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London open: FTSE gains on US rate cut hopes
London stocks rose in early trade on Wednesday, taking their cue from a positive close on Wall Street amid US rate cut hopes.
At 0820 BST, the FTSE 100 was up 0.6% at 8,167.25.
Stocks in the US closed up after Federal Reserve chair Jerome Powell said at an event in Sintra, Portugal, that the Fed had made “quite a bit of progress” in bringing inflation back down to the central bank’s target, “while the labour market has remained strong and growth has continued”.
“The last [inflation] reading and the one before it to a lesser extent, suggest that we are getting back on the disinflationary path,” he said. However, he also said the Fed wants to be “more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy”.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “The FTSE 100 has opened higher, riding on the coattails of the fresh enthusiasm which swept over Wall Street, with any political uncertainty pushed into the background. Stocks have largely been driven upwards by hopes that interest rate cuts are on the horizon and a soft landing is in sight, thanks to encouraging comments from the chair of the Federal Reserve.
“Jerome Powell said that the US is back on a disinflationary path due to recent weaker inflation readings. He stressed that policymakers are wary of keeping monetary policy ‘too tight for too long’ and losing expansion in the economy. His comments helped lift the S&P 500 to another record high at 5,509, its first-ever close above 5,500.”
On home shores, investors were eyeing the election on Thursday amid expectations the Labour party will be voted into power for the first in 14 years.
Streeter said: “There are less than 24 hours to go until the polls open for the UK’s General Election and a frenzy of last-minute campaigning is underway, as candidates jostle to win over floating voters. Even Boris Johnson, with his distinct marmite appeal, has been wheeled out by the Conservatives to help shore up support among the Tory faithful. There may be remnants of uncertainty, but they are not fazing investors, given the strength of the poll lead Labour commands.
“At this stage of the game anything other than a clear Labour majority would be more unsettling. However, for parties like the Greens and Reform, winning seats in parliament would help push more of their policies into the political limelight. Maintaining financial stability is set to be the priority for an incoming Labour government, and bond markets are sanguine, with gilt yields significantly lower than there were at the end of May and sentiment driven by the central bank rather than party policies. The pound is also little moved, trading around $1.268, with recent dips showing sensitivity to expectations that the Bank of England will move before the Fed in cutting interest rates.”
In corporate news, Vodafone nudged higher after it and Virgin Media O2 said they had agreed to extend and enhance their existing mobile network sharing agreement for more than a decade, forming a new company that will invest £11bn in the project.
The agreement is subject to the planned merger of Vodafone and Three. If that deal goes through then Virgin Media O2 will buy spectrum “establishing three scaled mobile network operators each with better alignment of spectrum holding”, the companies said in a statement.
Diageo fizzed higher after an upgrade to ‘buy’ at Citi. The bank said that with earnings/valuations metrics troughing and destocking headwinds likely to give way to positive earnings momentum in FY25E, an inflection point has likely been reached.
“As such, Diageo’s July FY24E results should act as the clearing event which allows investors to revisit what remains an attractive compounding growth story,” Citi said.
Baltic Classifieds rallied after it reported a 20% jump in full-year EBITDA and a 19% rise in revenue, hailing “strong” performances across its business lines.
JD Sports was knocked lower by a downgrade to ‘underweight’ at Barclays, while 3i Group fell after a downgrade to ‘equalweight’ at Morgan Stanley.
Outside the FTSE 350, Keywords Studios advanced after agreeing to be taken over by European private equity firm EQT in a £2.1bn deal.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
International Consolidated Airlines Group S.a. | +3.50% | +5.75 | 170.05 |
| 2 |  |
Fresnillo Plc | +3.35% | +18.50 | 570.00 |
| 3 |  |
Barclays Plc | +3.06% | +6.45 | 217.20 |
| 4 |  |
Johnson Matthey Plc | +2.60% | +41.00 | 1,619.00 |
| 5 |  |
Antofagasta Plc | +2.16% | +45.00 | 2,128.00 |
| 6 |  |
Croda International Plc | +2.12% | +84.00 | 4,043.00 |
| 7 |  |
Glencore Plc | +2.10% | +9.80 | 476.05 |
| 8 |  |
Rio Tinto Plc | +2.09% | +108.00 | 5,278.00 |
| 9 |  |
Diageo Plc | +1.85% | +45.50 | 2,509.00 |
| 10 |  |
Easyjet Plc | +1.85% | +8.20 | 452.40 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Direct Line Insurance Group Plc | -1.69% | -3.30 | 191.70 |
| 2 |  |
3i Group Plc | -0.99% | -30.00 | 3,015.00 |
| 3 |  |
Carnival Plc | -0.70% | -9.00 | 1,272.50 |
| 4 |  |
Compass Group Plc | -0.70% | -15.00 | 2,128.00 |
| 5 |  |
Coca-cola Hbc Ag | -0.52% | -14.00 | 2,670.00 |
| 6 |  |
Smurfit Kappa Group Plc | -0.34% | -12.00 | 3,482.00 |
| 7 |  |
Astrazeneca Plc | -0.26% | -32.00 | 12,054.00 |
| 8 |  |
Admiral Group Plc | -0.24% | -6.00 | 2,537.00 |
| 9 |  |
Shell Plc | -0.05% | -1.50 | 2,868.00 |
| 10 |  |
Relx Plc | -0.03% | -1.00 | 3,574.00 |
US close: Tesla, Powell comments drive markets to new highs
Despite a mediocre start, US stock markets rallied into the afternoon with the S&P 500 finishing above the 5,500 mark for the first time and the S&P 500 notching its 22nd record close of the year.
Gains were helped by a 10% surge in the share price of Tesla along with positive comments from Federal Reserve chair Jerome Powell on the economic outlook.
The Dow finished up 0.4% at 39,331.85, while the S&P 500 rose 0.6% to 5,509.01 and the Nasdaq jumped 0.8% to 18,028.76.
Speaking at the European Central Banking Forum, Powell said the US central bank has made “quite a bit of progress” on inflation but reiterated that the Fed needed more confidence of things easing further before cutting interest rates.
While stopping short of giving a date for the first rate cut, Powell acknowledged that the jobs market was beginning to loosen. “You can see the labor market is cooling off, appropriately so, and we’re watching it very carefully,” he said.
Meanwhile, the president of the Chicago Fed, Austan Goolsbee suggested the central bank could potentially cut rates in the coming months amid “warning signs” of an economic slowdown, saying: “You only want to stay this restrictive for as long as you have to.”
“Markets’ current thinking is that any sign of weakness in the American jobs market could encourage the Fed to make the long-awaited first cut in US interest rates from the 5.5% mark reached last summer,” said Russ Mould, investment director at AJ Bell. “The theory is that lower returns on cash and lower bond yields will persuade investors to see a higher return in different, albeit riskier, asset classes, including equities.”
Economic data was thin on the ground on Tuesday with the JOLTS survey for May the only major release of the day. US job openings increased by 2.8% month-on-month to reach 8.14m, surprising economists who had forecast a decline from April’s previous estimate of 8.059m to 7.91m.
Hiring meanwhile was up by 2.5% to 5.77m and separations (or ‘quits’), which denote confidence in prospects for the jobs markets, rose by 1.6% to 5.422m.
Tesla jumps
Electric car giant Tesla reported that deliveries had fallen 4.8% to 443,956 in the second quarter, but that didn’t stop the stock from surging to $231.26 – its highest in nearly six months. This was the second straight quarter of falling sales, but higher than the 438,019 expected by the market.
In contrast, sector peer Polestar fell after reporting a loss of $274.3m for its first quarter, compared with $37.7m a year earlier.
Biopharma groups Eli Lilly and Novo Nordisk were being weighed down by comments from President Biden about drug companies’ “unconsciousably high prices”.
Paramount Global rose strongly on the back of CNBC reports that it was in talks about a possible merger of its Paramount+ streaming platform, with Warner Bros Discover among the parties named.
Wednesday newspaper round-up: Private rents, M&S, Hipgnosis
Average private rents in Great Britain have climbed to record highs, prompting a call for the next government to prioritise measures to help create an extra 120,000 rental properties. Data shows that the typical advertised rent outside London reached a record £1,316 a calendar month in May, the property website Rightmove said. The figure for London was £2,652 a month – almost three times the £894 asked for in north-east England. – Guardian
Much has changed in Belfast since the 1930s. Yet through the second world war, decades of Troubles and the steep decline of heavy industry, the Short Brothers factory has continued to make planes and parts. Yet now a takeover by US planemaker Boeing of the factory’s owner, Spirit AeroSystems, has raised questions over its future. Workers and politicians fear a new ownership structure could lead to steep job cuts at one of Northern Ireland’s main manufacturers, which has about 3,500 employees. – Guardian
Dozens of airports across Europe are unprepared for new post-Brexit fingerprinting rules scheduled to be introduced in months, threatening chaos for British tourists unless the timeline is delayed. Senior industry figures have expressed alarm that many smaller airports across the EU have so far failed to install fingerprint technology that is set to be activated in October. Under the so-called European Entry/Exit System (EES), all British nationals travelling to the EU will have to have their biometric data taken upon crossing the border for the first time. – Telegraph
Marks & Spencer has faced shareholder questions over paying an annual dividend of only 3p, despite handing millions of pounds in bonuses to its bosses. At the retailers’ annual meeting on Tuesday, several investors told the board they were “really disappointed with the really low dividend payment” that it awarded — its first for four years — after delivering forecast-busting profits. Archie Norman, its chairman, said the dividend should have hopefully “put a nice little bit of a chink in people’s pockets”, but admitted that it was a modest return. – The Times
The founder of Hipgnosis Songs Fund is to step down as chairman of its investment adviser as part of the $1.58 billion takeover of the London-listed music rights investment company by Blackstone. Merck Mercuriadis, 60, will depart Hipgnosis Song Management, the investment adviser, once Blackstone’s $1.31-per-share acquisition closes, bringing to an end an acrimonious period. – The Times
