Stock prices in London opened in the green on Tuesday, as expectations of interest rate cuts in the US solidified, and investors eyed the latest central bank decision in Japan.
The FTSE 100 index opened up 24.68 points, 0.3%, at 7,639.16. The FTSE 250 was up 94.49 points, 0.5%, at 19,315.04, and the AIM All-Share was up 2.17 points, 0.3%, at 743.36.
The Cboe UK 100 was up 0.2% at 761.94, the Cboe UK 250 was up 0.7% at 16,802.41, and the Cboe Small Companies was up 0.3% at 13465.55.
In European equities, the CAC 40 in Paris was up 0.1%, while the DAX 40 in Frankfurt was up 0.3%.
The dollar lost ground against the pound and the euro, as investors bet on US rate cuts, despite the best efforts of several Fed officials to reign in market expectations.
‘Investors broadly ignored the Fed members’ latest warnings that the interest rate cuts won’t come as soon and as fast as priced in by the financial markets. Equity bulls look determined to keep the Xmas magic alive,’ commented CMC Markets’ Michael Hewson.
According to CME’s FedWatch tool, the market is pricing in a 65% probability of a 25 basis point rate cut at the Fed’s March meeting. This is up from 40% a week ago. The market is also betting on an above 50% chance of two further 25bp cuts to follow in May and June.
Sterling was quoted at $1.2682 early Tuesday, higher than $1.2640 at the London equities close on Monday. The euro traded at $1.0936, rising from $1.0914.
In the US on Monday, Wall Street ended mostly higher, with the Dow Jones Industrial Average little changed, the S&P 500 up 0.5% and the Nasdaq Composite up 0.6%.
However, the greenback made gains against the yen, after the Bank of Japan maintained its long-standing, ultra-loose monetary policy. Against the yen, the dollar was quoted at JP¥144.26, up versus JP¥143.05.
The BoJ offered no guidance on its plans in the new year. Speculation had been swirling for weeks that officials would shift away from negative interest rates and tight grip on bond yields as inflation picks up.
After a two-day meeting, the bank said on Tuesday: ‘With extremely high uncertainties surrounding economies and financial markets at home and abroad, the Bank will patiently continue with monetary easing.’
Dutch bank ING predicts the first rate hike will come ‘sometime after [the end of the fiscal year] in the second quarter’.
‘By then, the BoJ’s policy review will be complete and the BoJ will have more evidence of sustainable inflation and solid wage growth after the spring wage negotiation season,’ it reasoned.
However, ING warned that volatility of the yen and rates market will be high in early 2024, as markets rush to anticipate a rate hike ahead of time.
In Asia on Tuesday, the Nikkei 225 index in Tokyo closed up 1.4%. In China, the Shanghai Composite closed up 0.1%, while the Hang Seng index in Hong Kong fell 0.8%. The S&P/ASX 200 in Sydney closed up 0.8%.
In UK company news, embattled music intellectual property investor Hipgnosis Songs Fund fell 2.6% as it delayed the publication of its scheduled interim financial results.
The delay was in light of concerns over the valuation of its assets, given that an independent valuer found its assets to be ‘materially higher than the valuation implied by proposed and recent transactions in the sector’, particularly the proposed sale of assets to Hipgnosis Songs Capital. It expects the publish the results before the end of the year.
Among London’s small caps, Superdry plunged 14%.
Superdry warned its full-year profit will suffer amid the ‘well-documented challenging trading environment’.
The clothing retailer pointed to an ‘abnormally mild autumn’ which resulted in a delayed update of its AW23 collection. Retail fell 13% year-on-year in the 26 weeks to October 28, as Wholesale plunged 41%, which it said was partly due to its US wholesale operation exit.
‘Despite progress on strategic priorities and ongoing programme to recapitalise the balance sheet, the external environment has proven challenging and trading performance has been significantly below management expectations. Profits for the year are therefore expected to reflect this weaker trading seen to date,’ the firm warned.
In the eyes of Shore Capital, the update could point to wider trends within the UK apparel space over the key festive period.
‘The Superdry warning adds a little tension into the air ahead of the forthcoming New Year trading updates from clothing players. Following on from a quite mellow Black Friday time when UK volumes were at best flat, shopper behaviour in December seems to be quite late in committing to spending,’ the investment firm said.
Meanwhile, oil prices slipped slightly, having advanced on Monday amid disruption in the Middle East. Brent oil was trading at $77.97 a barrel early Tuesday, down from $78.52 late Monday. London’s oil majors BP and Shell shed 0.6% and 0.7% respectively in early trade.
Iran-backed Huthi rebels have escalated attacks on tankers, cargo ships and other vessels in the Red Sea, imperiling a transit route that carries up to 12% of global trade. This prompted companies, including BP, to suspend transits through the area.
According to the Financial Times on Tuesday, Danish firm Maersk, which operates the second-largest fleet of shipping containers in the world, said it would re-route vessels bound for the Red Sea around Africa via the Cape of Good Hope.
‘An extended period of disruption in global trade ways should not only sustain energy prices, but also put a renewed pressure on global supply chains and shipping prices. The latter is a threat to inflation,’ said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
‘Remember, the pandemic-related supply chain disruptions were the major reason that sent inflation to almost 10% in the US. Middle East tensions are expected to have a modest impact compared to the pandemic disruption, but the rising shipping costs – if they last – could lead to an uptick in inflation. Therefore, it is well possible that the Fed uncorked the champagne before winning the inflation battle.’
The US announced a 10-nation coalition to quell Huthi missile and drone attacks on ships transiting the Red Sea, with Britain, France, Bahrain and Italy among countries joining the ‘multinational security initiative’.
Gold was quoted at $2,024.50 an ounce early Tuesday, a touch higher than $2,022.88 on Monday.
Still to come on Tuesday’s economic calendar, there is a consumer price index for the eurozone at 1000 GMT.
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