(Alliance News) - London's FTSE 100 nudged higher late on Monday while the dollar flagged, as bets rose that the US Federal Reserve could deliver a jumbo sized interest rate cut on Wednesday.
"The probability of a 50bp rate cut has risen sharply and is now 59%, according to the CME's Fedwatch tool, this is up from 30% a week ago. As we get closer to the FOMC meeting, it feels like this could be epoch changing," said Kathleen Brooks, research director at XTB.
The FTSE 100 index rose 5.35 points, or 0.1%, at 8,278.44. The FTSE 250 ended up 34.22 points, 0.2%, at 20,929.59, but the AIM All-Share eased 1.50 points, or 0.2%, at 743.73.
The Cboe UK 100 rose 0.1% to 827.78, the Cboe UK 250 fell slightly to 18,410.80, and the Cboe Small Companies ended up 0.1% at 16,798.25.
In European equities on Monday, the CAC 40 in Paris ended down 0.2% while the DAX 40 in Frankfurt declined 0.4%.
On Wall Street at the time of London's close, the Dow Jones Industrial Average was 0.2% higher, but the S&P 500 eased 0.2% and the Nasdaq Composite fell 0.8%.
A 2.9% fall in Apple pegged back the S&P 500 after analysts flagged that demand for the firm's new iPhone 16 Pro model has been lower than expected.
But there was better news elsewhere as the Empire manufacturing index rose back to expansionary territory in September, well above expectations, hitting its highest level since April 2022.
The composition of the report was strong, with increases in the new orders, shipments, and employment components, Goldman Sachs noted.
US markets are also awaiting a finely balanced interest rate call on Wednesday. The Federal Reserve is widely expected to lower rates for the first time since 2020, although the magnitude of the cut remains open to question.
In the past week, the odds of a 50 basis points rate cut in the US have increased. The CME FedWatch tool now puts the chances of a larger rate reduction at 59%, compared with the 41% odds of a 25bps cut. Last week, the odds of a smaller cut were as high as 85%.
"The case for a 50bp rate cut boils down to two things: first, the economic conditions and second, the risk of the Fed falling behind the curve. The economic data is getting weak in the US. The Citi economic surprise index for the US is close to its lowest level since 2015, the labour market is cooling and there are signs of distress in the manufacturing sector, which has been languishing in contraction territory since April," said XTB's Brooks.
But Capital Economics said although current market pricing sees the Fed announcing a 50bps rate cut this week, "we think a 25bps move is marginally more likely".
"There is a case for the Fed beginning its easing cycle with a bigger move, but recent history shows how 50bps cuts are often associated with far more challenging economic environments than today's."
Back in London, the Bank of England is widely expected to leave interest rates unchanged on Thursday.
"We expect the [Monetary Policy Committee] to hold rates steady next week at 5.0%," analysts at Citi said. "We see scenarios where the vote split lands either at 3-6, or 1-8, but in our view 2-7 is more likely.
"The guidance will we think be broadly unchanged, perhaps with the exception of a reference to November as presenting a further opportunity for a re-assessment."
The contrasting rate picture was reflected in further gains for sterling, and losses for the greenback.
The pound was quoted at USD1.3195 late on Monday afternoon in London, up compared to USD1.3137 at the equities close on Friday. The euro stood at USD1.1119, up against USD1.1084.
Against the yen, the dollar was trading at JPY140.75, up compared to JPY140.53. The greenback had traded as low as JPY139.58, its worst level since July of last year.
UK house prices rose in September, with the traditional autumn rebound in activity starting early and continuing a run of broadly encouraging economic data.
According to Rightmove's House Price Index, average new seller asking prices rose by 0.8% in September to GBP370,759.
September usually sees a monthly rise in prices, but this year's increase is double the long-term average, with prices supported by increased activity levels, the online property portal stated.
"The traditionally busier autumn market appears to have started early, with many movers spotting a window of opportunity to act as mortgage rates trend downwards and property choice increases," Rightmove said.
The news supported housebuilders Persimmon, up 0.9%, and Vistry, up 0.5%.
Elsewhere in London's FTSE 100, Marks & Spencer rose 2.9% as RBC Capital Markets and Jefferies raised share price targets for the retailer.
Kingfisher advanced 2.2% ahead of half-year results on Tuesday; Auto Trader climbed 0.6% as Bank of America reiterated 'buy' and increased its share price target; and positive words from UBS helped lift J Sainsbury by 1.7%.
Leading the blue-chip fallers was Phoenix Group, down 5.3%.
The London-based insurer and pensions provider said it is on track to hit financial targets despite a mixed first half.
In the first half of 2024, total income more than doubled to GBP12.33 billion from GBP5.80 billion a year prior. Its pretax loss, however, stretched to GBP669 million from GBP372 million.
Bank of America said the "elephant in the room" was shareholders' equity which missed again, "stealing attention from good news elsewhere".
In the FTSE 250, Playtech rose 14% after striking a deal to end a dispute with Mexico's Caliplay and revealing trading in the first half of 2024 was better than expected.
Analysts at Peel Hunt explained that while the dispute was continuing, "there was a risk that the cash flow from Mexico would stop entirely, materially undermining the profit of the group."
"Instead, Playtech has negotiated the payment of all the cash it was due up to this point, a further USD140 million to be paid over four years, a 31% stake in a new US holding company and, effectively, minimum revenue guarantees."
TI Fluid Systems also jumped 14% after it said it had rejected two bid proposals from Canada's ABC Technologies.
TI said Toronto-based ABC had made two approaches to the firm. A 165 pence per share offer for the designer and manufacturer of thermal management and fluid handling systems was fielded in August, before another of 176p earlier in September.
But TI Fluid said the offer "significantly undervalued" the FTSE 250 company and its prospects.
For its part, ABC, which makes plastics and lightweighting products for the automotive industry, said it "remains interested in a possible transaction and is therefore considering its position".
TT Electronics tumbled 30%. The electronic component manufacturer reported a weak August after "operational efficiency issues in two North American sites".
It now expects revenue in the second half of 2024 to be "GBP15 million to GBP20 million lower than previously anticipated".
"The drop-through impact of the revenue shortfall and higher production costs are expected to impact the North American operating profit by GBP13 million to GBP18 million," TT Electronics warned.
The price of gold nudged up to USD2,579.31 an ounce on Monday, up from USD2,578.76 at the time of the London close on Friday.
Brent oil was quoted at USD72.49 barrel at the time of the London equities close on Monday, down slightly from USD72.58 late Friday.
Tuesday's local corporate calendar sees half-year results from Kingfisher.
The global economic calendar for Tuesday sees consumer price inflation figures in Canada at 1330 BST, US retail sales data at 1330 BST and US industrial production numbers at 1415 BST.
By Jeremy Cutler, Alliance News reporter
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