Stocks climb on Fed, ECB interest rate optimism

(Alliance News) - Stock prices in Europe ended higher on Thursday, after the European Central Bank held interest rates again, and as eyes turn to the final risk event of the week, the US jobs report.

Comments from Christine Lagarde suggested an ECB rate cut in June could be forthcoming. In the US, the Federal Reserve chair said the central bank "can and will" cut rates this year if current economic trends continue.

The FTSE 100 index ended up 13.15 points, 0.2%, at 7,692.46. The FTSE 250 shot up 110.76 points, 0.6%, at 19,583.98, and the AIM All-Share closed up just 0.27 of a point at 737.90.

The Cboe UK 100 ended up 0.3% at 771.24, the Cboe UK 250 closed up 0.8% at 16,966.03, and the Cboe Small Companies jumped 1.1% to 14,748.79.

In European equities on Wednesday, the CAC 40 in Paris rose 0.8% and the DAX 40 in Frankfurt added 0.7%. The CAC 40 topped 8,000 points for the first time on Thursday.

Stocks in New York were higher at the time of the closing bell in Europe. The Dow Jones Industrial Average was up 0.3%, the S&P 500 and the Nasdaq Composite added 0.8% and 1.2%, respectively.

The European Central Bank teed up an interest rate cut in June after leaving monetary policy unchanged at its March meeting, economists said on Thursday.

The Frankfurt-based official lender left the interest rate on the main refinancing operations, the marginal lending facility, and the deposit facility at 4.50%, 4.75% and 4.00%, respectively.

This marked the fourth-successive meeting the central bank has left eurozone interest rates unmoved. The ECB has enacted 450 basis points - 4.5 percentage points - worth of hikes during the current cycle. It kicked off the hiking cycle in July 2022 with its first interest rate lift in 11 years.

"Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages. Financing conditions are restrictive and the past interest rate increases continue to weigh on demand, which is helping push down inflation," the ECB said.

Telling reporters in a press conference following the decision, Lagarde said policymakers have only "just begun" talk on "dialling back" the ECB's restrictive monetary policy stance.

As far as rate cuts go, Lagarde comments suggested the wait will end in June at the earliest. She said policymakers have a "little more data" to mull over by the April decision, but "a lot more" in June.

Ebury analyst Matthew Ryan felt that Lagarde's statement "all but seals the deal that the bank will start easing policy at its June meeting, provided we don’t see a blow up in both inflation and wages in the interim".

The pound was quoted at USD1.2793 at the time of the London equities close on Thursday, up from USD1.2750 on Wednesday. The euro stood at USD1.0934, higher against USD1.0908. Against the yen, the dollar was trading at JPY148.09, down compared to JPY149.36.

"We are frustrated by the current dollar weakness, as recent developments support our view that the Fed is unlikely to cut rates anytime soon. The US data continue to come in mostly firmer and so Fed officials remain very cautious about easing too soon. We believe that the current market easing expectations for the Fed still need to adjust. When they do, the dollar should recover after this current period of weakness. Tomorrow's jobs data may be a spark for that move," Brown Brothers Harriman analysts commented.

The US nonfarm payrolls reading for February is released at 1330 GMT on Friday. According to FXStreet, employment growth is to ease to 200,000, from 353,000 in January.

Ahead of the data, numbers from the Department of Labor showed for the week ended March 3, initial jobless claims amounted to 217,000, unchanged from the previous week's revised level. The previous week's level was revised up by 2,000 to 217,000.

The latest reading topped the FXStreet consensus, which had forecast the figure to fall to 215,000.

Ahead of the data, Federal Reserve Chair Jerome Powell said the central bank "can and will" begin cutting interest rates this year if current economic trends continue.

"What we're seeing is continued strong growth, strong labour market and continuing progress in bringing inflation down," Powell told the US Senate Banking Committee on the second day of hearings on Capitol Hill.

In London, Rentokil jumped 18%. The Crawley, West Sussex-based pest control and hygiene firm launched what it called 'The Right Way 2 Plan', a strategy aimed at "reinvigorating" organic growth in North America.

This will cover three main areas, improving retention of sales staff to improve sales conversion, investing in a brand strategy to reinforce awareness and boosting marketing resources.

The plans for a reboot in North America came as Rentokil said pretax profit rose 67% to GBP493 million from GBP296 million in 2022, with earnings per share climbing by 31% to 15.14 pence from 11.57p.

Revenue increased by 45% to GBP5.38 billion from GBP3.71 billion, while the dividend was boosted by 15% to 8.68p per share from 7.55p.

Struggling, however, Entain lost 4.9%, falling under the weight of more regulatory concerns for the gambling sector.

In the UK, the Ladbrokes and Coral owner said it is "delighted to see the long-awaited regulatory review draw closer to conclusion".

"We look forward to the implementation of stake caps on online slot games and a potential agreement on uniform safer gambling measures across the market. While we expect these changes to be a positive for Entain in the long run, we may see continued player disruption over the short term, and with leading brands we may see opportunities for us to invest in marketing to grow market share," it said.

In the Netherlands, meanwhile, the watchdog has "proposed tighter deposit limits" to take effect in the second quarter of 2024.

Entain warned: "As a result, we expect that, in aggregate, these dynamics could reduce FY24 earnings before interest, tax, depreciation and amortisation by approximately GBP40 million."

Entain's 2023 results showed it swung to a pretax loss of GBP842.6 million in 2023 from a pretax profit of GBP102.9 million the year before, as administrative costs grew 60% to GBP3.51 billion from GBP2.19 billion the previous year.

Entain saw its revenue increase by 11% to GBP4.78 billion from GBP4.30 billion in 2022, crediting "good growth" in BetMGM, which saw its net gaming revenue jump by 36% to USD1.96 billion. This is at the upper-end of its USD1.8 to USD2.0 billion guidance range.

Lender Virgin Money jumped 35% after backing a takeover offer.

On Thursday, Nationwide said it has reached a "preliminary" agreement to buy Virgin Money for GBP2.9 billion in a deal that would create the second-largest provider of mortgages and savings in the UK.

The all-cash offer is worth 220 pence per Virgin Money share, comprising 218p cash plus a proposed 2p dividend to be paid by Virgin Money prior to completion.

Virgin Money said should a firm offer be made on the same financial terms it would be "minded to recommend" it to shareholders. It has the support of the brand owner Virgin Group.

Funding Circle surged 55%.

The small and medium enterprise loans platform said operating income rose to GBP154.8 million from GBP133.7 million a year earlier.

Its pretax loss widened to GBP33.2 million from GBP12.9 million, however.

Funding Circle also announced plans for a GBP25 million share buyback.

Brent oil was quoted at USD82.80 a barrel at late in London on Thursday, down from USD83.78 late Wednesday. Gold was quoted at USD2,155.87 an ounce, higher against USD2,145.00, after spiking to another record high of USD2,164.66.

Focus on Friday will be on the latest US job report, though before that, there is a eurozone gross domestic product reading at 1000 GMT.

The local corporate calendar has annual results from business information and events company Informa.

By Eric Cunha, Alliance News news editor

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