FTSE 100 rises as ECB takes a cautious step

The FTSE 100 saw gains at Thursday’s close following a ‘dovish’ 25 basis point increase by the European Central Bank (ECB), which left investors speculating if this might be their last move. Carsten Brzeski at …

The FTSE 100 saw gains at Thursday’s close following a ‘dovish’ 25 basis point increase by the European Central Bank (ECB), which left investors speculating if this might be their last move.

Carsten Brzeski at ING commented on the ECB’s decision, stating, “This time, the ECB decided to compromise: a dovish hike, mainly aimed at strengthening credibility and probably bridging growing divergences between ECB hawks and doves.”

The FTSE 100 index concluded the day up by 147.09 points, or 2.0%, reaching 7,673.08. Meanwhile, the FTSE 250 gained 338.20 points, equivalent to 1.8%, settling at 18,899.70. The AIM All-Share also posted positive results, closing up 3.93 points, or 0.5%, at 744.68.

The ECB Governing Council’s decision on Thursday raised the interest rate on the main refinancing operations, the marginal lending facility, and the deposit facility to 4.50%, 4.75%, and 4.00%, respectively. This brings the Frankfurt-based central bank’s policy rates up by a cumulative 450 basis points during the current tightening cycle.

The ECB expressed its belief that, based on its current assessment, these interest rates, if maintained for a ‘sufficiently long duration,’ will substantially contribute to inflation returning to the target level. During a press conference following the decision, ECB President Christine Lagarde emphasized this point when asked about future rate hikes.

“Sufficiently restrictive – that’s number one. For as long as necessary – that’s number two. Those are really the two parameters that are going to guide us, not forgetting the three components that have guided our reasoning so far,” Lagarde stated.

ING’s Brzeski noted that the ECB would be ‘crazy’ to rule out further hikes completely. He highlighted that inflation has been unpredictable, and the ECB has been wrong before. While the door to future rate hikes remains open, he believed that the current rate hike might be the last in this aggressive cycle.

European equities ended positively on Thursday in response to the ECB’s decision, with the CAC 40 in Paris closing 1.4% higher, and the DAX 40 in Frankfurt gaining 1.0%.

In London, mining stocks took the lead at Thursday’s close after JPMorgan issued positive commentary on the iron ore sector. The bank noted that steel demand in China had proven more resilient than initially expected, thanks to infrastructure demand offsetting weak property sector demand and surplus output reaching the export market.

Consequently, JPMorgan upgraded Rio Tinto shares to ‘neutral’ from ‘underweight’ and increased its price targets for Rio, BHP, and Anglo American. Rio shares closed up 4.8%, BHP gained 1.9%, and Anglo American saw a rise of 7.9%. Mining companies Glencore and Antofagasta also posted gains of 4.5% and 2.2%, respectively.

JPMorgan singled out Anglo American as its ‘top pick’ due to its ‘stronger value unlock potential.’ The bank explained that investor sentiment was already cautious for platinum group metals and diamonds, making Anglo American a better bet for the second half of 2023 compared to its diversified peers.

The oil majors in the FTSE 100 also had a positive session on Thursday, with Shell and BP ending 2.4% and 3.4% higher, respectively, in response to surging oil prices. Brent oil was quoted at $93.49 a barrel at the London equities close on Thursday, up from $92.15 late Wednesday.

In the FTSE 250, Trainline saw a significant jump of 11% after the online rail ticket seller announced a £50 million share buyback and reported higher ticket sales and revenue in the first half of the financial year ending August 31. Total net ticket sales for the six months increased by 23% year-on-year to £2.65 billion, resulting in a 19% revenue growth to £197 million from £165 million. Trainline reaffirmed its guidance for the full financial year, expecting net ticket sales growth between 13% and 22% in financial 2024, along with revenue growth in the same range.

Elsewhere in London, Kier Group enjoyed a 5.4% increase as it announced plans to resume dividend payments in its current 2024 financial year, following a significant jump in annual profit for 2023. The company reported that pretax profit for the year ended June 30 surged to £51.9 million from £15.9 million the previous year, with revenue also rising by 7.5% to £3.38 billion from £3.14 billion.

Chief Executive Andrew Davies expressed confidence in the group’s position, stating, “The group is well positioned to continue benefiting from UK government infrastructure spending commitments, and we are confident in sustaining the strong cash generation evidenced this year.”

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