Fed Chair Powell tempers US rate cut hope

(Alliance News) - European equities closed higher on Friday, starting December strongly, shaking off tepid US data and Federal Reserve Chair Jerome Powell ruling out rate cuts any time soon.

The euro struggled as cooler inflation readings from the single currency area have meant traders are pricing in more European Central Bank rate cuts next year than they had been previously expecting.

The FTSE 100 index closed up 75.60 points, 1.0%, at 7,529.35. The FTSE 250 rose 175.18 points, 1.0%, at 18,408.65, and the AIM All-Share ended up 2.51 points, 0.4%, at 716.29.

For the week, the FTSE 100 added 0.6%, though the FTSE 250 lost 0.3% and the AIM All-Share slipped 0.1%.

The Cboe UK 100 closed up 1.2% at 751.51, the Cboe UK 250 rose 1.0% to 15,933.21 and the Cboe Small Companies rose 0.2% to 13,365.87.

In European equities on Friday, the CAC 40 in Paris closed up 0.5%, while the DAX 40 in Frankfurt shot up 1.1%.

Oanda analyst Craig Erlam commented: "European equity markets are ending the week with decent gains while the US is more of a mixed bag, with investors now turning their attention to major events over the next couple of weeks. The US jobs report next Friday, followed by CPI inflation data the following Tuesday and the final Federal Reserve interest rate decision of the year will likely determine how markets end the year and set us up for the first quarter of next.

"Investors are increasingly buying into the idea of rate cuts starting in the second quarter of 2024, with the ECB and BoC making moves just before the Fed. But that will depend on the data continuing to deliver lower inflation and cooling elsewhere."

Fed Chair Powell said the central is prepared to tighten further if it sees fit. Powell said it is too soon for monetary policy to ease.

Over in Europe, investors are pricing in a number of cuts to eurozone interest rates next year.

"Indeed, this week brought a further sharp repricing in rate expectations, with a cut in ECB rates by April 2024 now fully priced in and markets now estimating a move in March as more likely than not. Market pricing now points to around 110bps of cuts in 2024, which would bring the deposit rate below 3%. While this further reduced the gap relative to our own expectations, we're still at the more aggressive end of expectations as we anticipate a drop to 2.5% by end-2024 in the ECB's deposit rate from 4% currently," analysts at Oxford Economics commented.

The pound was quoted at USD1.2659 late Friday in London, up slightly compared to USD1.2652 at the London equities close on Thursday. The euro stood at USD1.0859, lower against USD1.0909. Against the yen, the dollar was trading at JPY147.37, down compared to JPY147.85.

In London, mining stocks helped push the FTSE 100 higher.

Anglo American and Antofagasta both jumped 6.2%.

UBS raised both Anglo American and Antofagasta to 'buy' from 'neutral'.

The shares also got a boost from some promising data from China, a key buyer of minerals.

A rise in new orders pushed China's factory sector back into growth in November, survey results from S&P Global showed on Friday.

The Caixin manufacturing purchasing managers' index rose to a three-month high of 50.7 points last month from 49.5 in October. The reading above 50 points indicates growth in the sector.

The Caixin PMI moved in the opposite direction from the same indicator issued by the National Bureau of Statistics on Thursday. Its manufacturing PMI reading for November was 49.4 points, still in contraction territory and slightly down from 49.5 in October.

"China PMI surveys suggest that the economy flatlined in November, but there was good news for commodity demand with the relative strength in the construction PMI. We suspect that underlying activity is stronger than the PMIs and that this will offer some support to commodity prices in the coming months," Capital Economics analyst Caroline Bain commented.

The US manufacturing sector endured a difficult month in November, a pair of surveys showed, meanwhile, taking some sting out of a decent start for New York stocks.

The Dow Jones Industrial Average was up 0.2%, the S&P 500 index up 0.1%, while the Nasdaq Composite was down 0.1%. All three averages traded off their best levels.

The seasonally adjusted S&P Global US manufacturing purchasing managers' index fell to 49.4 points in November, unchanged from a previous flash estimate and in line with FXStreet cited consensus.

However, this was down from 50.0 in October, which at the time suggested the sector tread water.

The 50-point threshold separates growth from decline, so November's reading suggests the sector is now in downturn territory.

By the Institute for Supply Management measure, the sector remained in contractionary territory for the 13th month in succession.

The ISM US manufacturing PMI for November posted 46.7 points in November, unchanged from October and below FXStreet-cited consensus, which had predicted an uptick to a still downbeat tally of 47.6.

Back in London, Ceres Power plunged 15%.

Late Thursday, the clean energy technology developer said its annual revenue will decline.

It said it expects 2023 revenue to be around GBP20 million to GBP21 million, down from GBP22 million in 2022. Ceres noted that this is because it is unlikely it will sign an agreement with "the most imminent of the new licensees" in time for the associated revenue to be recognised in 2023, despite an agreement "progressing well".

The stock has fallen around 50% so far this year. FTSE Russell on Wednesday said the firm will be demoted from the FTSE 250 later this month after an index review.

Capital Metals surged 17%. The Sri Lankan Geological Survey & Mines Bureau has formally reinstalled the firm's industrial mining licences 16236 and 16237.

The Sri Lanka-focused mineral sands company's licences had previously been subject to a suspension and notice of cancellation until a statutory appeal ruling, announced in mid-October, ordered them to be reissued.

The licences were granted for an initial 10-year period from August 2022, Capital Metals noted, subject to approval of an environmental impact assessment in November.

Brent oil was quoted at USD80.73 a barrel at the time of the London equities close on Friday, up slightly from USD80.56 late Thursday. Gold was quoted at USD2,055.14 an ounce, higher against USD2,038.85.

Monday's economic calendar has German trade data at 0700 GMT. The local corporate calendar has half-year results from SDCL Energy Efficiency Income Trust.

By Eric Cunha, Alliance News news editor

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