UK Markets closed

Wall Street lower as FTSE 100 closes near record high

FTSE  A trader works on the floor of the New York Stock Exchange (NYSE) as a screen shows Federal Reserve Board Chairman Jerome Powell during a news conference following a Fed rate announcement, in New York City, U.S., February 1, 2023. REUTERS/Andrew Kelly
Wall Street has edged lower as optimism around Fed chair Powell's speech faded but the FTSE remains strong. Photo: Andrew Kelly/Reuters

The FTSE 100 and European stocks finished higher this Wednesday as market sentiment was boosted by Fed chair Powell shrugging off of strong labour market figures on Friday.

The FTSE 100 (^FTSE) rose 0.34% to close at 7,891 points after previously touching a new record high of 7,926.

The CAC 40 (^FCHI) in Paris finished flat at 7,162 points, while in Germany, the DAX (^GDAXI) climbed 0.51% to 15,397.

Across the pond, stocks slipped after some mixed earnings report, as optimism after Fed chair Jerome Powell embraced the presence of disinflation in the economy during a speech in Washington D.C. faded.

“The disinflationary process, the process of getting inflation down, has begun and it's begun in the goods sector,” Powell said. “But it has a long way to go. These are the very early stages of disinflation.”

The Dow Jones (^DJI) lost 0.54% to 33,968 points. The S&P 500 (^GSPC) lost 1.07% to 4,119 points and the tech-heavy NASDAQ (^IXIC) slipped 1.63% to 11,916.

The FTSE 100 hitting record highs after Powell indicated the pace of interest rate rises may ease as the year progresses. The rally is also being pushed behind hopes that the UK economy could fare better in 2023 than feared.

Read more: Inflation to cost UK shoppers an extra £18.2bn on non-food retail this year

The National Institute of Economic and Social Research (Niesr) has forecast that the UK will swerve a technical recession – as defined by two or more quarters of falling gross domestic product (GDP) in a row – not just in the final three months of 2022, but also throughout 2023.

Victoria Scholar, head of investment at Interactive Investor, said: "The FTSE 100 has hit a record high again, surpassing Friday’s peak. Following a wobbly start to the week in which global equities were hit by concerns about a more hawkish path from the Fed after a strong US jobs report as well as heightened US-Sino tensions, the UK large-cap index has restored its bullish momentum.

"Yesterday Fed Chair Jerome Powell said inflation is easing, raising hopes that the US could be approaching the peak for interest rates. A strong close on Wall Street with the Nasdaq closing up by 1.9% has helped drive a positive start to the European session.Over a one-year period, Pearson (PSON.L) is the best performing stock on the FTSE 100 followed by BAE Systems (BA.L) and Antofagasta (ANTO.L).

Read more: What is digital pound and when can you expect it

"Over the past one month, JD Sports is the top performer with IAG and 3i in second and third place.The pound is trading higher against the greenback driven by US dollar weakness against most European currencies today following Powell’s relatively hopeful remarks about the outlook for US inflation.”

The FTSE 100 also touched a new alltime intraday high, hitting 7934 points, as traders continue to grasp hopes that inflation is easing, meaning borrowing costs could soon peak.

George Lagarias, chief economist at Mazars, however, warned investors to be cautions: “The FTSE 100 broke yet another record, as a result of the general global equity rally. Despite the buoyancy, investors need to stop for a moment and think: what is driving positive sentiment?

"Presently, it’s really one single factor: the belief that we are at, or very close to, peak interest rates. However, none of the major central banks have yet actually confirmed that they are pausing rate hikes. Given that we are in the midst of an economic slowdown, and possibly a recession, we would approach the rally with optimism, but also a lot of caution.”

Barratt Developments (BDEV.L) gained 1.33% despite warning of challenging markets conditions and cutting the dividend.

Barratt is optimistic around early signs of a recovery in homebuyer demand amid easing mortgage rates, as home sales edged higher in first month of 2023.

AJ Bell investment director Russ Mould, said: “Concerns that last Friday’s bumper jobs report would see the Fed react to what it perceived as an overheating labour market were eased, with Powell’s relatively relaxed response possibly reflecting the seasonal anomalies which often affect the January numbers.

“Whether Powell will remain so relaxed if the next set of payroll figures are similarly elevated is open to question and investors will be keeping a close eye on next week’s US inflation figures for January. If there is any sign of a renewed uptick in prices, then the market would likely respond very negatively.

“For now, the positive sentiment has allowed the FTSE 100 to reach new sunny uplands, hitting a fresh all-time high. Now the milestone has been achieved though there may be a bit of an inquest into why it has taken the FTSE 100 so long when many of its global counterparts were making records years ago.”

Meanwhile, Brent crude (BZ=F) gained ground and was trading at around $84/barrel as the outlook for China's demand brightens.

In Asia, Tokyo’s Nikkei 225 (^N225) lost 0.29% to 27,606 points, while the Hang Seng (^HSI) finished flat at 21,293. The Shanghai Composite (000001.SS) also closed in the red, slipping 0.49% to 3,232 points.

Watch: Powell: inflation fight 'probably going to be bumpy'

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