The FTSE 100 had a strong start to Thursday as London followed a decent for US shares ahead of the ECB’s rate decision later.
The catalyst was a surge in US tech stocks overnight, helping drive a turnaround in the S&P 500 yesterday. Markets also appeared to cheer the US CPI reading which almost nails on a rate cut next week. Such was the scale of the buying, the S&P 500 rallied around 140 points from yesterday’s lows into the close. The move from low to high was about 2.8% of the index value.
“US markets bounced after the CPI inflation print all but secured the Fed’s first rate cut next week,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“CPI isn’t the Fed’s preferred inflation measure, but with a little bit of jigging, we can get a decent idea of what the preferred PCE number might look like, and it’s all starting to paint the same picture – inflation that’s behaving well. Markets are pricing in an 87% chance of a 0.25% cut, and there wasn’t much in this data to suggest a bolder move is needed.
An upbeat Nvidia CEO helped fire up AI-related stocks that were responsible for much of yesterday’s gains. The AI trade has been under pressure in recent weeks, but the 8% surge in Nvidia overnight shows there is still plenty of interest in the chipmakers, and investors are happy to continue deploying cash in the sector.
“Tech was back leading the charge, with the S&P 500’s chip sector up 6.65%. Nvidia’s had a bumpy ride of late, but markets were encouraged by CEO Jensen Huang’s bullish conference commentary on demand,” Britzman said.
The risk on trade was evident in the FTSE 100’s cyclical sectors, with miners surging higher and financials having a good day.
Copper miner Antofagasta was the top gainer, adding over 3.5%. Anglo American was not far behind, rising 3.2%. The lack of technology shares in London means investors often pick the next best thing in the cyclical mining sector when they are feeling confident about the outlook.
M&G was the top faller, but only because the stock traded ex-dividend today.
Investors will tune into the ECB’s rate decision later today, when we are expected to see another rate cut. A rate cut from the ECB will more than likely be followed by similar moves by the Fed and Bank of England next week.