London share prices were mixed early Friday, bringing a dismal year for the local market to a similarly lacklustre close.
The FTSE 100 index opened up 7.12 points, 0.1%, at 7,729.86. The FTSE 250 was down 56.50 points, 0.3%, at 19,662.66. The AIM All-Share was up 0.17 of a point at 763.83.
The London Stock Exchange is open for a half-day on Friday, closing at 1230 GMT.
The FTSE 100 was up 0.1% at 771.80 points, the mid-cap FTSE 250 was down 0.2% at 17,148.06, and the smaller companies index was slightly higher at 14,891.86.
Whilst the defensive positioning of the FTSE 100 index served investors comparatively well in 2022, London was left behind as risk appetite returned during 2023. It provided a gain of just 2.3% this year.
Smaller London listings fared little better. The mid-cap FTSE 250 index is up 3.0% in 2023, while the AIM All-Share is down 8.9%.
In European equities early Friday, the CAC 40 in Paris was up 0.4%, while the DAX 40 in Frankfurt was up 0.3%. They are up 15% and 19% respectively in the year so far.
However, there were some bright spots in London.
Jet engine maker Rolls-Royce went from strength to strength over the year, under the leadership of Tufan Erginbilhic, who was installed as chief executive at the start of 2023. Its shares have tripled in value over the past twelve months.
Rolls-Royce has outlined a divestment programme of non-core assets and has pleased investors with its shift in focus to areas offering higher margins and more growth potential.
Marks & Spencer also had a strong year, as the founding member of the FTSE 100 rejoined the index in September following a four-year absence. Its shares more than doubled over 2023.
When the retailer of clothing, food and home products announced its interim results in November, it revealed it had achieved broad sales growth of 11% from the prior year, while pretax profit surged 56%. Customers were ‘responding positively’ to its Christmas ranges, M&S said, leaving investors feeling hopeful about its festive trading.
On the downside, dragging on the FTSE 100 were miners Anglo American and Fresnillo, set to close the year down 39% and 34% respectively.
Anglo faced headwinds from falling commodity prices amid the gloomy economic outlook for China - a key importer of commodities.
Meanwhile, Fresnillo faced a similar set of problems, as well as its own production troubles. Further, the political risk stemming from its heavy reliance on assets located in Mexico also injects an element of uncertainty into the miner’s prospects.
The breakout star for European equities this year was Denmark’s Novo Nordisk, which saw its stock surge 48% thanks to the runaway sales of its obesity drugs Ozempic and Wegovy. It earned the crown of Europe’s most valuable company in September and is currently valued at kr2.38 trillion, about $353 billion.
In the US on Thursday, Wall Street saw a muted close, with the Dow Jones Industrial Average up 0.1% and the S&P 500 marginally higher, while the Nasdaq Composite edged into the red.
However, the Dow is up 14% so far in 2023, the S&P 500 up 25%, and the tech-heavy Nasdaq Composite up 45%.
Equities have trended higher since late October as the market has embraced moderating inflation and a strong labour market in the belief the US economy can avoid recession.
The stock that stole the show in 2023 was chipmaker Nvidia, amid the explosion of interest in artificial intelligence. Its shares leapt from $147 at the beginning of the year to $495 by the end.
‘Our crystal balls completely missed the AI rally that marked 2023,’ commented Swissquote Bank senior analyst Ipek Ozkardeskaya.
She expanded: ‘This year was completely different than what was expected. We were expecting the US to enter recession, but the US printed around 5% growth in Q3. We were expecting the Chinese post-Covid reopening to boost Chinese growth and fuel global inflation, but a year after the end of China‘s zero-Covid measures, China is suffocating due to an unexpected deflation and worsening property crisis. We were expecting last year’s negative correlation between stocks and bonds to reverse – as recession would boost bond appetite but batter stocks. None happened.’
The latest rally in equities in December has been prompted by expectations of at least 150 basis points of interest rate cuts from the US Federal Reserve in 2024. This has put selling pressure on the dollar in recent weeks.
However, Swissquote’s Ozkardeskaya on Thursday warned the rally in stocks and the sell-off in the US dollar ‘looks overstretched’, risking a ‘wild correction’ in due course.
Market expectations for the path of rates are markedly more dovish than those of the Fed itself.
The central bank’s latest quarterly dot plot showed that most officials expect rates to be in the range of 4.4% to 4.9% by the end of 2024. The federal funds rate currently stands at a 22-year high of 5.25% to 5.5%, so the dot plot is showing cuts of 100 basis points or less.
The dollar was mixed against major currencies during early exchanges in Europe.
Sterling was quoted at $1.2743, slightly higher than $1.2741 at the London equities close on Thursday. The euro traded at $1.1060, fading from $1.1078. Against the yen, the dollar was quoted at 141.45 yen, up versus 141.08 yen.
Gold was priced at $2,071.13 an ounce, lower than $2,075.46 late Thursday. However, the precious metal rose strongly in 2023, up 14%. It ended 2022 in London around $1,818.60.
A key factor in determining the path of rate cuts is likely to be the trajectory of energy prices, which present an inflationary threat. However, fears of rising oil prices stemming from the conflict in the Middle East failed to come to pass so far.
Brent oil was trading at $77.56 a barrel early Friday, higher than $78.70 late Thursday. Brent ended 2022 in London at $83.21, so lost 6.8% over the course of 2023.
‘Note that crude oil is set for its biggest yearly decline since 2020; Opec’s efforts to curb production and the rising geopolitical tensions in the Middle East remained surprisingly inefficient to boost appetite in oil this year,’ Ozkardeskaya noted.
In Asia on Friday, the Nikkei 225 index in Tokyo closed down 0.5%, but jumped 30% over the course of 2023.
Japanese companies outperformed during the year, as the country’s central bank kept in place its ultra-loose monetary policy. Against a strong dollar, the yen depreciated, helping to make Japanese products more competitive, and attracting foreign investment.
It was a different story for Chinese stocks meanwhile, as investors grew skittish about the country’s economic prospects after the initial optimism about its post-Covid reopening waned.
On Friday, the Shanghai Composite was up 0.7%, while the Hang Seng index in Hong Kong closed marginally higher. Over the year, the indices are down 4.5% and 15% respectively.
The S&P/ASX 200 in Sydney closed down 0.3%, rising 9.3% over the year.
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