The FTSE 100 hit the highest levels of 2024 on Thursday after the Federal Reserve and Bank of England kept rates on hold but hinted they were close to cutting interest rates.
UK equity bulls were out in force on Thursday as the FTSE 100 started the session higher following a strong session in the US in which the S&P 500 hit fresh record highs.
London’s leading index was 1.9% higher at the time of writing.
Perceived dovishness from the Federal Reserve sparked a risk-on sentiment on hopes we will soon see lower borrowing costs. Although the Fed didn’t provide a timeline for cuts, its language would suggest a rate cut very much on the cards this summer.
“Jerome Powell’s comment that ‘the risks of achieving our inflation goals are coming into better balance’ was enough to give the market confidence that we’ll soon see rate cuts, with three expected this year,” said Russ Mould, investment director at AJ Bell.
“It didn’t matter that yesterday’s decision was to leave rates untouched, the market is focused on what might happen next and any fears that the Fed might become even more stubborn over changing monetary policy appear to have been blown out of the water.”
The Federal Reserve passed the baton to the BoE, and focus shifted to lunchtime’s MPC decision, which was also to keep UK rates on hold. There was a notable shift in the voting behaviour, with two members who previously opted to hike rates rolling back their decision this time round and voting to keep rates on hold.
“The BoE produced few surprises this lunchtime, holding Bank Rate steady at 5.25%, as expected, though the decision did have more of a dovish tinge to it than that delivered in February,” said Michael Brown Senior Research Strategist at Pepperstone.
“While guidance that policy must remain ‘sufficiently restrictive for sufficiently long’ was maintained, the MPC are no longer as divided on the policy outlook, with the 2 hawks from last month now joining the majority of the MPC in voting for Bank Rate to be maintained. Furthermore, Governor Bailey indicated that “things are moving in the right direction” in terms of the inflation outlook, and thus the ability to begin to normalise policy.”
Broad rally
The gains for FTSE 100 companies were broad with 94 of the 100 constituents higher at the time of writing.
3i Group was the top riser after announcing a portfolio update highlighting a particularly strong start to the year for ‘Action’ as well as other portfolio companies. The update was well-received by investors and 3i shares were 7% higher at the time of writing.
Next shares gained 5% after releasing a customary strong set of results for 2023. Total sales rose 5.9% and profits gained 5%.
“Next is often considered a barometer of UK consumer sentiment and based on today’s update, consumers are ready to loosen the purse strings. Profits have risen 5% in the face of a tough, but improving, high inflation, high interest rate environment, showing that shoppers are back out there spending despite some uncertainty still lurking around,” said Adam Vettese, analyst at investment platform eToro.
Hikma was the top faller after losing the rights to its latest dividend.
