US stocks higher and FTSE closes in the green as central banks hint on rate hikes

A look at how the major markets are performing on Thursday

·6-min read
FTSE WASHINGTON, DC - OCTOBER 14: (L-R) Chair of the U.S. Federal Reserve Jerome Powell talks with Governor of the Bank of England Andrew Bailey during a meeting of the IMFC (International Monetary and Financial Committee) at the IMF and World Bank Annual Meetings at IMF headquarters, October 14, 2022 in Washington, DC. Secretary Yellen will hold a news conference and take questions later in the day. (Photo by Drew Angerer/Getty Images)
FTSE: Fed chair Jerome Powell and Bank of England governor Andrew Bailey are not giving any signs that they will ease up on interest rates policy. Photo: Drew Angerer/Getty Images

The FTSE 100 and European stocks finished higher this Thursday as new data showed that the UK economy ground to a halt in February, and central banks in the UK and US indicated there would be no let up on interest rates policy.

The FTSE 100 (^FTSE) gained 0.21% to close at 7,841 points, while the CAC 40 (^FCHI) in Paris rose 1.10% to 7,478 points. In Germany, the DAX (^GDAXI) gained 0.11% to 15,720.

UK economy flatlines in February

The UK economy flatlined in February, with no growth in GDP, amid a wave of strikes across the public sector.

Striking teachers, rail workers and civil servants brought the British economy to a grinding halt.

The Office for National Statistics (ONS) report shows that the services sector output fell by 0.1%, while production fell 0.2% and construction grew 2.4%.

This follows growth of 0.4% in January, which has been revised up from growth of 0.3% in the previous publication.

Daniel Mahoney, UK economist at Handelsbanken, said: "Monthly GDP (m-o-m) saw no growth in February by registering at 0%. This was roughly in line with consensus (0.1%). The services sector saw a marginal fall in growth of 0.1% after showing more promising expansion in January of 0.7%.

Read more: UK economy grinds to a halt in February amid strikes

"Teacher strikes in February saw output from the education sector fall by 1.7%, which was the largest contributor to services showing a negative print. Were it not for industrial action, February probably would have posted a marginally positive GDP monthly figure. The disappointing services numbers were offset by more encouraging news elsewhere: for example, the construction sector grew by 2.4% in February, driven by growth in both repair and maintenance and new work."

Yael Selfin, chief economist at KPMG UK, said: “A combination of upward revisions in GDP data and an improvement in global economic conditions could help the UK economy avoid a recession this year. While this will provide relief for policymakers, the outlook for growth in the medium-term remains relatively weak by historical standards.

“Economic activity will remain subdued in the near term as households continue to be squeezed by elevated prices and the cumulative impact of past interest rate increases. Although business sentiment continues to improve, bolstered in part by the fall in wholesale energy prices, we expect investment to be constrained this year amidst the tightening in credit conditions and uncertainty about future policy direction."

Investors are also digesting warnings from central bankers that they will continue to push interest rates until inflation is under control.

The Bank of England will not be diverted from its fight against inflation by risks to financial stability from higher interest rates, governor Andrew Bailey said at an event in Washington.

“What we shouldn’t be doing is saying, we’ve got such a problem with financial stability that we have to aim off a decision on monetary policy because of conditions and financial stability,” Bailey said at the International Monetary Fund’s spring meeting.

Some of the key takeaways from the minutes of the Federal Reserve's March meeting – when the US central bank raised rates by 0.25% – showed that staff forecast the US economy would likely slide into recession later this year. Officials expressed concern about the banking sector problems and scaled back their expectations for rate hikes, while some even considered pausing the rate hikes.

US and Asia financial markets

Stocks were higher Thursday as investors braced for a crucial bank earnings season and digested the latest data on initial jobless claims that showed an uptick in unemployment insurance filings.

The Dow Jones (^DJI) rose 0.49% to 33,810 points. The S&P 500 (^GSPC) gained 0.64% to 4,118 points and the tech-heavy NASDAQ (^IXIC) rose 1.30% to 12,084.

Labor market data out Thursday morning suggested the job market continues to soften with initial filings for unemployment insurance totalling 239,000 for the week ended April 8, the highest since January 2022, according to the government's latest data.

"Initial jobless claims rose last week, but the labor market stayed tight. We expect claims to trend higher through the rest of the year and peak in Q4 as the economy begins to emerge from a mild recession," wrote Oren Klachkin, lead US economist at Oxford Economics, in a note to clients on Thursday. "The upcoming labor market downturn will be modest since the drop in demand will be fairly modest and the labor pool will stay relatively small."

In Asia, Tokyo’s Nikkei 225 (^N225) climbed 0.26% to 28,156 points, while the Hang Seng (^HSI) in Hong Kong tumbled 0.16% to 20,277. The Shanghai Composite (000001.SS) slipped 0.27% to 3,318 points.

FTSE 100

Back in London, the blue chips were little changed in early changes with only Tesco (TSCO.L) edging higher ahead after top-end full year results.

The UK retailer gained 1.05% as it reported top-end revenue and operating profit figures. It expects operating profit to end up around £2.63bn ($3.29bn) in the year to February 25, down from £2.83bn the year before. Statutory pre-tax profit halved.

Shareholders will receive a dividend of 7.05p a share worth £516m in June, with the company also announcing plans for a buyback of its shares worth £750m.

Read more: House prices drop amid falling demand as rents keep increasing

Imperial Brands (IMB.L) fell 1.60% after its trading update, with the maker of the Gauloises and John Player Special saying sales volumes were down from a spike in demand during “COVID-related changes in buying patterns”, but that the impact was offset by “strong pricing” for its combustible products.

“We expect a stronger net revenue performance in the second half, supported by a normalisation of volume trends and price increases taken during the first half,” it added.

Homebuilders have added 2.2% cent after the Royal Institution of Chartered Surveyors survey showed that the UK's housing market continued to feel the pinch of higher borrowing costs in March, but expected some improvement over the year ahead.

FTSE 250-listed Darktrace (DARK.L) rose 2.47% as the cyber security firm offset weaker revenue expectations by revealing improved margin guidance for around 19%.

Pound vs dollar

The pound (GBPUSD=X) pushed higher against the dollar, trading at $1.25, the highest in over a week, approaching a 10-month high even though the economy recorded no growth in February.

The dollar weakened yesterday after US inflation dropped to its lowest in almost two years, boosting hopes that the Federal Reserve might stop raising US interest rates soon.

The same against the euro, with sterling (GBPEUR=X) hovering around €1.13.

Oil markets

Meanwhile, Brent crude (BZ=F) lost ground and was trading at around $87/barrel as traders looked to consolidate their positions amid signs of tightening market and encouraging US inflation data.

A tightening oil market could prompt higher prices in the second half of the year, the head of the International Energy Agency, Fatih Birol, has said.

Watch: UK economy flatlines with no growth in February as strikes hit productivity

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