London’s FTSE 100 clawed back some recent weakness heading into Friday afternoon, spurred on by a better-than-expected UK gross domestic product reading, and as the US corporate earnings season kicks off.
Oil prices were on the up amid the unfolding dramatic events in the Red Sea.
The FTSE 100 index was up 47.23 points, 0.6%, at 7,623.82. The FTSE 250 was up 83.86 points, 0.4%, at 19,191.79, and the AIM All-Share was up 2.58 points, 0.4%, at 747.30.
The Cboe UK 100 was up 0.6% at 761.80, the Cboe UK 250 was up 0.5% at 16,635.30, and the Cboe Small Companies was up 0.4% at 15,163.65.
The Office for National Statistics said the UK’s gross domestic product grew 0.3% on a monthly basis in November, having contracted by 0.3% in October. The market had been expecting 0.2% growth, according to FXStreet-cited consensus.
The ONS explained that growth in services was the main contributor to the monthly growth in GDP.
‘When we are talking about such small moves on either side of the line most households won’t really care if the economy is growing or not, but psychologically avoiding a technical recession matters,’ said AJ Bell analyst Danni Hewson.
‘November’s surprisingly robust GDP figures could suggest that falling inflation is finally having an impact on people’s sense of wellbeing, but in reality it seems many were simply tempted by Black Friday sales which in turn boosted retailers, couriers and warehouse operators. The bigger question is whether the momentum continued through the final days of 2023.’
Hope of a robust economy lifted shares with a consumer exposure. Sportswear retail JD Sports added 3.1%, while Primark owner AB Foods added 1.1%.
However, Burberry plunged 9.2%, bottom of the FTSE 100.
The fashion firm cut its forecast for adjusted operating profit for the financial year ending March 30 to be in the range of £410 million to £460 million. The latest guidance would at worst represent a decrease of over a third from the £634 million achieved in financial 2023.
Back in November, it had guided for profit towards the lower end of the consensus range at that time of £552 million to £668 million.
The luxury fashion brand blamed the slowdown in demand within the luxury sector. It also said it expects a currency headwind of around £120 million to revenue and around £60 million to adjusted operating profit.
In the FTSE 250, John Wood rose 5.9%, after it said 2023 trading was in line with expectations, with contract wins and strong order book expected to drive growth through 2024.
The Aberdeen, Scotland-based engineering and consulting group expects revenue of around $6 billion for the year ended December 31, up 10% from $5.44 billion a year before.
John Wood boasted several ‘significant contract wins’ in 2023, including for detailed engineering of Woodside Energy Group’s Trion floating production unit in the Gulf of Mexico. It also won a two-year contract extension with Brunei Shell Petroleum Co worth around $250 million.
Looking into 2024, the group estimates its order book value at around $6.1 billion, which it said will ‘support our growth expectations for 2024’.
Vistry was down 0.2%, after the housebuilder said it expects its adjusted pretax profit for 2023 to be in line with 2022’s £418.4 million, which would top prior guidance.
Completions fell ‘only’ 5.4% over the year to 16,124 units from 17,038 in 2022, which Vistry said represents a significant outperformance to its peers, and reflects ‘the resilience of [its] Partnerships model’.
Vistry also said Non-Executive Chair Ralph Findlay will step down at its annual general meeting in May, with CEO Greg Fitzgerald to succeed him, taking on the roles of chair & CEO.
In European equities on Friday, the CAC 40 in Paris was up 0.8%, while the DAX 40 in Frankfurt was up 0.7%.
The hotter-than-expected US inflation reading on Thursday did not have the hit on equity market sentiment that some feared. It had pushed European indices into the red, but elicited a more subdued response in US and Asian markets.
According to the Bureau of Labor Statistics, the US yearly inflation rate picked up to 3.4% in December, from 3.1% in November. The reading was hotter than expected. According to FXStreet cited consensus, the annual inflation rate was forecast to only slightly heat up to 3.2%.
Annual core inflation also came in above forecast at 3.9%, against expectations of 3.8%, according to FXStreet. The measure, which excludes food and energy, eased from 4.0% in November.
‘Yesterday’s US inflation report wasn’t exactly ideal...But if you don’t count food and energy price inflation, core inflation eased to 3.9% during the same month,’ said Swissquote Bank analyst Ipek Ozkardeskaya.
‘Yet some hawkish voices are rising at the Fed, at the start of this year. Fed’s Loretta Mester said that it‘s probably too early to cut rates. [Thomas] Barkin also repeated that he’s looking for more evidence that inflation is headed toward the 2% target.’
According to CME’s FedWatch tool, the market is still pricing in the first 25 basis point rate cut at the Fed’s March meeting.
The dollar softened overnight against major currencies.
Sterling was quoted at $1.2740 on Friday at midday, higher than $1.2703 at the London equities close on Thursday. The euro traded at $1.0947, rising from $1.0945 late Thursday. Against the yen, the dollar was quoted at JP¥145.19, down versus JP¥146.07.
European Central Bank President Christine Lagarde said the paring back of key interest rates in the eurozone will only happen if it was convinced inflation would reach its 2% target.
She could not suggest a date, ‘But if we reach 2%, as we expect for 2025 - and data confirms this in the coming months - I am very confident that interest rates will fall,’ the president said on Thursday evening on the French television station France 2.
Market watchers have recently speculated the ECB could implement the first cut in the spring. But, the latest statements from Lagarde and other ECB central bankers indicate such a move is more likely in the summer.
In the US on Thursday, Wall Street saw a muted close, with the Dow Jones Industrial Average closing marginally higher, the S&P 500 up 0.1%, and the Nasdaq Composite little changed.
On Friday, they were called down at 0.2%, 0.1% and 0.2% respectively.
Investors are also responding to the start of the US earnings season, with some of the big names in banking reporting results on Friday.
JPMorgan Chase said it rounded off 2023 with a ‘solid quarter’.
The lender said its record 2023 stemmed from ‘over-earning’ on both net interest income and credit, but believes it is still in robust shape when that growth normalises.
Reported net revenue in the fourth-quarter of 2023 totalled $38.57 billion, rising 12% on-year from $34.55 billion. Net income, however, was 15% lower at $9.31 billion from $11.01 billion. Its diluted earnings per share fell at the same pace to $3.04 from $3.57.
JPMorgan shares were up 0.4% in pre-market dealings in New York on Friday.
Tensions continued to rise in the Middle East, after US and British air strikes pounded targets in rebel-held Yemen. This follows weeks of disruptive attacks on Red Sea shipping by Iran-backed Houthi forces acting in solidarity with Hamas.
The Houthis said there was ‘no justification’ for the air strikes and warned that attacks on Israel-linked shipping would continue.
Oil prices rose on the news. Brent oil was trading at $80.59 a barrel midday Friday, higher than $78.92 late Thursday.
SPI Asset Management analyst Stephen Innes commented: ‘While this event may not constitute the ’big one’ — a direct threat to Iranian leaders or assets — circumstances could evolve if the current escalation jeopardizes Iran’s credibility or an increasingly confident Israel expands its targets.
‘Concerns about the risk of miscalculation are growing, as rational actors may unintentionally become entangled in an escalatory spiral. Given the inherent complexity of Middle East conflicts, achieving a stable outcome in the region appears challenging, signalling the potential for continued instability with broad global repercussions.’
Gold was quoted at $2,046.15 an ounce, higher than $2,017.55.
Still to come in Friday’s economic calendar, there will be US producer price inflation data at 1330 GMT.
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