LONDON MARKET CLOSE: Stocks up as Fed's preferred inflation read cools

(Alliance News) - Stock prices in London closed up on Friday, as investors predicted and responded positively to a cooling inflation read in the US.

The FTSE 100 index closed up 105.36 points, 1.4%, at 7,635.09. The FTSE 250 ended 114.92 points, 0.6%, at 19,338.02, and the AIM All-Share closed up 2.60 points, 0.4%, at 750.70.

The Cboe UK 100 ended up 1.4% at 763.67, the Cboe UK 250 closed up 0.9% at 16,802.30, and the Cboe Small Companies ended up 0.3% at 14,954.69.

Stocks in New York were higher at the London equities close, with the DJIA up 0.3%, the S&P 500 index up 0.2%, and the Nasdaq Composite 0.1%.

US inflation pressure eased a touch at the end of last year, according to a reading on Friday, strengthening the case for the Federal Reserve to consider cutting interest rates.

According to the Bureau of Economic Analysis, the core personal consumption expenditure grew 2.9% year-on-year in December, easing from November's 3.2% rise. The core PCE reading, the Fed's preferred inflation gauge, fell to its lowest level since March 2021.

The outcome fell short of FXStreet-cited consensus, which predicted a lesser cool-down to 3.0%.

The core data excludes food and energy. The annual headline PCE index, which does not, grew 2.6%, in line both with consensus and with the rate of expansion in November.

Data on Thursday had showed US economic growth was markedly stronger than expected at the end of last year, suggesting the world's largest economy was coping well with historically high interest rates.

The data, coupled with a cooler PCE reading for December, would suggest that the US economy could be on track for a 'soft landing' - where inflation is brought back down to target, without causing economic hurt.

"The fall in the core PCE deflator back to the Fed's 2% target opens the door for rate cuts. If data for early 2024 confirm that growth is decelerating from its above-trend pace of 2023 and that the labour market continues to cool, the Fed can start to ease on 1 May, with a chance that it may move on March 20 already," said Berenberg analysts Holger Schmieding, Kallum Pickering and Salomon Fiedler.

"If corroborated by actual rate cuts, the current easing of financial conditions in equity and bond markets could then pave the way for a return of US growth at an annualised rate of 1.7% in late 2024, and close to 2% in 2025 after a soft landing in the meantime."

In the UK, consumer confidence reached its highest level in two years, according to a long-running survey.

GfK's consumer confidence index rose by three points to minus 19 this month – its best headline score since January 2022.

The sterling was quoted at USD1.2721 on Friday at the London equities close, higher than USD1.2695 on Thursday. The euro traded at USD1.0866 higher than USD1.0835. Against the yen, the dollar was quoted at JPY147.92, up slightly versus JPY147.66.

China will offer more bailout loans for its struggling real-estate sector with the first funds expected to become available in the coming days, its housing ministry said, in the latest move to help kickstart stuttering growth.

Troubles in the property industry have been one of the main headwinds facing the world's second-largest economy, with a government clampdown on excessive borrowing in 2020 leaving several developers grappling with massive debt and flagging demand.

The measures helped support the mining sector in the FTSE 100 with Anglo American among the best of the lot, up 1.5% in London. China is a major buyer of minerals.

Vodafone rose 3.9%, although the UK competition watchdog said it was launching a phase one investigation looking into the merger of Three UK and Vodafone's UK business.

The UK Competition & Markets Authority said it will be looking at whether the proposed deal could damage competition for consumers and businesses.

Burberry rose 4.9% in a positive read-across from LVMH Moet Hennessey Louis Vuitton, which jumped 12% in Paris.

The Paris-based luxury goods company reported an acceleration in fourth quarter sales as it exited a problematic year in a brighter mood. Organic sales grew 10% to EUR23.95 billion in the quarter ending December 31, improving from organic growth of 9% in the previous quarter.

In European equities, the CAC 40 in Paris ended up 2.2%, while the DAX 40 in Frankfurt ended up 0.3%.

In the FTSE 250, WH Smith lost 0.7%, despite reporting a "strong" start to its financial year, ahead of its annual general meeting.

Total sales in the first 20 weeks to January 20 rose 8% year-on-year, climbing 13% in the Travel arm alone. Its High Street offering was less robust, with sales in that division declining 4% on a year earlier. The firm ends its financial year in August.

On a like-for-like basis, sales were up 5%, driven by a 10% jump in Travel but partly offset by a 3% fall in High Street.

Elsewhere in London, Record rose 7.0%, after the currency and derivatives manager said assets under management equivalent rose to USD99.5 billion in the third quarter of the year ending March 31. This is an 18% increase from GBP84.5 billion at September 30. Year-to-date AuMe have surged 13%, it added.

Looking ahead, Record says it is making progress towards the launch of its first infrastructure fund.

Gold was quoted at USD2,018.76 an ounce on Friday at the London equities close, higher than USD2,015.06 on Thursday. Brent oil fetched USD81.36 a barrel, flat from USD81.37.

The economic calendar for next week has the US Federal Reserve announcing its latest interest rate decision on Wednesday at 1900 GMT, followed by the Bank of England on Thursday at 1200 GMT.

By Greg Rosenvinge, Alliance News senior reporter

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