager Steve Raineri said.
AIM-listed Horizonte Minerals tumbled 48%. It said it will scale back construction activities at its Araguaia nickel asset in Brazil to manage its resources and funds.
Horizonte said it will be advancing only critical workstreams, as it attempts to save cash as it tries to secure more funding.
The Araguaia project had total liquidity sources of $169 million at November 10, which it explained ‘should provide sufficient working capital to around mid-December 2023 unless there are positive outcomes from conversations with suppliers, other cash preserving measures, or other financing solutions’.
It added that financing discussions with shareholders and lenders continue.
Brent oil was trading at $83.42 a barrel at the time of the European equities, rising from $82.39 a day prior.
Wednesday’s economic calendar has China retail sales data and a Japanese gross domestic product reading overnight. There is UK inflation data at 0700 GMT, eurozone industrial production at 1000 GMT and a US producer price index at 1330 GMT.
The local corporate calendar has half-year results from utility firm SSE and pub company Fuller, Smith & Turner.
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