MARKET REPORT: FTSE 250 celebrates best week in two years after falling US inflation fuels hopes central banks could slow rate hikes
The FTSE 250 posted its best weekly performance in two years after falling inflation in the United States fueled hopes that central banks around the world could slow interest rate hikes.
The index, which is a better barometer of the UK economy than the more international FTSE 100, rose 1.23%, or 238.97 points, to 19,616.21.
It means the FTSE 250 has gained 7% this week – its best performance since November 2020, when the mid-cap index rose 7.5% following a major Covid vaccine breakthrough and victory President Biden’s election in the United States.
Up: The index, which is a better barometer of the UK economy than the more international FTSE 100, rose 1.23%, or 238.97 points, to 19,616.21
This week’s rally gave a boost to investors with money in mid-cap stocks.
But it was a different story for those holding shares in the FTSE 100, with the top index down 0.78%, or 57.3 points, at 7318.04 as the stronger pound hit the blue chip multinationals that make money in dollars.
Analysts on Thursday reported figures showing inflation in the United States fell to 7.7% last month – the lowest level since January. It has raised hopes that the worst of the inflation crisis has passed in the world’s largest economy – and sparked speculation that the Fed may be reducing the speed at which it raises interest rates, which are between 3.75% and 4%.
Falling US inflation saw the dollar take a hit as the pound extended its gains.
AJ Bell’s Chief Investment Officer Russ Mold said: “An easing of inflationary pressures will give central banks around the world the opportunity to pause or even transition to cutting interest rates after raising them. .”
“Cheaper money and credit could boost the economy and that’s why the FTSE 250, which is seen as more economically sensitive, is flying.”
“Investors are, rightly or wrongly, beginning to price in interest rate cuts and the boost they can bring to the economy and corporate earnings.”
The economic outlook, however, remained bleak, with official figures showing GDP fell 0.2% in the three months to September, leaving Britain on the brink of recession.
With Chancellor Jeremy Hunt set to raise taxes and cut spending in next week’s budget, analysts fear a quick recovery is unlikely.
Markets.com’s Neil Wilson said: “Admittedly, the news from the economy is not so good, so the FTSE250 needs to catch an inflation fallout offer.”
Back in the FTSE100, Prudential climbed to the top of the blue chip chart following a relaxation of China’s Covid measures for close contacts of cases and visitors.
Shares of the Asia-focused insurer soared 7.6%, or 70.9p, to 1,000.5p. China’s relaxed Covid measures also pushed oil prices higher, with crude rising 2.5%. It helped BP rise 1.6%, or 7.65p, to 478.4p and Shell 1.9%, or 45p, to 2,360p.
There was also a rally for Ocado, which benefited from the global rebound in technology stocks.
Shares of the online grocer jumped 13.9%, or 98.8p, to 812p.
Defense stocks reversed as investors withdrew their money in response to the pound’s appreciation. BAE Systems – which makes much of its money in dollars – fell 8.1%, or 63p, to 714p and QinetiQ fell 5.6%, or 19.6p, to 333.2p.
Investment firm M&G rose 2.1%, or 3.85p, to 189.15p after Jefferies issued a buy rating and set a target price of 235p.
Redrow has joined the group of homebuilding giants who are sounding the alarm over a weakening real estate market. The group said the value of net private bookings in the first 18 weeks of the financial year was nearly a fifth lower than the same period last year, at £505m from £639m . The shares fell 0.4%, or 1.8p, to 470p.