Stocks in London closed higher on Wednesday, as some tepid UK economic data means that the Bank of England may ‘pause for thought’ when making its next interest rate decision.
Equity markets were also confident looking ahead to the Jackson Hole central banking event.
The FTSE 100 index closed up 49.77 points, or 0.7% at 7,320.53 on Wednesday. The FTSE 250 ended up 202.23 points, or 1.1%, at 18,226.49. The AIM All-Share closed up 2.21 points, or 0.3%, at 734.39.
The Cboe UK 100 ended up 0.7% at 729.72, the Cboe UK 250 closed up 1.0% at 15,976.61, and the Cboe Small Companies ended up 0.7% at 12,778.87.
Fresh data from S&P Global showed that the UK private sector fell back into contraction in August, amid a renewed deterioration in the services sector.
The S&P Global/CIPS flash UK composite purchasing managers’ index fell to a 31-month low of 47.9 points in August from 50.8 in July. Market expectations had been for a reading of 50.3, according to FXStreet-cited consensus.
Chris Williamson, S&P Global Market Intelligence chief business economist, said the survey is indicative of gross domestic product in the UK declining by 0.2% over the third quarter so far.
‘A renewed contraction of the economy already looks inevitable, as an increasingly severe manufacturing downturn is accompanied by a further faltering of the service sector’s spring revival,’ Williamson added.
James Smith, developed markets economist at ING, said that while the latest UK PMI print was ‘unquestionably bad’, it will give the Bank of England ‘pause for thought’ as it nears the end of its tightening cycle.
Nonetheless, sterling suffered in the wake of the PMI print. The pound was quoted at $1.2698 at the London equities close on Wednesday, down from $1.2734 at the close on Tuesday.
Earlier in the day, the pound hit a low of $1.2615.
The euro also struggled against the dollar, hitting a low of $1.0803 on Wednesday, as data revealed that the downturn in the eurozone’s private sector worsened in August.
The euro stood at $1.0850 at the European equities close on Wednesday, virtually unchanged $1.0851 at the same time on Tuesday, however.
Preliminary survey data from S&P Global showed the Hamburg Commercial Bank flash composite PMI fell to a 33-month low of 47.0 points in August. The final reading for July was 48.6.
Falling further beneath the 50-point no-change mark, it shows economic contraction accelerated this month. It also was worse than market expectations, with FXStreet-cited consensus anticipating the PMI to tick down to just 48.5.
Oxford Economics Economist Rory Fennessy said the data has increased the odds that the eurozone could contract over the third quarter of the year and may push the European Central Bank into ‘staying put’ in September.
‘We therefore will be removing a September rate hike from our baseline forecast but acknowledge that, on balance, the decision remains a coin toss,’ he said.
In European equities, the CAC 40 in Paris ended up 0.1%, while the DAX 40 in Frankfurt ended up 0.2%.
In London, JD Sports was the worst blue-chip performer at the close on Wednesday, finishing 5.2% lower as poorly-received results from peer Foot Locker hurt the stock.
Foot Locker said its sales fell 9.9% in its second quarter ended July 29, with the New York-listed firm noting a ‘softening in trends’ in July. The stock was down 34% at the time of the close in London.
In the FTSE 250, Ithaca Energy dropped 6.5% after it reported that impairment charges drove a decline in profit in the first half of 2023.
The London-based North Sea oil and gas operator said pretax profit in the six months to June 30 fell to $248.7 million from $1.74 billion a year prior, mainly due to an impairment charge of $328.4 million.
Revenue was down 6.7% to $1.25 billion from $1.34 billion the year before, partly driven by ‘changes in over lift and under lift positions’ and ‘lower commodity prices’.
Elsewhere in London, Costain jumped 6.1% after it announced it is considering a resumption of dividend payments and will make an announcement about a possible interim payout ‘shortly’.
The comment came as the construction and engineering firm reported a 24% decline in pretax profit for the six months that ended June 30 to £8.5 million, from £11.2 million a year before.
Costain hasn’t paid a dividend since a 3.8 pence per share interim payment in 2019, skipping a final payout for 2019 amid the outbreak of Covid-19 in early 2020.
On Wednesday, it said an interim dividend is under consideration by the board, following an improvement in operating performance, the positive outcome of a pension review, and the refinancing of debt.
On AIM, Jadestone Energy surged 27% as it reported that its ballast water tank at the Montara venture, offshore Australia, is expected to return to service.
Stocks in New York were sharply higher at the London equities close, with the Dow Jones Industrial Average up 0.5%, the S&P 500 index up 0.9%, and the Nasdaq Composite up 1.5%.
Central bankers are heading to the US state of Wyoming for the annual Jackson Hole Economic Symposium on Thursday. All eyes will be on Federal Reserve Chair Jerome Powell’s address on Friday for clues on whether interest rates will remain higher for longer in the US.
Currently, markets see an 89% chance of rates staying of the Fed holding rates steady at its next meeting in September, according to the CME Fed Watch Tool. For the November meeting, markets see a 63% chance of rates remaining unchanged.
However, these predictions may change should Powell come across as particularly hawkish or surprisingly dovish on Friday.
Against the yen, the dollar was trading at JP¥144.66 at the London equities close on Wednesday, lower compared to JP¥145.79 late Tuesday.
Brent oil was quoted at $83.28 a barrel at the London equities close on Wednesday, down from $84.25 late Tuesday. Gold was quoted at $1,916.27 an ounce, sharply higher against $1,897.80 at the close on Tuesday.
In the UK corporate calendar on Thursday, there are half-year results from building materials firm CRH and energy services firm Hunting. There are also full-year results from recruitment company Hays.
The economic calendar has the weekly US unemployment claims report at 1330 BST.
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