European Central Bank
The FTSE 100 was buoyed by hopes the European Central Bank is done with interest rate hikes / Image source: Adobe

Recent dovish discourse from the European Central Bank and US Federal Reserve boosted investor sentiment across Europe on Wednesday.

The FTSE 100 index closed up 25.54 points, 0.3%, at 7,515.38. The FTSE 250 ended up 179.20 points, 1.0%, at 18,666.73, and the AIM All-Share closed up 1.44 points, 0.2%, at 718.12.

The Cboe UK 100 ended up 0.6% at 751.85, the Cboe UK 250 closed up 1.1% at 16,183.77, and the Cboe Small Companies ended up 2.8% at 13,823.03.

In European equities on Wednesday, the CAC 40 in Paris ended up 0.8%, while the DAX 40 in Frankfurt ended up 0.9%. The DAX reached yet another record high.

Propping up stocks in Europe were hopes that the European Central Bank is done with interest rate hikes.

Isabel Schnabel, once one of the European Central Bank’s more hawkish voices, told Reuters that the central bank can take further hikes off the table. Roughly a month ago, she said another hike may have been an option.

A similar dovish rhetoric was issued in the US. Notably, analysts were discussing the prospects of US interest rate cuts after US job openings came in below market estimates.

The US labour market added slightly fewer jobs than expected last month, according to a tracker from payroll processing firm ADP.

ADP said sector employment increased by 103,000 jobs in November, easing from a 113,000 rise in October and falling short of the FXStreet cited consensus of 130,000.

The latest nonfarm payrolls report is on Friday, the ADP reading acts as a precursor.

Then, the Fed will make its interest rate decision on Wednesday next week, followed by the ECB a day later.

‘With markets already convinced that the Fed‘s tightening cycle is over, the focus at next week’s FOMC meeting will be on any clues as to how soon and how far rates will be cut. We suspect officials will still be wary of sending an overly dovish message in the updated statement and projections and any explicit discussion of near-term rate cuts is unlikely,’ said analysts at Capital Economics.

Stocks in New York were lower at the London equities close, with the DJIA and the S&P 500 index both up 0.2%, whilst the Nasdaq Composite edged up 0.3%.

The pound was quoted at $1.2601 at the London equities close Wednesday, lower compared to $1.2613 at the close on Tuesday. The euro stood at $1.0796 at the European equities close Wednesday, down against $1.0809 at the same time on Tuesday. Against the yen, the dollar was trading at JP¥147.17, up compared to JP¥147.10 late Tuesday.

Germany’s DAX 40 shrugged off a hefty 13% share price slide for pharmaceutical company Merck KGaA.

The firm late Tuesday said evobrutinib did not meet primary endpoint in trials on its effectiveness in sufferers of relapsing multiple sclerosis.

In London’s FTSE 100, British American Tobacco was the worst performer on Wednesday, closing down 8.4%.

BAT said it will take a £25 billion hit this year in a move that left investors disappointed.

The London-based maker of tobacco and other nicotine products is gearing up to transition from traditional combustible cigarettes to new generation products like vaping. But it faces stiff competition from illicit products as it scrambles to gain market share.

AJ Bell investment director Russ Mould said the impairment would naturally have a negative impact on near-term financial results and so the share price has fallen once again.

‘That’s hardly what you would expect from a FTSE 100 company deemed to be defensive due to the addictive nature of its products,’ Mould said.

Diageo lost 1.4%, after UBS cut its stock to ’sell’ from ’neutral’.

Diageo’s premium valuation is at risk in the near term, according to UBS, who downgraded the London-based brewer and distiller.

UBS said it thinks Diageo’s shares, which it says trades at a 12% premium to European staples and Pernod on estimated financial 2024 price-to-earnings ratio, is at risk of de-rating until Diageo’s US Spirits growth accelerates to mid-single-digits and until management can draw a line under Latin America destocking.

Shell and BP tracked lower as oil prices fell. They were down 1.4% and 1.3% respectively.

Brent oil was quoted at $75.14 a barrel at the London equities close Wednesday from $78.49 late Tuesday.

In the FTSE 250, TUI shares soared 15%.

The Hannover, Germany-based tour operator said it swung to an €551 million pretax profit in the financial year that ended on September 30, following an €146 million loss the prior year. Revenue jumped 25% to €20.67 billion from €16.55 billion.

The strong full-year results, Tui said, were supported by continued growth in the fourth quarter across its Holiday Experiences segments alongside continued operational improvements in its Markets & Airlines division, where higher prices supported ongoing positive momentum in Winter bookings.

Paragon Group rose 8.4%.

The Solihull, West Midlands-based mortgage and loan provider reported total operating income of £466.0 million for the year ended September 30, up 19% from £393.0 million.

Pretax profit declined by 52% to £199.9 million from £417.9 million. Its bottom line was hurt by £77.7 million worth of fair value losses, compared to £191.9 million worth of gains a year prior. On an underlying basis, profit surged 25% to £277.6 million.

Paragon lifted its total dividend by 31% to 37.4 pence from 28.6p. It lifted its final dividend by 38% to 26.4p from 19.2p. It also announced a further £50.0 million share buyback for financial 2024.

Amongst London’s small-caps, Ten Entertainment rose 32%.

The ten pin bowling operator agreed to a £287 million takeover from a vehicle indirectly owned by investment funds advised by Trive Capital Partners. Neon Buyer will pay 412.5 pence per Ten Entertainment share, a 33% premium to its 310p closing price on Tuesday.

Gold was quoted at $2,026.89 an ounce at the London equities close Wednesday, higher against $2,018.22 at the close on Tuesday.

In Thursday’s UK corporate calendar, there will be a trading statement from Balfour Beatty. There will also be half year results from DS Smith, Frasers and Watches of Switzerland.

The economic calendar for Thursday has an EU gross domestic product reading at 1000 GMT. Before that, at 0700 GMT, there will be the UK Halifax house price index.

Also on Thursday, the EU-China summit begins. It will conclude on Friday.

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Issue Date: 06 Dec 2023