Equity markets were trading more confidently early Wednesday in Europe, amid growing confidence that the US central bank will pause its current cycle of interest rate hikes.
Data showing renewed growth in UK economy and a promise of higher returns by key dividend payer Shell were contributing to the positive mood in London.
The FTSE 100 index opened up 10.82 points, or 0.1%, at 7,605.60. The FTSE 250 was up 18.66 points, or 0.1%, at 19,207.16, and the AIM All-Share was up 0.33 of a point at 795.05.
The Cboe UK 100 was up 0.1% at 758.65, the Cboe UK 250 was up 0.1% at 16,727.40, and the Cboe Small Companies was up 0.1% at 13,296.33.
The UK economy is estimated to have grown 0.1% in the three months to April.
The Office for National Statistics said real gross domestic product is estimated to have grown by 0.2% in April, after shrinking by 0.3% in March.
Looking at the broader picture, GDP grew by 0.1% in the three months to April.
Nicholas Hyett, an investment analyst at Wealth Club, said chances of a 0.5% rate hike by the Bank of England next week ‘just got higher’ as a result of the growth data.
‘The GDP growth, albeit modest, creates the space for the Bank of England to be more aggressive in its rate hikes,’ he said.
Daniel Mahoney, UK economist at Handelsbanken, commented: ‘These figures suggest that UK growth continues to show a flat-lining trend. Monthly GDP has now edged above its pre-pandemic level yet quarterly GDP remains below pre-crisis levels.’
He added: ‘However, inflation and earnings numbers consistently overshooting expectations indicate that rate setters at the Bank of England may need to suppress growth in the short term in order to get prices under control in the medium term.’
The positive GDP figures follow a UK jobs report on Tuesday that showed that unemployment edged down in the three months to April while pay growth accelerated.
The Bank of England announces its interest rate decision on Thursday next week. Before then, the US Federal Reserve will be the focus of market attention.
The Fed announces its latest monetary policy decision at 1900 BST on Wednesday, after the European close. A press conference with Chair Jerome Powell follows at 1930 BST.
The US annual consumer price inflation rate eased to 4.0% last month from 4.9% in April, according to the Bureau of Labor Statistics on Tuesday. The figure for May came in below market consensus of 4.1% inflation.
The cooler-than-expected headline inflation number boosted expectations that the US central bank will hold interest rates steady on Wednesday.
Markets now see a 95% chance of rates staying where they are, according to the CME FedWatch Tool. Last week, markets saw just a 73% chance of this outcome.
Up to this point, the Fed has moved faster than the Bank of England. The US federal funds rate currently stands at 5.00% to 5.25%, while the UK bank rate is 4.50%.
Wall Street ended higher on Tuesday in the wake of the inflation data and increasing confidence that the Fed will pause its rate rises. The Dow Jones Industrial Average closed up 0.4%, the S&P 500 up 0.7% and the Nasdaq Composite up 0.8%.
The dollar was mixed as the US central bank’s decision loomed.
The pound was quoted at $1.2613 early on Wednesday in London, higher compared to $1.2609 at the close on Tuesday. The euro stood at $1.0788, lower against $1.0795. Against the yen, the dollar was trading at JP¥140.04, virtually unchanged from JP¥140.05 on Tuesday.
In London, Entain was the worst blue-chip performer in early morning trade, down 9.6% at 1,194.50 pence, after a share placing.
The sports betting and gambling company raised about £600 million through a placing and retail offer to help fund its acquisition of STS, Poland’s leading sports-betting operator.
The placing price of £12.30 represented a 6.9% discount to Entain’s closing share price of £13.22 on Tuesday.
Shell was up 0.5%. The oil major said it plans to buy back shares worth at least $5 billion in the second half of 2023. This is 25% larger than the ongoing $4 billion share buyback programme that Shell had announced when it released its 2022 results in February.
Further, Shell said it aims to reduce capital spending to between $22 billion and $25 billion per year for 2025, compared to $22.60 billion in 2022.
Shell also said it will keep crude oil production steady until 2030 instead of a previously planned cut of 1% to 2% per year until the end of the current decade.
The company said it will stabilise liquids production to 2030, with Chief Executive Officer Wael Sawan, who started his role at the start of 2023, scrapping the plan of his predecessor Ben van Beurden.
In the FTSE 250, Victrex was the index’s worst performer, down 11%.
The polymers maker said headwinds in the wider chemical sector are likely to continue over the summer and ‘at least’ to the end of its financial year in September.
Victrex said year-to-date revenue is tracking down by a mid-single-digit percentage rate as a result. If this were to continue, full-year revenue would be down between 6% and 10% year-on-year.
Games Workshop jumped 5.2% after it said it expects to report an improved performance in its recently concluded financial year, thanks to its direct sales, as licensing revenue slipped.
The miniature wargames maker and retailer said it expects core revenue in the financial year ended May 28 to be not less than £440 million. This would be 14% higher than £386.8 million the year before.
Pretax profit is expected to rise to at least £170 million, which would be at least an 8.3% improvement from £156.5 million a year before.
Elsewhere in London, Robert Walters plunged 14%.
The recruitment firm said annual profit in 2023 will be ‘significantly’ lower than current markets expectations amid reduced levels of candidate confidence and a lengthening of time to hire.
In European equities on Wednesday, the CAC 40 in Paris was up 0.3%, while the DAX 40 in Frankfurt was up 0.2%.
In Tokyo on Wednesday, the Nikkei 225 index closed up 1.5%. In China, the Shanghai Composite closed down 0.1%, while the Hang Seng index in Hong Kong was down 0.6%.
The S&P/ASX 200 in Sydney closed up 0.3%.
Brent oil was quoted at $74.73 a barrel early in London on Wednesday, up from $73.98 late Tuesday. Gold was quoted at $1,950.70 an ounce, higher against $1,944.33.
Still to come in Wednesday’s economic calendar, EU industrial production figures are out at 1000 BST and US producer price data is released at 1330 BST.
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