Market attention on Friday turned to the US employment report and, further out, the next interest rate decision by the Federal Reserve, after legislators passed a bill that will prevent the US government from defaulting on its debts.
Stocks were higher ahead of the May nonfarm payrolls report, due out at 1330 BST.
The FTSE 100 index was up 74.26 points, 1.0%, at 7,564.53 at midday in London. The FTSE 250 was up 225.09 points, 1.2%, at 19,052.85, and the AIM All-Share was up 5.05 points, 0.6%, at 789.50.
The Cboe UK 100 was up 0.8% at 754.70, the Cboe UK 250 was up 1.3% at 16,610.82, and the Cboe Small Companies was up 0.4% at 13,632.09.
The US Senate voted to suspend the federal debt limit, capping weeks of fraught negotiations to eliminate the threat of a disastrous credit default just four days ahead of the deadline set by the Treasury.
Economists had warned the US government could run out of money to pay its bills by Monday. This left almost no room for delays in enacting the Fiscal Responsibility Act, which extends the government’s borrowing authority through 2024 while trimming federal spending.
Hammered out between Democratic President Joe Biden and the opposition Republicans, the measure passed the Senate with a comfortable majority of 63 votes to 36 a day after it had sailed through the House of Representatives.
‘Risk sentiment has improved markedly with the passage of the US debt ceiling deal through Congress,’ said Fawad Razaqzada, market analyst at City Index and Forex.com
As US President Joe Biden prepares to sign the legislation into law, attention now turns to the key US nonfarm payrolls report for May. It is expected to show an increase in jobs of 195,000, up from 253,000 in April.
‘US jobs numbers this afternoon may provide some pointers to the next move by the Federal Reserve, whose decision making no longer needs to consider the potential financial stability risks associated with default on US debt,’ said AJ Bell investment director Russ Mould.
‘If the non-farm payrolls data indicates continued tightness in the labour market, the Fed may feel it has to continue with rate rises when it meets on 14 June.’
Fed Governor Philip Jefferson and Philadelphia Fed President Patrick Harker both made the case on Wednesday for a pause in interest rates hikes at the next meeting on June 13 and 14.
Stocks in New York look to continue their rally on Friday. The Dow Jones Industrial Average, the S&P 500 index, and the Nasdaq Composite all were called up 0.5%. On Thursday they ended up 0.5%, 1.0%, and 1.3%, respectively.
The dollar was mostly lower midday Friday in Europe.
The pound was quoted at $1.2530 at midday on Friday in London, up slightly compared to $1.2523 at the equities close on Thursday. The euro stood at $1.0770, higher against $1.0737. Against the yen, the dollar was trading at JP¥138.88, unchanged from Thursday.
Despite its softness ahead of the US jobs report, the dollar is set to rise further, Brown Brothers Harriman thinks.
‘Banking sector concerns and dovish market pricing for Fed policy had been major negative headwinds on the dollar in recent months, but those have finally begun to clear,’ BBH said. ‘Now, we believe passage of the debt ceiling deal removes the final headwind for the dollar, and so we see this recent rally continuing.’
In the FTSE 100, NatWest lost 0.2%.
NatWest jointly sold 54.6 million shares in Dublin-based lender Permanent TSB, alongside the Irish government, at a placing price of €2.03 per share. Permanent TSB shares were down 3.5% to €2.18.
NatWest disposed 27.3 million ordinary shares in Permanent TSB, with the overall disposal representing 10% of the Dublin bank’s share capital. The two shareholders each will receive around €55.2 million from the share placement.
NatWest said its shareholding in Permanent TSB will be reduced to 63.6 million from 90.9 million, retaining a 12% stake in the Irish bank.
Meanwhile, Prudential was up 4.0%. JPMorgan said it has added the company to its ’positive catalyst watch’.
In the FTSE 250, Dechra Pharmaceuticals jumped 8.3%, after it agreed to a £4.5 billion takeover offer from a company backed by Swedish private equity firm EQT and the Abu Dhabi Investment Authority.
The offer values Dechra shares at 3,875 pence each, which is a 13% premium to the company’s closing price of 3,439.65p each on Thursday. It is 44% higher than Dechra’s share price of 2,690p of April 12, the day before the takeover talks were first announced.
However, the offer is 4.8% lower than the 4,070p potential offer floated in mid-April. Dechra said it considered the new offer ‘fair and reasonable’.
The acquisition values Dechra at £4.46 billion on a fully diluted basis, implying an enterprise value of £4.88 billion. It is around 26 times Dechra’s 2022’s earnings before interest, tax, depreciation and amortisation of £188 million.
‘The gradual thinning of the London market’s ranks continues with news animal-based medicine specialist Dechra Pharmaceuticals has agreed to a takeover by Swedish private equity firm EQT,’ said AJ Bell’s Mould.
‘While some shareholders may welcome the modest premium on offer, the long-term consequences of a hollowing out of the mid-sized universe from which future giants are likely to be drawn does not do much for the health of the wider UK market.’
On London’s AIM market, Tungsten West jumped 20%.
The mining company said it has completed legacy tungsten pre-concentrate and tin concentrate processing at the Hemerdon project in Devon, England.
Tungsten has to date processed over 50 tonnes total legacy and residual material and plans to move towards future regular production, including liquidating the previous operator’s leftover assets and using pre-crushed and separated past materials. It expects over £400,000 in revenue from these operations.
Pelatro was up 17%.
The London-based marketing software specialist said it won a ‘large’ contract for campaign management solution from an unnamed Middle East telecommunications company with operations in multiple countries. In 2022, it had won a contract from one of its operations and has now expanded the relationship to three more countries. The overall contract delivers recurring revenue of about $650,000 per year.
In European equities on Friday, the CAC 40 in Paris was up 1.3%, while the DAX 40 in Frankfurt was up 1.2%.
Brent oil was quoted at $75.22 a barrel at midday in London on Friday, up from $74.35 late Thursday.
Gold was quoted at $1,979.01 an ounce, up against $1,978.50.
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