Investors buy ahead of interest rate decisions

(Alliance News) - Stock prices in London were firmly up at midday on Monday, as investors awaited this week's central bank decisions in Japan, the US and the UK.

Sentiment in Europe also improved amid signs that Israel seemed to be taking a more incremental approach than expected to its ground incursion into Gaza.

The FTSE 100 index was up 62.88 points, 0.9%, at 7,354.16. The FTSE 250 was up 165.83 points, 1.0%, at 17,032.25, and the AIM All-Share was up 4.97 points, 0.7%, at 679.43.

The Cboe UK 100 was up 0.8% at 733.40, the Cboe UK 250 was up 1.2% at 14785.87, and the Cboe Small Companies was up 0.5% at 12,624.88.

Central bank decisions will be in focus this week, with a decision from the Bank of Japan due on Tuesday, the US Federal Reserve on Wednesday, and the Bank of England to follow on Thursday.

Traders will be keen to see if the yen's recent historic lows will prompt the BoJ to pivot away from its ultra-loose monetary policy. Meanwhile, the Fed and the BoE are widely expected to leave interest rates unchanged, meaning all eyes will be on forward guidance.

"It's a big week for interest rate decisions with the Fed announcing on Wednesday and the Bank of England on Thursday. Both are expected to keep rates unchanged, which should provide some relief to investors, although much of the focus will be on commentary about the path for rates going into 2024," said AJ Bell analyst Russ Mould.

Meanwhile, Hargreaves Lansdown analyst Susannah Streeter said investors took a "glass-half-full attitude" to the upcoming decisions and were keen to take advantage of stock prices that have largely fallen over recent weeks.

Sterling was quoted at USD1.2132 at midday on Monday, down from USD1.2149 at the London equities close on Friday. The euro traded at USD1.0586, lower than USD1.0594. Against the yen, the dollar was quoted at JPY149.77, up versus JPY149.59, as the Bank of Japan begins its two-day monetary policy meeting.

In European equities on Monday, the CAC 40 in Paris was up 0.6%, while the DAX 40 in Frankfurt was was up 0.5%.

Sentiment in Europe was rebounding amid some relief that Israel seemed to be taking a more incremental approach than expected to its ground incursion into Gaza. This helped to quell immediate fears of the conflict breaking out into the wider region.

Investors will still be somewhat cautious, assessing what remains a dynamic and volatile situation.

The Israeli military said its forces killed "dozens" of militants in overnight clashes inside Gaza, hitting over "600 targets" as it stepped up what Prime Minister Benjamin Netanyahu called a "new stage" in the war, which he warned would be "long and difficult".

Hamas also said its fighters were engaged in "heavy fighting" with Israeli forces in northern Gaza.

Israeli tanks on Monday entered the edge of Gaza City and cut a key road from the north to the south of the war-torn Palestinian territory, witnesses told AFP.

"Although the conflict in Israel is a humanitarian crisis, and the risks of regional escalation are still clear and present, the offensive in Gaza was widely expectedly and investors had anticipated this turn of events to some extent," said Hargreaves Lansdown's Streeter.

"Although supply concerns are still hanging around, keeping a floor on oil prices, concerns about a drag on growth ahead leading to weaker demand have prompted a fall in oil prices, although Brent crude is still hovering around USD90 a barrel."

Brent oil was trading at USD88.23 a barrel on Monday at midday, higher than USD87.63 late Friday. Meanwhile, gold was higher at USD1,992.69 an ounce from USD1,981.94.

In London's FTSE 100, HSBC fell 0.3%.

The Asia-focused, London-based lender reported that quarterly profit more than doubled, but fell short of market expectations, as it prepared to launch a USD3 billion share buyback. Asia-focused, London-based HSBC said third-quarter pretax profit soared to USD7.71 billion from USD3.23 billion a year before, which HSBC said reflected the positive impact of a higher interest rate environment.

However, the figure fell short of company-compiled analyst estimates of USD8.10 billion.

Net interest income rose 15% to USD9.25 billion from USD8.01 billion, as net fee income increased 5.3% to USD3.00 billion from USD2.85 billion. Net operating income climbed 45% to USD15.09 billion from USD10.44 billion, which was short of analyst estimates of USD16.24 billion.

"A larger than expected share buyback seems to be doing a lot of the heavy lifting for HSBC today – making up for some less than positive details in its third quarter results," said AJ Bell's Mould.

"Certainly, there was nothing in these results to prompt the kind of loss of faith experienced by its other foreign-focused rival Standard Chartered after its own third-quarter update. And given the difficulties faced by the Chinese economy in 2023, a key market for HSBC, its level of performance has been impressive. To sustain this, CEO Noel Quinn's observation that China’s commercial property market has bottomed out will have to prove accurate."

Pearson gained 2.5%, after it raised annual guidance.

The education publisher said revenue in the third quarter rose 2% year-on-year on an underlying basis. It now expects group revenue growth, excluding online programme management and strategic review businesses to be at the higher end of its existing low-to-mid-single-digit guidance, and upgraded guidance for adjusted operating profit to a range of GBP570 million to GBP575 million, which is around GBP20 million higher than prior guidance.

This follows the "strong operational momentum and financial performance" seen in the third quarter", Pearson said.

Retail group Frasers rose 1.1%, as it confirmed the divestment of the intellectual property of Missguided to Chinese fast fashion firm Shein.

In London's FTSE 250, Ascential surged 27%.

The business-to-business media and events company reported a proposed sale of its Digital Commerce and WGSN units for cash proceeds of GBP1.2 billion. It plans to sell the first to Omnicom Group, and the second to fund advised by Apax Partners. Once complete, it plans to distribute around GBP850 million to shareholders.

On AIM, Neometals lost 27%, after the sustainable battery materials producer informed Critical Metals, its partner in a Finnish vanadium recovery project, that it does not wish to proceed with the construction of the facility.

This was due to cash concerns amid the current state of the global financial markets, Neometals said.

Stocks in New York were called higher The Dow Jones Industrial Average and the S&P 500 index were both called up 0.6%, while the Nasdaq Composite was called up 0.7%.

The German economy saw a slight contraction in the third quarter, official figures showed, but growth in the first half of the year was better than previously thought.

According to Destatis, the German economy is estimated to have contracted by 0.1% on a quarterly basis, on a price, seasonally and calendar adjusted basis. FXStreet-cited market consensus had expected a 0.3% contraction.

In the second quarter, gross domestic product had grown by a revised figure of 0.1%, after seeing no growth in the first quarter, which was also revised.

It had previously been estimated that the second quarter saw no growth, while the first quarter was thought to have seen a 0.1% contraction.

Still to come on Monday's economic calendar, German consumer price inflation figures are released at 1300 GMT.

By Greg Rosenvinge, Alliance News reporter

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