LONDON MARKET CLOSE: FTSE 100 climbs as hopes for jumbo rate cut grow
Tuesday, September 17, 2024 - 17:05
Stocks in London closed higher on Tuesday, with airlines among the strongest performers, as expectations grow of a larger Fed rate cut and data shows growth in the US economy.
The FTSE 100 index rose 31.42 points, or 0.4%, at 8,309.86. The FTSE 250 ended up 15.01 points, 0.1%, at 20,944.60, and the AIM All-Share firmed 1.01 points, or 0.1%, at 744.74.
The Cboe UK 100 rose 0.6% to 832.32, the Cboe UK 250 rose 0.4% to 18,478.65, and the Cboe Small Companies ended little changed at 16,800.01.
In European equities on Tuesday, the CAC 40 in Paris ended up 0.5% as did the DAX 40 in Frankfurt.
On Wall Street at the time of London’s close, the Dow Jones Industrial Average was 0.4% higher, the S&P 500 also gained 0.4%, briefly hitting an all-time high, and the Nasdaq Composite rose 0.7%.
According to the CME FedWatch Tool, there is a 67% chance that the Fed will cut interest rates by 50 basis points on Wednesday and a 33% chance of a 25 basis point cut. The federal funds rate range is currently at between 5.25% and 5.50%.
The dial has shifted dramatically in favour of a 50bp cut. Some commentators previously believed that this would spook markets, as it would not scream confidence in the US economy.
‘I wonder if it’s really such a big deal whether the FOMC decides on a doveish 25bp cut, or a 50bp cut justified as an insurance policy against the labour market weakening faster than expected?
‘The easing cycle is starting and while the pace of cuts priced into the coming few months seems out of line with the (so far) modest slowdown in the pace of economic growth, the bigger question is where the destination of Fed Funds is, rather than whether they start with a hawkish 25bp move or a doveish 50bp one,’ commented Kit Juckes of Societe Generale.
Analysts at Bank of America think unless the incoming data suggests the Fed is behind the curve, that the strength of data ‘matters more than size of cuts for equities’.
‘An easing cycle itself isn’t necessarily positive, but one without a recession is. Growth matters more than the size of cuts,’ BofA commented.
On Tuesday, economic data in the US showed the economy remains robust.
US industrial production grew in August, data from the Federal Reserve showed, while retail sales surprised on the upside.
US industrial production rose 0.8% in August from July, compared to a decline of 0.9% in July. August’s climb was stronger than the FXStreet-cited market consensus, which had expected a 0.2% uptick.
Meanwhile, US retail sales edged higher in August, albeit at a more modest pace than July, beating market expectations.
The value of retail purchases, unadjusted for inflation, increased 0.1% in August on-month after an upwardly revised 1.1% gain in July, the Census Bureau reported. That was ahead of the FXStreet consensus which predicted a fall of 0.2%.
July’s growth was revised upwards from 1.0% previously.
On an annual basis, sales rose 2.1% from a year ago.
Barclays noted strength at non-store retailers, which helped to offset the drag from August’s decline in auto sales.
‘Today’s data position consumer spending for another strong gain in [the third quarter], which should help reassure an FOMC that is looking at the ’totality of the data‘ that aggregate demand remains resilient.’
Societe Generale’s Juckes, meanwhile, said that the data didn’t ‘give fans of a 50bp move any help’.
The pound was quoted at $1.3164 late on Tuesday afternoon in London, down compared to $1.3195 at the equities close on Monday. The euro stood at $1.1119, unchanged from Monday.
Against the yen, the dollar was trading at JP¥141.76, up compared to JP¥140.75.
On London’s FTSE 100, Kingfisher soared 11% as investors cheered a guidance hike and signs of improving fortunes.
The DIY 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.
British Airways rose 3.4%, easyJet firmed 6.2% and Wizz Air leapt 9.2% after positive comments from Ryanair Chief Executive Michael O’Leary.
O’Leary told Reuters that there has been an improvement in bookings momentum since August, driving less need to discount prices. More competition in the market as the boom in travel demand cools down has been weighing on the industry recently.
But heading south, BAE Systems fell 4.7% as Bloomberg reported some of Ukraine’s allies are starting to talk about how the fight against Russia‘s invasion might end. This has prompted concerns in several other Western capitals that these efforts could lead to Kyiv being forced into a premature cease-fire, the report said.
Shares in European defence companies declined with Rheinmetall falling 6.5% and Leonardo was down 4.5%.
Tobacco stocks, BAT and Imperial Brands fell 2.4% and 1.4% as data from Nielsen showed there is still no signs of improvement in US combustible volume momentum.
Cigarette volumes declined in the four weeks to September 7, with Nielsen showing volumes down 11.4%, steeper than the previous 4 weeks at negative 9.9%.
In the FTSE 250, Ocado was in demand, up 4.5%, ahead of Thursday’s trading statement, while positive comments from UBS supported Bytes Technology, up 3.8%.
The Swiss started coverage of Bytes with a ’buy’ rating.
Elsewhere, THG fell 12% as plans to spin-off its Ingenuity business were offset by underwhelming earnings guidance.
Essentra also suffered, down 15%, 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’.
Essentra 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’.
The price of gold eased to $2,564.83 an ounce on Tuesday, down from $2,579.31 at the time of the London close on Monday.
Brent oil was quoted at $73.60 barrel at the time of the London equities close on Tuesday, up from $72.49 late Monday.
Wednesday’s local corporate calendar sees full-year results from from consumer goods firm, PZ Cussons.
The global economic calendar for Wednesday sees the US interest rate decision at 1900 BST and UK consumer price inflation figures at 0700 BST.
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