European stocks closed higher in confident trade on Wednesday, with the mood supported by cooler US data aiding interest rate cut hopes, and belief that the French election outcome could be more favourable than first feared.
French voters went to the polls for the first round of the legislative election on Sunday, and they return to them this week. In the UK, there was a boost for the Labour Party on election eve, as it received the endorsement from The Sun newspaper.
The FTSE 100 index ended up 49.92 points, 0.6%, at 8,171.12. The FTSE 250 jumped 334.95 points, 1.7%, at 20,529.42, while the AIM All-Share rose 5.75 points, 0.8%, at 770.12.
The Cboe UK 100 added 0.7% to 813.62, the Cboe UK 250 surged 1.5% to 17,842.89, and the Cboe Small Companies closed up 0.2% at 16,947.69.
In European equities on Wednesday, both the CAC 40 in Paris and DAX 40 in Frankfurt added 1.2%.
The pound rose to $1.2768 Wednesday in London, up from $1.2678 at the London equities close on Tuesday. The euro stood at $1.0806, up against $1.0735. Against the yen, the dollar was trading at JP¥161.38, lower than JP¥161.54.
US employment growth was lower than expected last month, numbers from payroll processor ADP showed Wednesday.
The ADP jobs report showed a third successive slowdown in job creating, with private employment rising by 150,000 in June, easing from 152,000 in May.
Employment growth had been expected to pick up to 160,000, according to FXStreet cited consensus.
Year-on-year pay growth for job-stayers was 4.9% in June, easing from 5.0% in May. It was the tamest rate of growth since August 2021.
For job changers, pay growth was 7.7%, slipping from 7.8%.
The data comes ahead of Friday’s nonfarm payrolls, which are expected to show job growth eased to 190,000 last month, from 272,000 in May.
Separate data from the Institute for Supply Management showed economic activity in the US services sector contracted in June for the second time in the last three months.
The ISM services purchasing managers’ index registered 48.8 in June, indicating sector contraction for the third time in 49 months. This represented a sharp fall from May’s 53.8.
‘Overall, there is a growing body of evidence that the US economic data is turning lower and could point towards a potential recession later this year. It also puts the spotlight firmly on the September Fed meeting, when the market seems to think that the Fed could cut rates,’ XTB analyst Kathleen Brooks commented.
‘If the economy is slowing, then it is no wonder that investors are gravitating towards companies with strong growth potential and bullet proof balance sheets. Thus, if US economic data continues to slow, we do not think that market breadth in the US stock market will widen, and we expect the same stocks to continue to power the main US blue chip index for the medium term. A slowing economy also puts pressure on the Fed to cut rates before they break something.’
During an abbreviated trading day in New York, the Dow Jones Industrial Average was down 0.1% at the time of the closing bell in Europe. The S&P 500 was up 0.3%, while the Nasdaq Composite was up 0.5%.
Speaking at a conference in Portugal on Tuesday, Powell said the Fed has made ‘quite a bit of progress’ in its fight against rising prices and could hit its inflation target as soon as next year.
‘We’ve made quite a bit of progress in bringing inflation back down to our target, while the labor market has remained strong and growth has continued,’ Powell commented. ‘We want that process to continue.’
Referencing the most recent inflation data, Powell said: ‘I think the last reading...and the one before it to a lesser suggest that we are getting back on the disinflationary path,’ Powell said.
He added that it was possible the Fed could hit its 2% target ‘maybe late next year,’ or in 2026.
Also lifting the mood in Europe was hope that France could avert a far-right majority in legislative polls.
France’s prime minister on Wednesday urged voters to form a united front to block the far right in legislative elections, warning the anti-immigration party of Marine Le Pen was the only faction capable of winning an absolute majority.
With four days to go until the second round in the polls, France’s political future remains up in the air as the far-right National Rally party seeks to take control of government for the first time.
The RN dominated the first round of polls, presenting the party of Le Pen with the prospect of forming a government and her protege Jordan Bardella, 28, taking the post of premier in a tense ‘cohabitation’ with President Emmanuel Macron.
But more than 200 candidates from the left and the centre this week dropped out of three-way races in the second round of the contest, aiming to prevent the RN winning the seat.
In the UK, voters go to the polls on Thursday. The opposition Labour party has received the backing of The Sun, as the newspaper insisted: ‘It is time for a change’.
The tabloid said it believes the Conservatives, over the past 14 years, have become a ‘divided rabble, more interested in fighting themselves than running the country’.
It added the Tories ‘are exhausted’ as it switched its endorsement to the Labour Party.
In London, travel stocks were among the best large-cap performers, as investors digested a sector development. easyJet added 4.2%, while British Airways parent IAG rose 5.5%.
The European Commission announced on Wednesday it had approved Lufthansa plans to acquire part of state-owned Italian airline ITA Airways.
To appease EU regulators, Lufthansa and the Italian government agreed to facilitate the operation of short-haul flights by rival airlines to Central Europe and share landing slots at Milan airport to reduce Lufthansa’s potential domination.
Baltic Classifieds rose 4.4%. In the financial year ended April 30, the online classified said pretax profit rose 32% to €34.9 million from €26.4 million a year prior. Revenue increased 19% to €72.1 million from €60.8 million.
Core classifieds revenue streams business-to-consumer and consumer-to-consumer, which together comprise 90% of total revenue, grew 22% and 18% respectively, the company said.
Brent oil was quoted at $86.33 a barrel late on Wednesday afternoon, down from $86.99 at the same time on Tuesday. Gold was quoted at $2,361.74 an ounce, up against $2,327.03.
Thursday’s economic calendar has a UK construction PMI reading at 0930 BST, after eurozone data at 0830 BST.
The local corporate calendar has third-quarter numbers from polymer products maker Victrex.
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