Stocks buoyant as investors bet rates have peaked

(Alliance News) - Stocks prices soared in London on Thursday as investors bet interest rates have peaked despite the best efforts of central bank officials to curb expectations.

European and US markets were also buoyant after interest rates were left unchanged by the Bank of England on Thursday, and by the US Federal Reserve on Wednesday for the second meeting in a row.

The FTSE 100 index closed up 104.10 points, 1.4%, at 7,446.53. The FTSE 250 ended up 581.41 points, 3.4%, at 17,767.30 and the AIM All-Share closed up 6.77 points, 1.0%, at 690.34.

The Cboe UK 100 ended up 1.4% at 742.97, the Cboe UK 250 closed up 3.3% at 15,463.03, and the Cboe Small Companies ended up 1.2% at 12,778.08.

"Having come off an awful October there appears to be an element of exuberance, as tumbling yields prompt optimism that central banks are done after the Bank of England followed the Fed last night in holding rates at current levels," said Michael Hewson at CMC Markets.

The Bank of England maintained UK interest rates at 5.25%, a 15-year high, as Threadneedle Street predicted inflation would ebb "sharply" in the months to come.

But the BoE left the door open for further rates increases explaining the risks to inflation remain "skewed to the upside."

"Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee's remit," the BoE said in a statement.

But ING's James Smith thinks barring some "major unpleasant surprises" in the data between now and Christmas, the tightening cycle is over.

He said, this latest decision looks neither surprising nor controversial but beneath the surface, he detected "hints that the Bank is uncomfortable with markets beginning to price rate cuts for next year."

He felt there was a slight hardening in the language compared to that seen in August and September.

And while the Bank's models forecast inflation a touch below target in two years' time they show headline CPI at 2.2% once an "upside skew" is applied, he added.

"That's policymakers trying to tell us that, at the margin, the amount of tightening and subsequent easing may be insufficient to get inflation back to target," he said.

Samuel Tombs at Pantheon Macroeconomics noted the MPC has gone out of its way to signal that it does not expect to reduce Bank Rate next year.

But he thinks rates will start to fall with the first cut as early as next May. "The MPC is currently reactive and backward-looking, and its stance will shift - potentially quickly - as the economic data change," he added.

Stocks in New York leapt after the Federal Reserve also left interest rates unchanged. In a widely expected move, the central bank unanimously agreed to hold the key federal funds rate in a target range between 5.25%-5.50%, a 22-year-high, where it has been since July.

Jerome Powell, chair of the Federal Reserve, said the US central bank remains "strongly committed" and "squarely focused" on getting inflation back to its 2% target, leaving the door ajar for a further interest rate increase.

He cautioned against reading too much into the idea that they are on an extended pause, saying no decision on what they will do at the December meeting has been made. Policy would need to remain restrictive until inflation was seen to be on a "sustainable path," to 2%, he commented.

Despite Powell's best efforts, investors took the view that interest rates have peaked.

Goldman Sachs continues to think that the hiking cycle is done. "We saw the FOMC statement and the press conference as slightly dovish overall, and the market appeared to agree."

At the time of the London close, the Dow Jones Industrial Average was up 1.2%, the S&P 500 index was up 1.5%, and the Nasdaq Composite was up 1.4%.

In European equities, the CAC 40 in Paris added 1.9%, while the DAX 40 in Frankfurt climbed 1.5%.

The pound was quoted at USD1.2176 at the London equities close on Thursday in London, up compared to USD1.2123 on Wednesday. The euro stood at USD1.0613, up against USD1.0537. Against the yen, the dollar was trading at JPY150.48, lower compared to JPY151.07.

In the FTSE 100, interest rate sensitive stocks performed well. Property companies, Segro, Land Securities and Unite rose sharply, while housebuilder Barratt Developments was also firmly in the green.

BT jumped 5.7% after it reported a rise in profit and revenue in the first half of the financial year.

The telco said that in the six months ended September 30, revenue rose to GBP10.41 billion from GBP10.37 billion a year earlier.

Pretax profit jumped 29% to GBP1.08 billion from GBP831 million.

Looking ahead, BT confirmed its financial outlook for the full-year. It expects normalised free cash flow towards the top end of the guidance range.

J Sainsbury rose 3.8%.

The supermarket delivered an upbeat set of half-year results, crediting its renewed focus on value and food, but said it faces "ferocious" competition on prices in the key festive trading period.

Sainsbury's said it expects underlying profit to come in at the upper range of its guidance for its financial year, reporting "strong volume and market share growth" in its first half.

Shell was another star performer, with shares rising 4.4%. The oil major's third-quarter results received rave reviews, in contrast to peer BP, but there was little nod to net-zero plans, leaving questions hanging over its strategy.

The London-based oil major said in the third quarter of 2023, pretax profit fell to USD11.29 billion from USD11.44 billion, but doubled from USD5.35 billion in the second quarter. Revenue fell 20% annually to USD76.35 billion from USD95.75 billion, but was 2.4% higher than USD74.58 billion in the second quarter.

Shell declared a third quarter dividend of USD0.331 per share, up 32% from USD0.25 a year ago, and started a new USD3.5 billion share buyback programme.

But Entain, the owner of Ladbrokes and Coral, slipped 5.9%. The firm’s losing run came as it reported customer friendly results have seen sports margins impact earnings before interest, tax, depreciation and amortisation by around GBP45 million in October.

In the FTSE 250, it was full steam ahead at Trainline, which stormed 8.1% higher after it reported higher revenue and profit in the first half of its financial year.

The London-based online rail ticket seller tightened its full-year guidance, trimming the upper end and lifting the lower end of its revenue growth range.

Net ticket sales jumped 23% to GBP2.65 billion in the six months ended August 31, from GBP2.16 billion a year before, with revenue rising 19% to GBP197 million from GBP165 million. Pretax profit rose to GBP18.1 million from GBP13.6 million.

On AIM, Ethernity Networks jumped 9.4%, after the supplier of data processing semiconductor technology for networking appliances signed an extended contract for USD475,000 with an unnamed "tier one US-based military aerospace customer".

It had received an advance payment of USD80,000 last month, and expects payments for the contract to be received during November and December, bringing the total anticipated revenue to USD555,000.

Brent oil was quoted at USD86.38 a barrel at the London equities close on Thursday, little changed from USD86.36 late Wednesday.

Gold was quoted at USD1,981.27 an ounce, up against USD1,978.93.

Friday's global economic calendar sees the US employment report at 1230 GMT and service sector PMI readings in the UK and the US at 0930 GMT and 1345 GMT.

By Jeremy Cutler, Alliance News reporter

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