(Alliance News) - US interest rate optimism supported equities in Europe on Friday, with a hotter-than-expected producer price index reading and some poorly-received US banking earnings doing little to deter investor enthusiasm.
The FTSE 100 index rose 29.57 points, 0.4%, at 8,252.91. The FTSE 250 added 13.98 points, 0.1%, at 21,202.89, and the AIM All-Share closed up 4.64 points, 0.6%, at 786.17.
The FTSE 100 made a weekly gain of 0.6%, the FTSE 250 surged 2.0%, and the AIM shot up 1.5%.
The Cboe UK 100 closed up 0.4% at 823.70 on Friday, the Cboe UK 250 rose 0.2% at 18,476.27, and the Cboe Small Companies added 0.4% to 17,374.25.
In European equities on Friday, the CAC 40 in Paris jumped 1.3%, while the DAX 40 in Frankfurt ended up 1.2%.
The pound was quoted at USD1.2989 late on Friday afternoon in London, up compared to USD1.2920 at the equities close on Thursday, leaving the USD1.30 mark in touching distance. The euro stood at USD1.0907, higher against USD1.0872 on Friday. Against the yen, the dollar was trading at JPY157.90, lower compared to JPY158.57.
US producer prices grew at a slightly faster pace than expected in June, numbers on Friday showed, in contrast to data earlier this week which showed a slowdown in consumer price inflation.
The Bureau of Labor Statistics said producer prices rose 2.6% on-year in June, picking up speed from a 2.4% climb in May. It is the sixth successive month that the yearly rate of producer price inflation has picked up.
Producer prices had been expected to rise 2.3% on-year, according to FXStreet cited consensus, so the latest reading topped expectations.
On-month, producer prices rose 0.2% in June, topping expectations of a 0.1% rise. Prices were unmoved in May from April.
The data follows numbers from the BLS on Thursday showing the year-on-year consumer price inflation rate was 3.0% in June, cooling from a 3.3% rise in May. According to FXStreet, markets were expecting a 3.1% annual increase in consumer prices for June.
"Yesterday's CPI data and today's PPI numbers collectively imply that the core PCE deflator rose by just 0.15% in June, helping to reduce the quarter-on-quarter annualized growth rate to 2.7% in Q2, from 3.7% in Q1. The core PCE print can't be predicted perfectly, as the [Bureau of Economic Analysis] uses expert judgement in the seasonal adjustment of some components, and some series are derived from non-CPI/PPI data sources that are unavailable prior to publication. Nonetheless, it's safe to say that the June print will be low enough to be welcomed by the Fed," Pantheon Macroeconomics analyst Ian Shepherdson commented.
The European Central Bank decides on rates next week Thursday. It is expected to stand pat, after cutting at its last meeting.
ING analyst James Smith, with footballing references aplenty ahead of Sunday's European Championship final, commented: "The ECB has scored its fair share of own goals over the past couple of seasons, pre-committing to action that has subsequently been only reluctantly delivered. June's rate cut is just the latest example.
"Still, the ECB does seem more confident in its future inflation forecasts. We reckon a September rate cut remains on track, but don't expect team captain Christine to tell us much more about that next week."
In New York, the Dow Jones Industrial Average was up 0.8% at the time of the closing bell in Europe. The S&P 500 was 0.9% higher, while the Nasdaq Composite climbed 1.1%, back in the green after plunging on Thursday.
JPMorgan Chase fell 0.7%. It reported improved second-quarter earnings, helped by a bounce in its investment bank offering.
The New York City-based firm said second-quarter revenue rose 22% on-year to USD50.20 billion from USD41.31 billion, beating the LSEG consensus of USD49.87 billion.
Net income improved by a quarter to USD18.15 billion from USD14.47 billion a year earlier. Diluted earnings per share rose 29% to USD6.12 from USD4.75.
Chair & Chief Executive Officer Jamie Dimon kept his feet on the ground, however, citing a tricky economic outlook.
"While market valuations and credit spreads seem to reflect a rather benign economic outlook, we continue to be vigilant about potential tail risks. These tail risks are the same ones that we have mentioned before. The geopolitical situation remains complex and potentially the most dangerous since World War II — though its outcome and effect on the global economy remain unknown. Next, there has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world," Dimon said.
"Therefore, inflation and interest rates may stay higher than the market expects. And finally, we still do not know the full effects of quantitative tightening on this scale."
Elsewhere, Wells Fargo dropped 6.9%, while Citigroup fell 3.3%.
XTB analyst Kathleen Brooks commented: "Overall, the headline figures for both JPM and Citi were strong, although Citi sounded cautious about costs for 2024 being at the higher end of estimates, added to this, fixed income trading was a touch weaker than expected at USD3.56 billion versus USD3.61 billion expected. Usually, growth in return on average equity of 6.3% vs. 5.6% YoY would be enough to override some of the weaker news, but not in the current environment.
"Likewise at JP Morgan, although the bank pointed to signs of strong fee-based income as dealmaking makes a comeback, the 4% increase in net interest income last quarter was slightly weaker than estimates and this has hurt sentiment towards the stock. Jamie Dimon, as he usually does during earnings announcements, sounded concerned about geopolitics and he voiced concerns that inflation could make a comeback due to global fiscal deficits and the shifts in global trade. These are valid concerns that the market should take seriously, but we do not think that they are causing bank stocks to decline."
In London, shares in the interest rate-sensitive property and housebuilding sector rose, as Fed cut hopes built.
Property portal Rightmove rose 4.0%, while housebuilder Taylor Wimpey added 1.5%.
UK rate cut expectations have ebbed this week, however, following comments by Bank of England Chief Economist Huw Pill.
"But the fact that the BoE hawks cry louder doesn't mean that the doves are not around," Swissquote analyst Ipek Ozkardeskaya added.
On London's AIM, System1 rose 6.6%.
The London-based owner of a marketing decision-making platform said revenue in the first quarter of the financial year to March 31 was GBP9.2 million, up 53% from GBP6.2 million a year prior.
Chief Executive James Gregory said: "Customer demand was exceptionally strong in the first quarter, somewhat ahead of our own expectation. It's early in the year but this strong first quarter performance puts us firmly on track for sustainable growth and to achieve our full-year expectations."
Brent oil was quoted at USD85.66 a barrel late on Friday in London, up from USD85.47 at the same time on Thursday. Gold was quoted at USD2,410.50 an ounce, lower against USD2,422.61.
Monday's economic calendar has a China gross domestic product reading overnight, before retail sales from Germany at 0700 BST and eurozone industrial production at 1000 BST. Financial markets in Tokyo will be closed for Marine Day.
By Eric Cunha, Alliance News news editor
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