European equities headed into Friday afternoon in the green, ending what could have been a difficult for stock markets on the up.
Facing hawkish words from the Federal Reserve and European Central Bank, as well as the expectation that the Bank of England will hike again, it would not have been surprising to see equities struggle this week.
However, shares have defied the odds and pushed higher once again. Not even a rally in the pound could stop the FTSE 100, which is stacked with international earners.
The FTSE 100 index was up 24.36 points, or 0.3%, at 7,652.62. The blue-chip index is up around 1.2% this week, having risen every day so far. The FTSE 250 was up 66.74 points, or 0.4%, at 19,106.15, and the AIM All-Share was up 2.01 points, or 0.3%, at 793.57.
The Cboe UK 100 was up 0.3% at 763.36, the Cboe UK 250 climbed 0.4% at 16,683.84, and the Cboe Small Companies added 0.3% at 13,365.26.
The pound was quoted at $1.2788 at midday on Friday in London, up from $1.2759 at the close on Thursday. Sterling traded as high as $1.2818 earlier in the day, its best level since April 2022.
‘Barring a surprisingly soft May UK CPI on Wednesday, 21 June, it looks like sterling can largely hang onto those gains if the Bank of England does not push back against very aggressive tightening expectations,’ said analysts at ING.
The euro stood at $1.0947, higher against $1.0930. Against the yen, the dollar was trading at JP¥140.84, higher compared to JP¥140.52.
The yen underperformed against the dollar after the Bank of Japan said it would maintain its long-standing, ultra-loose monetary policy as it looks to boost economic growth.
It left its negative interest rate in place and did not adjust the band in which rates for 10-year government bonds fluctuate, a scheme known as yield curve control.
In London, Frasers was among the top blue-chip performers at midday, up 2.7%, after it upped its stake in online electricals retailer AO World.
The Sports Direct owner raised its stake to 21% from 19%. Frasers last week Friday bought a 19% stake, saying the initial investment was the ‘culmination of productive talks over the last two years about establishing a strategic partnership’.
AO World was up 3.3%.
Tesco was trading at the bottom of the FTSE 100, down 1.3%.
However, the supermarket chain said it was seeing signs that inflation is easing in the grocery market, and backed annual guidance as it kicked off its financial year with a sales hike.
Tesco said revenue in the 13 weeks to May 27 - its first quarter - rose 9.4% to £15.17 billion. The measure excludes both VAT and fuel, but includes Tesco Bank.
Looking ahead, Tesco said it still expects retail free cash flow within its £1.4 billion to £1.8 billion target range. At best, this would be a 16% fall from £2.13 billion in financial 2023.
It still expects a ‘broadly flat level’ of retail adjusted operating profit. Retail adjusted operating profit fell 6.1% to £2.49 billion in financial 2023, from £2.65 billion.
Chief Executive Ken Murphy told investors he was cognisant of the fact that Tesco’s clientele continues to face ‘significant cost-of-living pressures’. He said the retailer would ‘keep working tirelessly to ensure customers receive the best possible value’.
In the FTSE 250, Travis Perkins dropped 5.8%, making it the worst-performing mid-cap stock.
The builders’ merchant said it had delivered a ‘resilient’ performance in the first quarter of 2023, but it has not seen an anticipated easing of market conditions in the second quarter to date.
‘Volumes in both the new build housing and private domestic RMI markets continue to be impacted by higher interest rates and weaker consumer confidence driven by persistent, higher than anticipated consumer price inflation,’ Travis Perkins said.
Elsewhere in London, Mears Group added 5.9%.
The housing and social care provider said it has seen strong trading in the first five months of its financial year, with ‘continued elevated revenues, improving operating margins and excellent cash performance’.
As a result of this ‘continued strong momentum’, the board expects full-year profits to be materially ahead of current market expectations.
On AIM, CT Automotive surged 33% after it posted a positive outlook, despite a reporting a widened loss.
CT Automotive said its annual loss widened to $18.8 million in 2022, from $12.4 million the previous year, due to the deterioration in its gross profit margin to 12% from 20% the previous year.
The custom car interiors maker said the enforcement of the Chinese government’s ‘zero-Covid’ policy resulted in the temporary closure of the company’s manufacturing facilities, increasing costs as the government caught up on lost production. CT Automotive estimated these costs at $5.0 million.
More positively, the company said it has seen a rapid recovery in manufacturing in China following the lifting of Covid restrictions, and that its new facility in Puebla, Mexico is fully operational. It said both of these should boost yearly profit.
‘We are optimistic about the outlook for the automotive industry. With the scrapping of the zero-Covid policy in China, we anticipate being able to operate normally and return to stable rhythm in our production facilities,’ the company said.
In European equities, the CAC 40 in Paris was up 0.8%, while the DAX 40 in Frankfurt was 0.2% higher.
Inflation in the eurozone was confirmed to have cooled on an annual basis in May. According to final figures from Eurostat, the harmonised index of consumer prices rose by 6.1% in May, easing from a 7.0% rise in April.
The figures come a day after the European Central Bank raised interest rates by 25 basis points and its president struck a decidedly hawkish tone in her post-policy decision press conference, saying that it is ‘very likely’ that interest rates in the eurozone will continue to increase.
The decision took the interest rate on the main refinancing operations, the marginal lending facility and the deposit facility to 4.00%, 4.25% and 3.50%, respectively.
‘Are we done? Have we finished the journey? No. We are not at destination. Do we still have ground to cover? Yes, we have ground to cover,’ ECB President Christine Lagarde told reporters in Frankfurt.
‘I can even go further than that. I can tell you, barring a material change to our baseline it is very likely the case that we will continue to increase rates in July,’ she added.
Stocks in New York were called for a mixed open on Friday, after ending sharply higher on Thursday amid hopes that US interest rates may have peaked, despite the Federal Reserve’s claim otherwise.
The Dow Jones Industrial Average was called down 0.1% on Friday, the S&P 500 index was seen flat, and the Nasdaq Composite was seen 0.1% higher.
On Wednesday, the Federal Reserve left interest rates unchanged but signalled further increases were on the way before the end of the year. However, investors took heart as the meeting marked the first pause in more than 14 months of the Fed’s aggressive tightening campaign aimed at bringing down persistently high inflation.
Brent oil was quoted at $75.12 a barrel at midday in London on Friday, up from $74.81 late Thursday. Gold was quoted at $1,964.32 an ounce, higher against $1,955.88.
Still to come in Friday’s economic calendar, the University of Michigan’s survey of US consumers is released at 1500 BST.
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