Stocks up as US inflation data points to pause

(Alliance News) - Stocks in London were largely higher at the close on Thursday after a surprise US inflation print helped lift hopes that the US Federal Reserve's rate hiking cycle will soon be at an end.

The FTSE 100 index closed up 31.30 points, or 0.4% at 7,618.60 on Thursday. The FTSE 250 ended up 56.61 points, or 0.3%, at 18,993.81. The AIM All-Share closed down 0.59 of a point, or 0.1%, at 757.39.

The Cboe UK 100 ended up 0.5% at 759.76, the Cboe UK 250 closed up 0.5% at 16,677.61, and the Cboe Small Companies ended up 0.5% at 13,307.97.

According to the Bureau of Labor Statistics, the US yearly inflation rate accelerated to 3.2% in July, from 3.0% in June, snapping a streak of 12 successive slowdowns.

The latest figure was shy of consensus, however, which had chalked in an acceleration to 3.3%, according to FXStreet.

Also short of consensus was the annual core inflation rate, which eased to 4.7% in July, despite being predicted to come in at 4.8% again, where it stood in June. The core inflation rate excludes food and energy.

The miss in both the annual core and headline inflation rates have bolstered beliefs that the Federal Reserve will decide against a rate hike in September.

"A second consecutive benign set of inflation prints adds to optimism that the Fed rate hike cycle is at an end and a soft landing is achievable for the US economy. We continue to have our concerns about the economic outlook, centred on the abrupt hard stop in credit growth, but the Fed will soon be in a position to be able to cut rates if a recession materialises," James Knightley, chief international economist at ING said.

According to the CME FedWatch Tool, market now see a 91% chance of the Fed holding rates steady in September. Last week, markets saw an 82% chance of this outcome.

Stocks in New York were higher at the London equities close as investors cheered July's inflation figures. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite were all up 0.7%.

The dollar struggled in the wake of the inflation data, meanwhile.

The pound was quoted at USD12728 at the London equities close on Thursday, up from USD1.2717 at the close on Wednesday. The euro stood at USD1.1014, higher against USD1.0977.

Against the yen, however, the dollar was trading at JPY144.46 late Thursday, up from JPY143.60 late Wednesday.

Commerzbank's Antje Praefcke explained that the Bank of Japan's "increasingly intransparent" monetary policy has been negative for the yen in recent weeks.

"An intransparent monetary policy that is difficult to understand for the market and is not following any clear rules cannot be good for a currency," Praefcke said.

In London, Spirax-Sarco was among the worst performing stocks in the FTSE 100 at the close on Thursday, closing down 4.4%.

The thermal energy management and pumping company said its first-half profit declined and lowered its full-year revenue guidance, as it warned of continued destocking .

Spirax-Sarco posted a pretax profit of GBP114.0 million in the first half of 2023, down 18% from GBP138.5 million the year prior. Revenue, meanwhile, rose 13% to GBP850.8 million from GBP750.1 million.

"We achieved first half results that are broadly in line with our expectations, against the backdrop of continued destocking in the Biopharm and Semicon WFE sectors, as well as softening industrial production growth," said Chief Executive Nicholas Anderson.

Looking ahead, the company said it now expects revenue group sales to be between flat and 4% higher for the year, when compared to 2022's pro-forma sales of GBP1.73 billion. Back in a May trading update, it predicted "double-digit sales growth for the group in 2023.

In the FTSE 250, Savills plunged 11% after the property agent reported its pretax profit in the first half of 2023 collapsed 88% to GBP6.0 million, from GBP50.4 million a year prior.

Despite the drop in profit, Chief Executive Mark Ridley remained upbeat: "Savills has weathered both the inflationary cost conditions and reduced transaction volumes well, increasing market share and, supported by our strong balance sheet, continuing to undertake selective business development activities to further the group's long term growth strategy."

Watches of Switzerland added 4.3%. The watch retailer kept its guidance for financial 2024 unchanged, despite reporting a small dip in revenue in the first quarter of the year.

Revenue in the 13 weeks to July 30 declined 2.3% to GBP382 million from GBP391 million a year earlier.

Looking ahead, Watches of Switzerland said still expects annual revenue of between GBP1.65 billion and GBP1.70 billion, representing growth of 8% to 11% at constant currency.

It had reported revenue of GBP1.54 billion for financial 2023, which ended on April 30.

Elsewhere in London, Petrofac lost 3.5% after it reported it had swung to loss in the first half of the year, as activity levels fell in its Engineering & Construction division, the firm's largest revenue contributor.

On AIM, Silver Bullet Data Services surged 32% saying that its "significantly reduced" cost base positions it to achieve a quarterly pretax profit from 2024.

The London-based provider of digital transformation services and products also announced that its revenue in the first half of 2023 was up 76% to GBP4.1 million from GBP2.3 million a year prior, in line with expectations.

This was driven by an "established" customer base across US, UK and Asia Pacific markets, Silver Bullet said, with 35% of revenue coming from the US.

In European equities on Thursday, the CAC 40 in Paris ended up 1.5%, while the DAX 40 in Frankfurt ended 0.9% higher.

Brent oil was quoted at USD87.02 a barrel at the London equities close on Thursday, up from USD86.92 late Wednesday. Gold was quoted at USD1,916.01 an ounce, higher against USD1,916.66.

In the UK corporate calendar on Friday, there are half-year results from Murray International and FBD Holdings.

The economic calendar has a gross domestic product reading for the UK at 0700 BST and US producer price inflation data at 1330 BST.

By Heather Rydings, Alliance News senior economics reporter

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