FTSE 100 steams higher on interest rate optimism, JD Sports bounces back

London’s leading index started the week with a spring in its step, gaining over 1% at one point in early trade before falling back.

“The FTSE 100 made a strong start to June with resources, energy and financial stocks among those making solid gains,” said AJ Bell investment director Russ Mould.

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The driving force behind Monday morning’s positive start was optimism around interest rates and a strong session in Asia overnight.

“Positive vibes are powering the FTSE 100 higher, as fresh hopes swirl that interest rate cuts are not as far off as feared,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“Strong trading in Asia has laid the groundwork for an upbeat session, as investors take took cues from gains on Wall Street on Friday. Signs of weaker consumer spending patterns have lifted expectations that upwards price pressures could ease off and that the Fed may be less inclined to keep interest rates higher for longer.”

Economic data is set to dominate trade this week, with a raft of manufacturing data due to be released before the Non-Farm Payrolls on Friday.

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Traders will also be looking forward to the European Central Bank’s interest rate decision this week and the possibility of a the first rate cut from a major western central bank after a two year hiking cycle.

Should the ECB cut rates, it will increase the chance of the Bank of England and Federal Reserve cutting rates in the near term. Although there is little indication central banks will make several rate cuts this year, simply cutting rates once will mark the end of the hiking cycle and boost consumer and investor sentiment. This may underpin further gains in the stocks.

JD Sports bounces back

JD Sports was the FTSE 100’s top riser on Monday, surging 7.4%, as it completely erased losses incurred on Friday after the release of its full-year results. The sports retailer said its Q1 sales were down compared to the same period last year but investors are choosing to look slower sales to the group’s future expansion across North America.

The FTSE 100’s gains were broad on Monday, with 87 of the constituents trading in positive territory at the time of writing.

St James’s Place’s recovery continued as shares gained another 4% after JP Morgan upgraded the stock to ‘overweight’.

GSK was the FTSE 100’s top faller following the news it was facing litigation in Delaware related to Zantac potentially causing cancer in patients. GSK shares were down 9% at the time of writing.

“Investors had reached a point of some comfort with GSK’s Zantac issue as a series of US lawsuits linking the heartburn drug to cancer appeared to be running out of steam,” Russ Mould said.

“However, a judge in Delaware has thrown a significant spanner into the works by giving the green light for 70,000 cases to go forward and by allowing expert witnesses to testify in court that the drug may cause cancer.

“GSK and the other parties involved, Pfizer and Sanofi, have made clear they disagree with the ruling and GSK has said it will mount an appeal.

“However, in the short term this just pours more uncertainty over the investment case. An uncomfortable comparison for GSK management can be drawn with AstraZeneca, which has left its counterpart for dust in recent times and is forging ahead with ambitious growth targets.”

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