FTSE leaps 2.7% as metals fall, traders bet Fed will turn dove

Hopes that central banks may have to scale back their interest rate hikes to avoid plunging the world into a recession sent stock markets sharply higher this afternoon.

Hopes that central banks may have to scale back their interest rate hikes to avoid plunging the world into a recession sent stock markets sharply higher this afternoon, with the FTSE 100 rallying 2.7% to break a three-week losing streak.

The UK blue-chip index gained 188 points to 7,208 as industrial, healthcare and consumer cyclical stocks advanced as traders dialled back their expectations for medium-term interest rates in the US, where the Federal Reserve has been particularly hawkish.

The mid-cap FTSE 250 gained 2.3% and the FTSE Small Cap added 1.3%, while in Europe France’s CAC 40 jumped 3.2% and the Eurostoxx 50 index rebounded 3%, reflecting good gains in Germany and Spain.

On Wall Street both the S&P 500 and Nasdaq technology index marched 2.3% higher as copper prices registered a weekly fall of 6.5%, their biggest decline in a year, underlining fears that central banks’ efforts to dampen inflation would hurt demand for the metal. 

Other industrial metals slid, with nickel tumbling around 13% this week and tin dropping 22%, its biggest weekly slump since at least 2005.

The dollar weakened with the pound up slightly at $1.2264 on expectations of a lower trajectory for US interest rates.

‘Falling commodity prices could help pull headline inflation prints downward - particularly into the autumn months - reducing the need for aggressive monetary tightening,’ Karl Schamotta, chief market strategist at payments company Corpay in Toronto told Reuters. 

09.43: Scottish Mortgage leads FTSE rebound 

Defensive stocks led a rebound in the FTSE 100 on Friday at the end of another choppy week marked by concerns about central bank hawkishness and inflation.

The blue-chip index was trading up 56 points, or 0.8%, at 7,076, on course for a roughly 1% gain over five trading days. 

There were signs of inflation starting to bite as retail sales stumbled last month, the Office for National Statistics reported. Retail sales volumes fell by 0.5% in May, undoing a 0.4% rise in April.

‘There was a loss in momentum in goods spending in May as headwinds from four-decade high inflation and a swift move up in interest rates, upping borrowing costs, hit personal finances,’ said Myron Jobson, personal finance analyst at Interactive Investor.

The decline was led by a 1.6% fall in sales in supermarkets and other food stores as the cost of groceries jumped.

The pound was little changed despite Boris Johnson’s position as prime minister coming under further pressure after two byelection defeats.

AJ Bell investment director Russ Mould called the gains for UK shares ‘a step in the right direction’, rounding off ‘yet another volatile week’.

‘Only 59 stocks in the FTSE 350 index are currently sitting on share price gains year-to-date,’ he said.

Among UK blue-chip shares, Dechra Pharmaceuticals (DPH) led with a 3.1% rise, followed by safety equipment company Halma (HLMA), up 2.9% at £19.69.

The few investment trusts in the FTSE 100 were also in fine fettle. Scottish Mortgage (SMT ) shares advanced 3% to 725p and Pershing Square Holdings (PSH ) gained 2.2% to £24.10. Both invest heavily in the US market, where rebounding tech stocks led a strong session overnight. The Nasdaq Composite closed 1.6% higher.

Among fallers, Rolls-Royce (RR) dropped 3.1% to 79.3p while miners built on losses earlier in the week. Chilean copper miner Antofagasta (ANTO) traded down 1.4% to £11.55.

Retailers also felt the pinch, with Next (NXT) down 0.9% and JD Sports (JD) off 0.6%. That trend was echoed on the FTSE 250, where online fashion retailer ASOS (ASOS) fell 3.4% and Marks and Spencer (MKS) pulled back 1.6%.

The UK mid-cap index as a whole rose 149 points, or 0.8%, to 18,842. Ultra Electronics (ULE) led the way, jumping 12,6% to £34.56 after the government approved Cobham’s takeover of the UK defence supplier.  

Private equity perks up

Among closed-end funds, there were some signs of value in the cheap listed private equity sector being unlocked as Abrdn Private Equity Opportunities (APEO ) jumped 5.3% to 453p. JPMorgan Japanese (JFJ ) traded 3% higher at 425p.  

Greencoat Renewables (GRP ) rose 2.1% to €1.16 on a 5% premium after it agreed to buy a second wind farm under construction in Ersträsk, Sweden.

Real Estate Credit Investments (RECI ) added 2.2% to 150.7p on a 4% discount as the 8%-yielding property-backed debt fund held its dividends at 12p per share for the year to 31 March and revealed a 6.9% investment return.

Literacy Capital (BOOK ), the strongly-performing private equity fund listed last year by former Capita boss Paul Pindar, firmed 2p to 408p on a 25% premium as it became an investment trust and completed the acquisition of Halsbury Travel in Nottingham.

HgCapital (HGT ) added 1.6% to 338.5p on a 24% discount as  shareholders in UK software provider Ideagen approved its takeover by the manager of the private equity fund.

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