Stocks climb but US data boosts predictions of Fed interest rate hike
Stock prices in London closed in the green on Friday, with equities in New York bursting higher, even after a US inflation report may have cemented a Federal Reserve rate hike next week.
Helping equities, US government bond yields and oil prices came off earlier highs, setting the stage for the confident trade on the New York Stock Exchange.
In London, the FTSE 100 index ended up 41.52 points, 0.4%, at 10,650.44. Nonetheless, the large-cap benchmark has fallen 1.7% over the course of the week. It was its worst week since July.
The FTSE 250 added 89.79 points, 0.4%, at 23,975.73, and the AIM all-share climbed 2.92 points, 0.4%, at 790.87. The FTSE 250 fell 2.5% this week, while the AIM all-share shed 1.1%.
In European equities on Friday, the CAC 40 in Paris and the DAX 40 in Frankfurt each rose 0.8%.
In New York, the Dow Jones Industrial Average was up 1.0% at the time of the closing bell in London. The S&P 500 added 1.1% and the Nasdaq Composite surged 1.3%.
The pound was quoted at 1.3523 US dollars on Friday, down from 1.3532 dollars at the same time on Thursday. Against the euro, sterling rose to 1.1648 euros from 1.1636 euros a day prior.
The euro faded to 1.1605 dollars, from 1.1625 dollars. Against the Japanese yen, the dollar was trading at 153.58 yen, down from 154.10 yen.
The yield on the US 10-year Treasury was quoted at 4.93%, widening slightly from 4.92%. The yield on the US 30-year Treasury was quoted at 5.32%, narrowing from 5.34%.
The 10-year bond yield had surged as high as 4.99% earlier on Friday, its loftiest level since 2023.
US consumer price inflation was steady in August, as expected, ahead of next week’s Federal Reserve interest rate decision.
The Bureau of Labour Statistics said the consumer price index rose 3.4% on-year in August. Prices had risen at the same pace year-on-year in July. The figure also was in line with market consensus cited by FXStreet.
Consumer prices grew 0.4% in August monthly, after a 0.1% rise in July from June. The August reading was also in line with expectations.
Excluding food and energy, the annual core consumer price inflation rate cooled to 2.4% in August from 2.5% in July. The reading was similarly in line with market consensus, according to FXStreet.
But core consumer price growth was hotter-than-expected on a monthly basis. Prices rose 0.3% in August from July on the core measure, topping expectations of a 0.2% rise.
According to the CME FedWatch Tool, there is an 87% chance that the US central bank lifts its fed funds rate range by 25 basis points on Wednesday. A day prior, the likelihood stood at 72%.
Analysts at Barclays commented: “Although some of the August (inflation) strength seems one-off, we think the data are supportive of a rate hike next week.
“We maintain our call for the Federal Open Market Committee to deliver a 25bp hike at next week’s September meeting.”
But Oxford Economics analyst Bernard Yaros believes a hike “isn’t a slam dunk”.
“The upcoming interest-rate decision by the Federal Reserve is on a knife’s edge, and the firmer core CPI reading in August pushes the central bank toward a hike next week. However, a rate increase this month is still no guarantee, as the Fed’s preferred inflation measure will prove more benign,” Mr Yaros commented.
Dutch bank ING believes a rate lift on Wednesday will be a “recalibration move”, but it does not believe it will signify the start of a hiking cycle.
“We changed our view to a 25bp Federal Reserve rate hike in September in the wake of Chair Kevin Warsh’s address at the Jackson Hole symposium. The data since then has justified that decision. Our projections for jobs and inflation suggest no need for a series of hikes,” ING analysts commented.
After the Fed on Wednesday, the Bank of England announces a rate call on Thursday. Unlike its US counterpart, it is not expected to hike.
Deutsche Bank analysts Sanjay Raja and Maui Brennan said: “We don’t expect any change to bank rate (3.75%), with the Monetary Policy Committee (MPC) likely to remain on the sidelines relative to other central banks.
“But we do think the tides are turning on the inflation backdrop. Higher energy prices are here to stay for longer than expected. Inflation is no longer missing to the downside as it did throughout Q2-26.
“The economy has been far more resilient than the BoE (Bank of England) envisaged. The labour market is showing some signs of stabilisation. And risks around wage settlements remain skewed to the upside. Put simply, we think the MPC’s patience may be running thin. And the case for staying on hold is weakening slowly.”
Data on Friday showed UK gross domestic product increased 0.4% in July from June, accelerating from growth of 0.3% in June and no growth in May.
Brent oil was quoted at 104.73 dollars a barrel late in London on Friday, down from 105.51 dollars late on Thursday. Brent had traded a hair below 110 dollars a barrel earlier on Friday, its highest level since May.
Gold was quoted at 4,375.02 dollars an ounce on Friday, up from 4,363.96 dollars on Thursday.
Tracking gold higher, Endeavour Mining climbed 1.9%, among the best FTSE 100 performers on Friday.
Among the FTSE 250, Rightmove shares rose 2.9% after a regulatory filing showed activist Sachem Head has snapped up a roughly 6.0% stake in the property portal.
XP Power ended up 5.3%, at the top of the index, after Jefferies raised its rating to “buy” from “hold” and set a price target of 2,330p.
Trainline rose 1.8% after reporting resilient first-half trading, reiterating its full-year guidance and announcing a new £100 million share buyback programme.
Group net ticket sales were broadly flat year-on-year at £3.26 billion, while underlying revenue slipped 1% to £233 million.
The rail and coach travel platform said UK rail demand remained resilient despite disruption from hot weather, strikes and a regulated fare freeze, and expects its first-half adjusted earnings before interest, tax, depreciation and amortisation margin to be slightly ahead of its full-year target.
Trainline reconfirmed guidance for financial 2027 net ticket sales of £6.2 billion to £6.45 billion, underlying revenue of £440 million to £455 million, and an adjusted Ebitda margin of around 2.9%.
It also announced a new £100 million share repurchase programme, which will begin after completion of its existing £150 million buyback and run over the following 12 months in two tranches.
C&C surged 13% as it agreed to acquire Asahi UK’s wholesale interests for a nominal consideration, including Nectar Imports Ltd and Asahi UK’s direct distribution operations, which will be integrated into its Matthew Clark Bibendum business.
The Dublin-based cider and beer maker said the acquisition will “provide a significant number of new customers with MCB market leading service and range proposition” and deliver scale and efficiency to the group’s operations.
In addition, it said trading in the six months to August 31 was in line with expectations.
The biggest risers on the FTSE 100 were: NatWest Group, up 15.4p at 697.8p; Lion Finance, up 290.0p at 13,670.0p; Barclays, up 9.40p at 493.75p; Endeavour Mining, up 87.0p at 4,593.0p; and Lloyds Banking Group, up 2.05p at 111.15p.
The biggest fallers on the FTSE 100 were: London Stock Exchange Group, down 274.0p at 8,238.0p; Sage Group, down 21.8p at 958.0p; Smith & Nephew, down 17.0p at 1,008.5p; Next, down 230.0p at 14,685.0p; and BAE Systems, down 25.5p at 1,898.0p.
Monday’s local corporate calendar has half-year results from investment trust HgCapital Trust.
A quiet start to the economic events calendar next week picks up with a China data dump on Tuesday, the Federal Reserve and Bank of England rate calls on Wednesday and Thursday, before a Bank of Japan (BoJ) decision on Friday. The BoJ is widely expected to hike rates.
Contributed by Alliance News
