Bank of England cityscape
UK investors heading into polling day in optimistic mood / Image source: Adobe

Stock prices in London were higher at Wednesday midday ahead of the UK general election on Thursday, with the opposition Labour party expect to win a comfortable majority.

Also keeping stocks in the green was positive inflation news from US Federal Reserve Chair Jerome Powell, ahead of an Independence Day holiday, starting locally at 1400 EDT today.

Speaking on Tuesday, Powell said the US central bank has made ‘quite a bit of progress’ in its fight against stubborn inflation. Investors are hoping this might mean interest rate cuts sooner rather than later.

The FTSE 100 index was up 44.47 points, or 0.6%, at 8,165.67. The FTSE 250 was up 141.72 points, or 0.7%, at 20,336.19, and the AIM All-Share was up 5.94 points, or 0.8%, at 770.31.

The Cboe UK 100 was up 0.6% at 812.89, the Cboe UK 250 was up 0.8% at 17,713.79, and the Cboe Small Companies was up 0.1% at 16,941.63.

In London, the focus remains firmly on the UK election, with polling stations due to open on Thursday. Contrasting first round results in France, which saw a swing to the right, polls have Britons moving firmly to the left.

According to pollster Survation, the UK Labour party is 99% ‘certain’ to secure more seats in Thursday’s general election than when it won a landslide victory under Tony Blair in 1997.

The centre-left opposition party – out of power since 2010 – is predicted to claim 484 out of a total of 650 seats in what would be an unprecedented victory in modern British history

Meanwhile, the right-wing ruling Conservatives and the centrist Liberal Democrats are in a close race to come a distant second and form the country’s official opposition, it added.

‘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,’ said Hargreaves Lansdown’s Susannah Streeter.

Results of the general election should hopefully also bring some stability for business owners. According to survey results from S&P Global on Wednesday, the UK service sector continued to grow in June but hit a seven-month low.

The seasonally adjusted services PMI business activity index remained in expansionary territory during June, posting 52.1 from 52.9 in May. S&P explained that June’s upturn was dampened as output levels at some companies were restricted by client hesitancy and delays in the sign-off of new projects due to the upcoming general election.

The composite output index remained in expansion territory at the end of the second quarter, although the pace of growth in business activity slowed for a second successive month to its weakest in 2024 so far, S&P said.

It posted 52.3, down from 53.0 in May, meaning the index reached a six-month low.

On Monday, the seasonally adjusted S&P Global UK manufacturing PMI registered 50.9 in June, down slightly from May’s 22-month high of 51.2 and below the earlier flash estimate of 51.4.

In European equities on Wednesday, the CAC 40 in Paris was up 1.5%, while the DAX 40 in Frankfurt was up 1.0%.

According to a handful of new data on Wednesday, economic expansion in the eurozone cooled in June, though crucially remained in growth territory. France’s service sector suffered its sharpest fall since January, while Germany’s ‘lost momentum’.

The HCOB eurozone composite purchasing managers’ index came to 50.9 in June, down from 52.2 in May. This was in part down to softened demand, with new orders declining for the first time since February.

The services PMI business activity index also hit a three-month low, surpassing the flash estimate of 52.6 but cooling to 52.8 from 53.2. In France, the HCOB services PMI fell to 49.3 in June from 49.6 in May in a ‘once again only marginal’ contraction, showing lower output for the second month running.

An inflationary print from Germany showed ‘solid’ business activity growth in June, though this also slowed from the month prior.

The composite PMI output index contracted to a three-month low of 50.4 from 52.4 the prior month. The services PMI business activity index cooled to 53.1, also a three-month low, from May’s one-year high of 54.2, marking the index’s first fall since January.

The pound rose to $1.2704 at midday on Wednesday in London, compared to $1.2678 at the equities close on Tuesday. The euro stood at $1.0762, up against $1.0735. Against the yen, the dollar was trading at JP¥161.91, higher than JP¥161.54.

In London, Keyword Studios gained 2.8%.

The firm saw its shares rise, after accepting a £2.1 billion takeover bid from private equity firm, EQT Group. The cash proposal values the Dublin-based provider of technical and creative services for video game production at 2,450 pence per share.

The offer places a valuation on Keywords of £2.1 billion on a fully-diluted basis and implies an enterprise value of £2.2 billion.

The acquisition price is lower than EQT’s earlier 2,550p per share bid made in May. Keywords subsequently reported in June that some of its projects were delayed or cancelled.

Cairn Homes gained 7.7%.

The Dublin-based housebuilder announced a share buyback programme of €45 million, which represents €40 million in respect of a new programme and the remaining €5 million of the 2023 programme. The new programme started Wednesday and may run until the end of June 2025.

It also notified shareholders of its intention to declare a higher dividend amid an upbeat update about spring sales.

Cairn Homes said 894 closed units generated revenue of around €365 million in the first half of 2024, up 66% from a year ago. It intends to announce an interim dividend of 3.8 euro cents, up 23% from 3.1 cents a year ago.

Stocks in New York were called higher. The Dow Jones Industrial Average and the Nasdaq Composite were both seen 0.1% higher, while the S&P 500 index was just about in the green.

Shares enjoyed an uplift on Tuesday’s close, after US Federal Reserve Chair Jerome Powell said the US central bank has made ‘quite a bit of progress’ in its fight against inflation.

‘We’ve made quite a bit of progress in bringing inflation back down to our target, while the labor market has remained strong and growth has continued,’ Powell told an event in Sintra, Portugal, which was streamed online.

He added that it was possible the Fed could hit its two percent target ‘maybe late next year,’ or in 2026. ‘The main thing is, we’re making real progress,’ he said.

Brent oil was quoted at $86.37 a barrel at midday in London on Monday, down from $86.99 late Tuesday. On average, however, ‘oil prices are ticking upwards again, following a drop in US crude stockpiles’ last week, said Hargreaves’ Streeter.

As Streeter went on to explain: ‘Demand for fuel to power trips over the US holiday season is expected to be high. But traders are also eyeing potential supply constraints. Geo-political escalation in the Middle East is still a threat, given the ongoing violence in Gaza. The hurricane season forecast to be particularly fierce this year, given the devastation wreaked on the Caribbean this week and if severe storms hit the Gulf Coast, refining capacity could be significantly disrupted.’

Gold was quoted at $2,348.40 an ounce, up against $2,327.03.

Still to come on Wednesday’s economic calendar, there is a slew of data still to come from the US, including initial jobless claims, composite PMI, and trade balance.

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Issue Date: 03 Jul 2024