London midday: FTSE maintains gains on US rate cut optimism

The FTSE 100 was up 0.5% at 8,165.42 .

Federal Reserve chair Jerome Powell said on Tuesday at an event in Sintra, Portugal, that the Fed had made "quite a bit of progress" in bringing inflation back down to the central bank’s target, "while the labour market has remained strong and growth has continued".

"The last [inflation] reading and the one before it to a lesser extent, suggest that we are getting back on the disinflationary path," he said. However, he also said the Fed wants to be "more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy".

Russ Mould, investment director at AJ Bell, said: "Federal Reserve chair Jerome Powell has developed a reputation for refusing to categorically state something will happen, which means the market has to interpret what they think he is saying.

"In a speech on Tuesday, Powell said the US was back on a ‘disinflationary path’ but added that more data was required before the Fed would consider cutting rates.

"The latter phrase sounds a bit like a broken record as far as the market is concerned, so the most important part of Powell’s speech was the reference to disinflation, as investors interpreted it to mean there is a stronger case for cutting rates soon.

"That was enough to trigger a risk-on rally in the markets, with investors bidding up shares in the US, and for the dollar to fall. The equity market buzz extended to Asia and parts of Europe on Wednesday with widespread gains."

Investors were eyeing the UK election on Thursday amid expectations the Labour party will be voted into power for the first time in 14 years.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "There are less than 24 hours to go until the polls open for the UK’s General Election and a frenzy of last-minute campaigning is underway, as candidates jostle to win over floating voters. Even Boris Johnson, with his distinct marmite appeal, has been wheeled out by the Conservatives to help shore up support among the Tory faithful. There may be remnants of uncertainty, but they are not fazing investors, given the strength of the poll lead Labour commands.

"At this stage of the game anything other than a clear Labour majority would be more unsettling. However, for parties like the Greens and Reform, winning seats in parliament would help push more of their policies into the political limelight. Maintaining financial stability is set to be the priority for an incoming Labour government, and bond markets are sanguine, with gilt yields significantly lower than there were at the end of May and sentiment driven by the central bank rather than party policies. The pound is also little moved, trading around $1.268, with recent dips showing sensitivity to expectations that the Bank of England will move before the Fed in cutting interest rates."

Market participants were also mulling a survey out earlier, which showed that growth in the UK services sector eased again in June, with confidence dipping slightly amid general election uncertainty.

The S&P Global services PMI business activity index fell to 52.1 from 52.9 in May, marking the softest rate of growth since November 2023. Still, it remained above the 50.0 mark that separates contraction from expansion.

Joe Hayes, principal economist at S&P Global Market Intelligence, said: "We are seeing some evidence of a pre-general election seize up across the UK services economy, with growth in business activity slowing to a seven-month low in June as the prospect of a change in government led to the adoption of a ‘wait-and-see’ approach by some, restraining sales.

"Nevertheless, we're on track for another quarter of GDP growth, according to Composite PMI data for the three months to June, albeit one that will be less punchy than the first quarter's 0.7%."

In equity markets, Diageo fizzed higher after an upgrade to ‘buy’ at Citi. It said that with earnings/valuations metrics troughing and destocking headwinds likely to give way to positive earnings momentum in FY25E, an inflection point has likely been reached.

"As such, Diageo’s July FY24E results should act as the clearing event which allows investors to revisit what remains an attractive compounding growth story," Citi said.

Baltic Classifieds rallied after it reported a 20% jump in full-year EBITDA and a 19% rise in revenue, hailing "strong" performances across its business lines.

Vodafone was flat after it and Virgin Media O2 said they had agreed to extend and enhance their existing mobile network sharing agreement for more than a decade, forming a new company that will invest £11bn in the project.

The agreement is subject to the planned merger of Vodafone and Three. If that deal goes through then Virgin Media O2 will buy spectrum "establishing three scaled mobile network operators each with better alignment of spectrum holding", the companies said in a statement.

JD Sports was knocked lower by a downgrade to ‘underweight’ at Barclays, while 3i Group fell after a downgrade to ‘equalweight’ at Morgan Stanley.

Direct Line was in the red as Berenberg cut its price target on the shares, saying the risk of disappointment was rising.

Outside the FTSE 350, Keywords Studios gained after agreeing to be taken over by European private equity firm EQT in a £2.1bn deal.

Market Movers

FTSE 100 (UKX) 8,165.42 0.54%
FTSE 250 (MCX) 20,332.81 0.69%
techMARK (TASX) 4,707.57 0.56%

FTSE 100 - Risers

International Consolidated Airlines Group SA (CDI) (IAG) 170.75p 3.93%
Fresnillo (FRES) 568.50p 3.08%
Croda International (CRDA) 4,059.00p 2.53%
easyJet (EZJ) 455.00p 2.43%
Barclays (BARC) 215.85p 2.42%
Entain (ENT) 633.00p 2.33%
Severn Trent (SVT) 2,401.00p 2.13%
Diageo (DGE) 2,515.50p 2.11%
Vistry Group (VTY) 1,215.00p 2.10%
United Utilities Group (UU.) 978.40p 2.04%

FTSE 100 - Fallers

JD Sports Fashion (JD.) 114.60p -2.55%
3i Group (III) 3,018.00p -0.89%
Coca-Cola HBC AG (CDI) (CCH) 2,666.00p -0.67%
B&M European Value Retail S.A. (DI) (BME) 437.00p -0.59%
Compass Group (CPG) 2,131.00p -0.56%
Hikma Pharmaceuticals (HIK) 1,835.00p -0.54%
BP (BP.) 482.90p -0.37%
Shell (SHEL) 2,859.00p -0.37%
Smurfit Kappa Group (CDI) (SKG) 3,486.00p -0.23%
Reckitt Benckiser Group (RKT) 4,252.00p -0.14%

FTSE 250 - Risers

Close Brothers Group (CBG) 437.60p 5.19%
Baltic Classifieds Group (BCG) 251.00p 4.15%
Drax Group (DRX) 519.00p 3.80%
SSP Group (SSPG) 149.90p 3.74%
Inchcape (INCH) 774.50p 3.61%
Pennon Group (PNN) 582.50p 3.37%
Hochschild Mining (HOC) 179.20p 3.34%
Playtech (PTEC) 473.50p 3.05%
Johnson Matthey (JMAT) 1,625.00p 2.98%
Diversified Energy Company (DEC) 1,091.00p 2.54%

FTSE 250 - Fallers

PureTech Health (PRTC) 181.00p -1.95%
Mitie Group (MTO) 114.40p -1.55%
Direct Line Insurance Group (DLG) 192.70p -1.18%
Indivior (INDV) 1,199.00p -0.99%
Crest Nicholson Holdings (CRST) 243.20p -0.98%
NB Private Equity Partners Ltd. (NBPE) 1,586.00p -0.88%
Wizz Air Holdings (WIZZ) 2,048.00p -0.87%
Foresight Group Holdings Limited NPV (FSG) 490.00p -0.81%
Telecom Plus (TEP) 1,770.00p -0.78%
Ruffer Investment Company Ltd Red PTG Pref Shares (RICA) 269.50p -0.74%