European stocks pushed higher early Tuesday on growing belief that the US Federal Reserve will lower interest rates by 50 basis points on Wednesday.
‘Either the Federal Reserve doves are going seriously ahead of themselves, or there will be a big disappointment when the Fed will announce its policy decision tomorrow. Or... the Fed will align with the market and give investors want they want, to avoid creating further panic. The expectation of a 50bp is now assessed nearly 70% chance,’ Swissquote analyst Ipek Ozkardeskaya commented.
The FTSE 100 index added 65.27 points, 0.8%, at 8,343.71. The FTSE 250 rose 53.90 points, 0.3%, at 20,983.49, and the AIM All-Share added 1.48 points, 0.2%, at 745.21.
The Cboe UK 100 was up 0.9% at 834.88, the Cboe UK 250 rose 0.5% to 18,494.06, and the Cboe Small Companies was up 0.2% at 16,824.74.
In European equities on Tuesday, the CAC 40 in Paris was up 0.5%, while the DAX 40 in Frankfurt added 0.4%.
The pound was quoted at $1.3212 early Tuesday, up from $1.3195 at the time of the London equities close on Monday. The euro stood at $1.1132, rising from $1.1119. Against the yen, the dollar was trading at JP¥140.50, down from JP¥140.75.
In New York on Monday, the Dow Jones Industrial Average added 0.6%, the S&P 500 rose 0.1%, but the Nasdaq Composite fell 0.5%.
According to the CME FedWatch Tool, there is a 69% chance the Fed cuts by 50 basis points on Wednesday. There is a 31% chance it cuts by 25 basis points.
A week ago, the odds of a 50 basis point cut stood at 34%.
The US economy is at an ‘important turning point,’ the top economic advisor to President Joe Biden said Monday, calling for safeguards to be put in place to protect gains made in the labour market, ahead of a key Federal Reserve interest rate decision.
Her remarks come just two days before the Fed is expected to announce its first interest rate cut for more than four years, as inflation eases towards its long-run target of 2%, and the labour market continues to cool.
‘Today, we are at an important turning point,’ White House National Economic Advisor Lael Brainard told the Council on Foreign Relations in New York.
‘Inflation is now back down close to pre-pandemic levels, and that means the focus needs to be on safeguarding the gains – the important gains – we’ve made in the labour market.’
In Tokyo on Tuesday, the Nikkei 225 ended down 1.0% after traders there returned to desks following a public holiday on Monday. Financial markets in Shanghai were closed on Tuesday. In Hong Kong, the Hang Seng was up 1.2% in late trade. In Sydney, the S&P/ASX 200 ended 0.2% higher, hitting another record high intraday.
The price of gold rose to $2,584.33 an ounce on Tuesday morning in London, from $2,579.31 at the time of the European equities close on Monday. Brent oil was quoted at $72.88 a barrel, rising from $72.49.
In London, Kingfisher added 6.7%. It tightened profit guidance and increased its cash flow outlook after a mixed first half performance.
The do-it-yourself retailer, which owns B&Q, Castorama, and Screwfix, said sales in the six months to July 31 declined 1.8% on-year to £6.76 billion from £6.88 billion. Sales missed the Vuma consensus of £6.81 billion.
But pretax profit increased 2.3% to £324 million from £317 million a year prior. Gross margin improved by 40 basis points to 36.7% from 36.3%.
‘Trading overall in the first half was in line with our expectations. This was underpinned by customers continuing to repair, maintain and renovate their existing homes, driving resilient volume trends in our core product categories,’ said Chief Executive Officer Thierry Garnier said.
Kingfisher said Screwfix delivered positive LFL sales and TradePoint achieved strong LFL sales growth of 7.1%, now representing 22% of B&Q’s sales.
Looking ahead, Kingfisher predicts adjusted pretax profit for the full-year between £510 million and £550 million, the bottom-end of the range lifted from £490 million. It upped its free cash flow guidance to a £410 million to £460 million range, from £350 million to £410 million previously.
‘With positive early signs of a housing market recovery, notably in the UK, Kingfisher is strongly positioned for growth in 2025 and beyond,’ Garnier said.
Kingfisher led the way in a FTSE 100 that only had a handful of early fallers. Among them was contract caterer Compass, which lost 0.3% after RBC cut the stock to ’sector perform’ from ’outperform’.
Among London’s mid-caps, Essentra plunged 22% after it cut guidance.
The company warned that it expects annual profit to fall short of current market expectations, as market conditions in Europe ‘softened’. The provider of components, with a focus on plastic injection moulded, vinyl dip moulded and metal items, had predicted a ‘modest improvement in volumes in the second half’ of 2024.
‘However, through August and into September, consistent with the weak [purchasing managers’ index] metrics widely reported, market conditions in Europe, (including Turkey) have softened. Whilst the Americas region has reported a slower than anticipated rate of recovery, APAC remains broadly in line with expectations,’ Essentra warned. ‘The impact of the market back drop on trading since the half year 2024 results, combined with a consequently more cautious view of the likely timing of further modest improvements in market conditions has led to the board revising its expectations for full year 2024.’
It now expects adjusted operating profit for 2024 between £40 million and £42 million, which would be below company-compiled market expectations of £48.4 million to £49.7 million. In July, it said it expected profit ‘aligned with market expectations’.
Essentra added: ‘Management remain confident in the business model and that the company is well positioned, supported by a right-sized cost base and robust operations, to benefit from high levels of operational leverage when normalised growth returns. The group continues to balance its investment in value creating opportunities across the business alongside cost mitigation activities and driving efficiencies, which has supported strong gross and operating margins. The balance sheet remains robust, and full year leverage guidance remains unchanged.’
Elsewhere, Headlam fell 5.5% as it reported a revenue decline and a swing to loss in its first half.
The floor coverings company’s revenue in the six months to June 30 fell 12% to £292.5 million from £331.8 million a year earlier. It swung to a pretax loss of £20.6 million, from profit of £4.5 million.
The revenue in July and August abated to 8.4%, though Headlam said there is ‘limited indication of any market improvement yet’.
‘Looking ahead, the lead indicators for the market are more positive, but the timing of market recovery remains uncertain and looks to be later than previously anticipated, with a return to growth now expected at some point during 2025,’ it added.
Headlam decided against and interim dividend, after a 4.0 pence per share payout a year prior.
The global economic calendar for Tuesday has US retail sales data at 1330 BST and US industrial production numbers at 1415 BST.
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