Stocks flat as investors mull rate cut prospects

(Alliance News) - London's blue-chips perked up in late trading to eke out marginal gains, after data in the US backed hopes for an early cut in interest rates.

But in Europe, officials hinted monetary policy could be eased this summer, later than the market hoped, after leaving rates unchanged for the third meeting in succession.

The FTSE 100 index closed 2.06 points higher at 7,529.73. The FTSE 250 ended up 51.42 points, 0.3%, at 19,223.10 and the AIM All-Share closed up 3.25 points, 0.4%, at 748.10.

The Cboe UK 100 ended flat at 752.80, the Cboe UK 250 closed up 0.3% at 16,656.92, and the Cboe Small Companies ended up 0.2% at 14,912.10.

Stocks had earlier drifted lower, but stirred as news that the European Central Bank had left interest rates unchanged was swiftly followed by a raft of economic figures across the pond.

European Central Bank President Christine Lagarde said a rate cut was not considered by policymakers at its first meeting of the year, though she suggested one may come in the summer.

While standing by previous commentary on rate cut timing, Lagarde said the ECB is "data not date" dependent. Among the bigger data updates the central bank will pay attention to, is wage growth. The next labour cost index release is in March, after the ECB's meeting that month.

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.

It is the third successive meeting in which the central bank has left eurozone interest rates unmoved. The ECB has enacted 450 basis points or 4.5 percentage points worth of hikes during the current cycle.

In a press conference following the decision, Lagarde said the "consensus at the table was that it was premature to talk about rate cuts".

Lagarde, however, said she "stands by" her previous commentary on rate cut timing.

Hann-Ju Ho, senior economist at Lloyds Bank said a "key consideration is whether actual CPI inflation falls more quickly than the ECB’s latest December forecasts."

"That could open the door for a rate cut before the summer despite recent comments from ECB officials. It was particularly interesting that Lagarde, while not endorsing an April cut, did not appear to push back strongly against that possibility," he added.

"The question, though, is whether rate-setters will err on the side of caution especially as they spectacularly missed the 2021-22 inflation surge."

Stocks in New York were higher at the London equities close, with the DJIA up 0.3%, the S&P 500 index up 0.5%, and the Nasdaq Composite up 0.6%.

US economic growth was markedly stronger than expected at the end of last year, numbers showed, suggesting the world's largest economy is still in fine fettle despite interest rates entering restrictive territory.

According to an estimate from the Bureau of Economic Analysis, gross domestic product grew 3.3% quarter-on-quarter on an annualised basis in the three months to December 31. In the third-quarter, GDP had grown by 4.9% on the same basis.

The latest figure came in ahead of consensus. According to FXStreet, annualised growth of 2.0% was expected.

Though the economy grew at a faster pace than expected, inflation pressure ebbed. In the fourth-quarter, the personal consumption expenditures index rose 2.8% year-on-year, easing from a 3.1% rise in the third-quarter.

Monthly PCE data for December, including the Federal Reserve's preferred core measure, are released at 1330 GMT on Friday. The next Fed decision is on Wednesday next week.

Ryan Sweet, chief US economist at Oxford Economics highlighted the favourable news on the inflation front as the GDP deflator was up less than the consensus forecast.

"The core PCE deflator was spot on the Fed’s target. This leaves the door open for rate cuts by the Fed," Sweet said, adding that he thinks these will start in May.

The sterling was quoted at USD1.2695 on Thursday at the London equities close, lower than USD1.2744 on Wednesday. The euro traded at USD1.0835, lower than USD1.0904. Against the yen, the dollar was quoted at JPY147.66, up versus JPY147.33.

In European equities on Thursday, the CAC 40 in Paris and the DAX 40 in Frankfurt both ended up 0.1%.

In the FTSE 100, St James’s Place fell 4.4% after reporting net inflows nearly halved last year, as economic upheaval and attractive returns on cash dented clients confidence in long-term investments.

Around GBP5.12 billion was invested with the company on a net basis in 2023, down from GBP9.78 billion in 2022, the company said.

Peel Hunt said "flows for the year of GBP5.1 billion were a touch behind consensus (GBP5.3 billion); and when put into context with the GBP9.8 billion generated last year, highlight how weak investor sentiment has been."

Jefferies, which has a ‘buy’ rating on SJP, said "adviser numbers are very slightly below forecasts, but do not imply an exodus at this stage."

"Improving market performance may help customer confidence in future periods."

In the FTSE 250, Elementis surged 12% after Reuters said KPS Capital Partners recently explored a bid for the UK specialty chemicals maker.

Reuters said the bid, from the New York-based private equity firm was pitched at 160 pence per share, but that the Elementis board wanted a figure of 180p.

The report said KPS has since paused its work on such a move.

Dr Martens rose 7.2% after maintaining its annual guidance, though the footwear firm is still struggling to crack the US market.

AJ Bell investment director Russ Mould said: "While the headline figures look miserable, the positive market reaction is down to Dr Martens maintaining previous guidance rather than having to rachet it down once again. Investors are breathing a sigh of relief although the company still has considerable issues to resolve."

On AIM, Helium One surged 32%.

The primary helium explorer said its Itumbula West-1 well in Tanzania has successfully reached a total depth of 961 metres. Elevated helium shows, which were twenty times above background, were consistently measured while drilling the Lake Beds Formation, Red Sandstone Group, Karoo Group and Basement targets.

Gold was quoted at USD2,015.06 an ounce on Thursday at the London equities close, up from USD2,012.59 on Wednesday. Brent oil was trading at USD81.37 a barrel, higher than USD80.44.

In Friday's UK corporate calendar, trading statements are expected from WH Smith and YouGov plus half-year results from Superdry.

US personal consumption expenditure will be published at 1330 GMT.

By Jeremy Cutler, Alliance News reporter

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