FTSE closes up 1.9% as confidence in rate cuts grows / Image Source: Adobe

Stocks in London soared as confidence rose that long-awaited interest rates cuts were close after a dovish hold by the Bank of England.

The FTSE 100 index ended up 145.17 points, 1.9%, at 7,882.55. The FTSE 250 closed up 256.91 points, 1.3%, at 19,741.31, and the AIM All-Share rose 5.05 points, 0.7%, at 740.64.

The Cboe UK 100 ended up 1.8% at 788.77, the Cboe UK 250 rose 1.3% to 17,156.47, though the Cboe Small Companies fell 0.9% at 14,640.33.

In European equities on Thursday, the CAC 40 in Paris rose 0.2%, while the DAX 40 in Frankfurt surged 09%.

Stocks in New York were pushed even higher on Thursday, after Wednesday’s rally. The Dow Jones Industrial Average was up 0.8%, the S&P 500 index climbed 0.6%, and the Nasdaq Composite added 0.8%.

‘Global markets are welcoming what they see as a dovish statement from the US Federal Reserve, and one that promises rate cuts soon enough, while the Swiss National Bank’s unexpected rate cut can only boost investors’ conviction that we are at the peak of the interest rate cycle and moving into a welcome phase of reductions in the headline cost of money,’ AJ Bell analyst Russ Mould commented.

The Fed left interest rates unmoved, as expected, while its latest set of projections still suggest three cuts will come this year. The central bank’s federal funds rate range was unchanged at 5.25%-5.50%.

After the Fed decision, the SNB surprised with a 25 basis point cut to its policy rate.

The BoE left bank rate at 5.25% in the afternoon, but the vote split gave equities the confidence to push higher.

There was a marked shift in the voting pattern with eight members of the MPC voting to leave interest rates unchanged, with hawks Jonathan Haskel and Catherine Mann no longer recommending rates be increased.

Analysts at Rabobank commented: ‘The two-way vote split was a surprise.

‘The central bank also mentioned that ’monetary policy could remain restrictive even if bank rate were to be reduced’. Even as the guidance is unchanged, this implies it no longer contradicts the possibility of early rate reductions. The market is now priced for a first cut in June. In our view, June would be too soon. Underlying inflationary pressures are not consistent with 2% inflation. However, the dovish tilt is clear. As such, we bring forward our call for the first cut to August.’

The decision lifted shares in the interest rate sensitive housebuilding sector. Berkeley Group closed among the best FTSE 100 performers, up 3.7%.

The dollar, which had tumbled after Wednesday’s Fed decision, found its feet as Thursday progressed.

Sterling was quoted at $1.2665 late Thursday in London, lower than $1.2717 at the London equities close on Wednesday. The euro stood at $1.0859, largely unmoved against $1.0856. Against the yen, the dollar was trading at JP¥151.69, up compared to JP¥151.61.

Brent oil was quoted at $85.50 a late in London on Thursday, down from $85.93 late Wednesday. Gold was quoted at $2,178.10 an ounce, higher against $2,157.96. It had spiked to $2,222.69 after the Fed decision on Wednesday.

XTB analyst Kathleen Brooks commented: ‘This suggests that while investors pile into stocks and risky assets on the expectation that central banks will hike in mid-year, they are also wary of inflation pressures in the pipeline. Oil prices are backing off slightly today, however the price of Brent crude oil is at its highest level since October 2023. Added to this, the prices of key agricultural commodities like coffee and corn are stronger, suggesting that there could be upward pressure on food prices later this year.’

Next shares rose 6.7%. The retailer said statutory pretax profit in the 52 weeks to January 27 rose 17% to £1.02 billion from £869.3 million the year prior. Next said this included a £109 million exceptional gain from the Reiss acquisition, bought last September.

Next said total group sales climbed 5.9% to £5.84 billion from £5.52 billion with Next full price sales up 4.0%.

Dowlais lost 9.9%.

The automotive engineering spin-off of Melrose Industries, which listed in London back in April, said pretax loss widened in 2023 to £522 million from £63 million the year before. This resulted from a goodwill impairment of £449 million in 2023 compared to no such cost in 2022.

Revenue, however, rose by 5.7% to £4.86 billion from £4.60 billion a year prior, due to volume growth in its Automotive division, as well as inflation recoveries across the firm.

Looking ahead, Dowlais said it expects its 2024 revenue to be similar to that of 2023, noting expected industry-wide declines in global light vehicle production. It also said it expects its operating profit to be ‘modestly second half weighted’.

XLMedia shares more than doubled, jumping to 13.50 pence from 6.25p. It said that it signed an agreement to sell its Europe and Canada sports betting and gaming assets to Gambling.com Group Ltd.

The London-based global digital media company said the sales are for a total of up to $42.5 million.

‘The group intends to use the proceeds of the transaction to cover asset transition costs, pay the final deferred US acquisition payment and settle outstanding tax provisions and provide working capital to support the North America business while returning cash to shareholders,’ XLMedia said.

Friday’s local corporate calendar has half-year results from pub operator JD Wetherspoon and full-year results from savings and retirement business Phoenix Group Holdings.

The economic diary has a UK retail sales reading at 0700 GMT, after a Japanese consumer price inflation report overnight.

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Issue Date: 21 Mar 2024