The FTSE 100 outperformed European peers on Thursday, supported by gains in engineering stocks that helped offset weak miners. The index closed up 56.32 points, or 0.5%, at 10,572.24. The FTSE 250 ended 253.44 points higher, a 1.1% rise, at 23,715.83, while the AIM All-Share added 0.44 of a point, or 0.1%, to 766.18.
Sterling Hits One-Year High Amid Chancellor Speculation
Sterling faded into the close after earlier hitting its highest level in a year against the dollar, driven by growing expectations that Home Secretary Shabana Mahmood will become chancellor under the incoming government led by Andy Burnham. Mahmood has emerged as the frontrunner to replace Rachel Reeves at the Treasury when Burnham is expected to enter Downing Street on Monday, following weeks of speculation over his Cabinet appointments.
Energy Secretary Ed Miliband had previously been viewed as the leading contender for the role but is considered less favourably by financial markets amid concerns he would be less fiscally disciplined. Meanwhile, the International Monetary Fund is urging Burnham’s incoming government to avoid increasing public spending in the face of pressures such as rising household energy bills.
The pound traded at $1.3483 on Thursday afternoon, little changed from $1.3486 on Wednesday. It had earlier traded as high as $1.3558. Against the euro, sterling eased to €1.1784 from €1.1791 on Wednesday. Sterling had risen sharply late on Wednesday as reports that Mahmood might get the keys to Number 11 Downing Street started to emerge.
Kathleen Brooks, research director at XTB, said the pound’s positive reaction tells two things about Burnham’s government. “Firstly, the market trusts Mahmood to take a sensible approach to economic policy, and to tackle the hard questions of welfare spending. Secondly, Burnham is willing to have those to the right of the Labour party in his cabinet in key economic roles,” she said.
UK GDP Returns to Modest Growth in May
Investors also weighed figures showing the UK economy returned to modest growth in May, although the recovery remained subdued as the conflict in Iran continued to weigh on activity through higher prices and supply chain disruption. According to the Office for National Statistics, gross domestic product rose 0.1% in May after contracting 0.1% in April, matching market expectations. A 0.3% expansion in the services sector offset declines of 0.5% in production and 0.8% in construction.
Over the three months to May, GDP grew 0.7%, easing slightly from an upwardly revised 0.8% increase in the three months to April. Deutsche Bank’s chief UK economist Sanjay Raja expects momentum to dampen as the year progresses. The Iran “energy squeeze will eventually catch up with households and businesses, constraining spending and investment”, while lingering geopolitical uncertainty around the Strait of Hormuz “won’t help either”, he said.
Global Markets Mixed; Tech Earnings in Focus
In European equity markets on Thursday, the CAC 40 in Paris ended down 0.1%, while the DAX 40 in Frankfurt fell 0.3%. In New York, the Dow Jones Industrial Average was up 0.3%, the S&P 500 was 0.1% lower, and the Nasdaq Composite declined 0.7%. Taiwanese chipmaker TSMC fell 2.7% in New York even as it issued positive forward guidance and announced net profit soared more than 77% to a record high in the second quarter thanks to massive demand for AI hardware.
“This all makes one wonder what US tech corporations will have to come up with to get investors genuinely excited again,” said market analyst David Morrison at Trade Nation. “This is important, as the earnings season picks up several gears over the next fortnight,” he added. Netflix reports after New York markets close on Thursday, while next week Google’s parent company Alphabet and Tesla release results. Amazon, Apple, Meta, and Microsoft are among the companies that publish results the week after.
The US 10-year Treasury yield traded at 4.57% on Thursday, compared to 4.56% on Wednesday, and the US 30-year Treasury yield widened to 5.10% from 5.08%.
Diploma Leads FTSE 100 Risers; Takeover Activity Continues
Diploma led the FTSE 100 risers, climbing 6.3% after raising its full-year guidance for the third time in five months following a “very strong” third quarter. The firm now expects organic revenue growth of 14%, up from previous guidance of 12%, while operating margin is forecast at around 26.5%, compared with 25% previously. Elsewhere, the takeover frenzy in UK equity markets continued with Rotork and Gooch & Housego among those accepting offer proposals. Rotork soared 67% after agreeing to a £4.14 billion cash takeover by Swiss engineering group ABB. Somerset-based photonic components and systems maker Gooch & Housego jumped 39% as it accepted a £345.6 million bid from Maryland-based buyout fund Arlington Capital Partners VII.
The biggest risers on the FTSE 100 were Diploma, up 425.0p at 7,195.0p; Metlen Energy & Metals, up 2.2p at 43.6p; Spirax, up 280.0p at 6,930.0p; Kingfisher, up 11.8p at 297.1p; and Weir Group, up 96.0p at 2,504.0p. The biggest fallers were St James’s Place, down 94.0p at 1,110.0p; Antofagasta, down 154.0p at 3,588.0p; Endeavour Mining, down 92.0p at 3,422.0p; Fresnillo, down 60.0p at 2,455.0p; and Centrica, down 4.1p at 172.0p.
