London at night, blurred image
FTSE 100 index closed down 51.81 points / Image source: Adobe

Stocks in Europe ended Thursday lower, struggling for headway after a hawkish hold by the Federal Reserve, but US tech shares were on the up.

The FTSE 100 index closed down 51.81 points, 0.6%, at 8,163.67. The FTSE 250 fell 301.45 points, 1.5%, at 20,195.95, and the AIM All-Share fell 6.93 points, 0.9%, at 780.43.

The Cboe UK 100 ended down 0.9% at 812.42, the Cboe UK 250 closed down 1.6% at 17,682.71, and the Cboe Small Companies fell 0.3% at 16,731.11.

In European equities on Thursday, the CAC 40 in Paris and the DAX 40 in Frankfurt both plunged 2.0%.

In New York, the Dow Jones Industrial Average was down 0.6% at the time of the London close. The S&P 500 traded flat, while the Nasdaq Composite was up 0.3%.

‘A topsy-turvy set of events led to divergent fortunes on the US and UK markets. The Nasdaq pushed ahead, helped by strong showings from Tesla and Broadcom. At the same time, the FTSE 100 shuddered as investors voiced disappointment at the Fed’s commentary around interest rates last night,’ AJ Bell analyst Dan Coatsworth commented.

‘The prospect of Tesla investors approving a gargantuan pay deal for Elon Musk is in itself perplexing given the $56 billion amount, but for it to drive up the share price might also leave some people scratching their heads. The logical explanation is that it means Musk is no longer a flight risk, should the deal be approved. Pay him well and he’ll stay to oversee Tesla’s ongoing efforts to be crowned king of the electric vehicle sector. Broadcom has ’done an Nvidia’ with its latest results knocking it out of the park and announcing a 10-for-one stock split. With a share price approaching $1,700, the average person may not have the cash to buy a single share, so doing the stock split would effectively bring the price down in the region of $170 and put it in greater reach of more investors.’

Tesla shares were 3.9% higher, while Broadcom jumped 12%.

After being boosted by a softer US inflation reading on Wednesday, beleaguered European stocks were sold off again on Thursday. Stocks on the continent have suffered selling pressure this week in the wake of the weekend’s European elections.

Putting pressure on equities on Thursday, the Federal Reserve held rates and signalled just one cut before the end of the year, trimming its projection from three previously and offering a hawkish tilt to Wednesday’s decision.

The central bank maintained the federal funds rate range at 5.25% to 5.50%, a 23-year high.

The Fed’s latest economic projections, which includes the dot-plot of median interest rate expectations, suggests only one cut could be forthcoming before the end of 2024. The previous projection in March suggested three.

Four members of the Federal Open Market Committee said they expected to make no cuts, while seven said they thought they would make one quarter-point cut. Eight of the 19 members backed two cuts.

Analysts at Barclays commented: ‘As we had expected, the new summary of economic projections (was somewhat hawkish, showing a median of only one 25bp rate cut this year. This came despite a surprisingly weak May CPI inflation print. FOMC participants also lifted their longer​-​run dot to 2.75%.

‘We continue to think the cut could take place at the earliest in September. Our baseline is predicated on inflation gradually moderating in the coming months on a sequential basis and the economy gradually slowing. However, if inflation is stronger than in our baseline, we would expect the first rate cut to be postponed to December. We view this as almost as likely as our baseline scenario.’

The pound was quoted at $1.2764 latte on Thursday in London, lower compared to $1.2836 at the equities close on Wednesday. The euro stood at $1.0763, down against $1.0848.

Against the yen, the dollar was trading at JP¥156.88, much higher compared to JP¥155.77.

Focus turns to the Bank of Japan which announces an interest rate decision on Friday.

Rabobank analysts commented: ‘The soft stance of the JPY suggests the market sees little scope for a hawkish surprise from the BoJ at tomorrow’s policy meeting. The market’s bearish outlook on the JPY is an ongoing problem for Japanese policy makers, though it may present an opportunity for Governor Ueda to attempt to wrongfoot the consensus.’

In London, shares in Halma jumped 13% as the safety equipment maker’s earnings impressed. Pretax profit jumped 17% to £340.3 million in the financial year ended March 31 from £291.5 million a year prior, as revenue climbed 9.8% to £2.03 billion from £1.85 billion.

Halma recommended a final dividend of 13.20 pence per share, up 7.0% from 12.34p a year prior. This brings the total payout to 21.61p, up 7.0% from 20.20p.

AJ Bell analyst Russ Mould commented: ‘The company’s focus on niche areas and providing technology-enabled health, safety and environmental solutions proved to be a winning formula yet again.’

Stocks exposed to interest rate worries struggled, however. Housebuilder Persimmon lost 3.8% and property investor Land Securities fell 3.2%. The duo were among the worst FTSE 100 performers.

Wise plunged 11%. Disappointing guidance took the shine off a year of financial progress and customer gains.

In the financial year ended March 31, the London-based money transfer services provider reported that revenue jumped 24% to £1.05 billion from £846.1 million a year earlier.

Pretax profit rose to £481.4 million, more than triple £146.5 million a year prior. Underlying pretax profit rose to £241.8 million from £74.3 million.

Looking ahead, Wise expects 15% to 20% annual underlying income growth for financial 2025, ‘driven by customer growth.’

Over the medium term, Wise expects to operate to an underlying pretax margin of 13% to 16%.

Broker Jefferies said the 2025 guidance for underlying income was, at its mid-point, 2% below the consensus of £1.41 billion.

Worse, Jefferies said the underlying pretax margin guidance implies pretax profit of £175 to £225 million, 19% below the consensus of £247 million.

Brent oil was quoted at $82.53 a barrel late in London on Thursday, up from $82.07 late Wednesday. Gold was quoted at $2,307.79 an ounce, down against $2,326.83.

Following Friday’s BoJ decision, the economic calendar has eurozone trade data at 1000 BST.

The local corporate diary has a trading statement from grocer Tesco.

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Issue Date: 13 Jun 2024