Stocks in London ended higher on Thursday, with a weakening pound boosting the FTSE 100 as the dollar was lifted by an increasingly hawkish-sounding US Federal Reserve.
There is a growing conviction that investors may have to wait until later than previously thought for the first Fed rate cut.
Over in the UK, a slate of corporate updates and comments from Bank of England Governor Andrew Bailey were in focus.
The FTSE 100 index closed up 19.07 points, 0.3%, at 7,742.30. It has lost 0.2% so far this week. The FTSE 250 added 82.80 points, 0.4%, at 19,298.25. The AIM All-Share rose 0.74 of a point, or 0.1%, at 809.94.
The Cboe UK 100 rose 0.3% to 774.07, the Cboe UK 250 added 0.3% at 16,850.38, and the Cboe Small Companies ended flat at 13,571.20.
In European equities on Thursday, the CAC 40 index in Paris closed up 0.6%, while the DAX 40 in Frankfurt surged 1.3%.
Another member of the US Federal Reserve’s rate-setting committee indicated her support Thursday for an additional rate hike next month, underscoring divisions at the Fed over how aggressively to target inflation.
‘We haven’t yet made the progress we need to make, and it’s a long way from here to two percent inflation,’ Dallas Fed President Lorie Logan told a banking conference in Texas.
Logan joins three other members of the Federal Open Market Committee – which currently has just 11 voting members – in indicating that the Fed may need to raise rates again on June 13-14.
Other officials, including Chicago Fed president Austan Goolsbee, and Fed governor Philip Jefferson – the White House’s nominee for the vacant number 2 position at the US central bank – have suggested adopting a wait-and-see approach to raising interest-rates.
Odds of a rate hold next month have fallen, according to the CME FedWatch Tool. There is now a 63% likelihood the Federal Open Market Committee leaves the federal funds rate range at 5.00% to 5.25%. The probability of this stood at 89% a week ago.
There is a 61% likelihood of another hold in July. Notably, a cut is no longer the most likely outcome for September’s meeting.
There is a 50% chance it holds again during that meeting. A week ago, there was a 50% chance it would cut, though that probability now stands at just 27%, according to the CME tool.
The pound was quoted at $1.2399 at late Thursday in London, lower compared to $1.2474 at the close on Wednesday. The pound was trading around a three-week low.
The euro stood at $1.0764, its worst level since late-March, and lower against $1.0826 a day earlier. Against the yen, the dollar was trading at JP¥138.64, higher compared to JP¥137.47.
The Bank of England will not return its balance sheet to levels from before the financial crisis, the central bank’s governor told UK members of Parliament.
The central bank started a programme of quantitative easing following the 2008 financial crisis, by which it purchased government bonds.
Its balance sheet swelled to around £1 trillion after the start of the Covid-19 pandemic, as the institution increased asset purchases to £895 billion in an effort to support the economy.
However, it has since contracted to £880 billion after quantitative tightening, meaning the bank has reduced its stock of government bonds.
Brent oil was quoted at $76.23 a barrel in London on late Thursday afternoon, up from $75.96 late Wednesday. Gold was quoted at $1,953.31 an ounce, lower against $1,982.40, with bullion under pressure amid a stronger dollar.
The weaker pound lifted shares in FTSE 100 listings with an international exposure. Equipment rental firm Ashtead added 3.4%, while Asia-focused lenders HSBC and Standard Chartered added 1.8% and 3.2%.
On the decline, however, Burberry dropped 6.4%. The British fashion house reported revenue of £3.09 billion for the year ended April 1, increasing 9.5% from £2.83 billion the year prior. Pretax profit was £634 million, increasing 24% from £511 million.
There was a tinge of disappointment, however, as the company did not lift guidance for the new year. In addition, the stock enjoyed a 24% year-to-date rally ahead of its results.
Burberry’s still targets annual sales to grow to £4 billion at constant exchange rates in the medium term.
BT shed 5.1% as it posted a profit decline and announced it will slash its workforce by as much as 55,000 staff by 2030.
The telecommunications provider said it will reduce its number of workers to between 75,000 and 90,000 by financial years 2028 to 2030 from 130,000 currently. This is a reduction of between 31% and 42%.
BT said pretax profit in the financial year that ended March 31 fell 12% to £1.73 billion from £1.96 billion. Revenue edged down 0.8% to £20.68 billion from £20.85 billion.
On the up, Aston Martin Lagonda shares raced 12% higher.
The luxury carmaker said that it has received a ‘substantial investment’ from Chinese vehicle manufacturer Geely International, and at a premium to its Wednesday share price to boot.
Geely will raise its stake in Aston Martin to 17%, buying 42 million existing shares at 335p from Yew Tree, who will remain a major shareholder. It will subscribe for 28 million new shares at the same price.
In total, the investment is about £234 million. Aston Martin will receive around £95 million in cash from the subscription.
The purchase price represents a 45% premium to the closing price on Wednesday.
Automotive firms over in Frankfurt also climbed, helping support the DAX 40. Mercedes-Benz added 3.1%, Volkswagen also rose 3.2% and BMW ended up 2.4%.
Mirada plunged 61% as the provider of software for digital television proposed a cancellation of its AIM listing.
‘The directors have undertaken a review to evaluate the benefits and drawbacks to the company and its shareholders of retaining the admission to trading on AIM of the ordinary shares. This review has included, amongst other matters, the impact of the concentration of ordinary shares beneficially owned by one major shareholder, the inability of the company to attract material new investment from third party equity investors, the public market share trading and valuation volatility of the company and the increasing costs of maintaining a public quotation,’ the firm said.
Stocks in New York were largely higher around the time of the London equities close. The Dow Jones Industrial Average lost 0.1%, though the S&P 500 was up 0.5% and the Nasdaq Composite surged 1.1%.
Walmart traded 0.7% higher. For the three months ended April 30, the Bentonville, Arkansas-based retailer reported group total revenue of $152.30 billion, up 7.6% from $141.57 billion year-on-year.
However, net income fell 9.8% to $1.90 billion from $2.10 billion. Diluted net income per share was $0.62, down 16% from $0.74.
Looking ahead, the company set its guidance for financial 2024. It expects net sales to increase by 3.5%, and operating income to increase between 4.0% and 4.5%. Adjusted earnings per share are expected to be between $6.10 and $6.20.
Friday’s economic calendar has a consumer price index reading from Japan overnight, before producer price data from Germany at 0700 BST.
The local corporate calendar has a trading statement from law firm Knights Group and third-quarter results from engineering firm Smiths Group.
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