The UK’s FTSE 100 share index approached a record high on Friday, as European markets were lifted by hopes that the inflation shock from energy prices is easing.
The blue-chip stock index, which includes the 100 largest companies listed in London, hit its highest level in more than four years. It touched 7,864.95 points, less than 1% away from the record intraday high of 7,903 points set in May 2018, before closing at 7844.07.
Global shares have been lifted this year by optimism that central banks will slow interest rate increases, due to signs that inflation is cooling.
China’s relaxation of its Covid-19 restrictions could also help global growth this year. That has pushed up commodity prices, and lifted shares in mining companies listed on the London stock market.
The FTSE 100 has gained about 5% so far this month, after rising about 1% in a turbulent 2022.
Sophie Lund-Yates, the lead equity analyst at Hargreaves Lansdown, says the news that the UK economy grew unexpectedly in November, by 0.1%, helped the market to rally.
“The FTSE 100 is closing in on record highs as the UK’s unexpected GDP growth caused a welcome swell for the market,” Lund-Yates said.
The weaker pound has helped push the index higher, said Neil Wilson of Markets.com, adding that “in dollar terms we are a long way off the all-time high”.
“A belief the Fed [US Federal Reserve] is almost done with rate hikes as inflation peaks, and hopes that China’s reopening will drive the commodity and energy sectors” also pushed the FTSE 100 towards its record high, Wilson added.
BofA Global Research reported that investors had poured money into equity and bond funds in the past week, cheered by recent economic reports. It said you “don’t get more Goldilocks” than Thursday’s US inflation report, showing a 0.1% drop in prices during December.
New US unemployment claims remained low last week, too, at just 205,000, which indicated America’s jobs market was robust.
The annual US inflation rate fell to 6.5%, from 7.1% in November, its lowest level in over a year. This may encourage the Federal Reserve to slow its interest rate rises.
A drop in wholesale energy prices in the last few weeks has cheered European markets, with wholesale gas prices below their levels just before Russia invaded Ukraine last February.
“Tentative optimism has crept back into the European outlook over recent weeks as energy prices have continued to tumble and gas storage levels appear unseasonally healthy,” said James Smith, a developed market economist at ING
. “That’s also good news for the UK, which is one of Europe’s heaviest gas users as a proportion of total energy consumption.”
European markets hit their higher level in nine months on Friday, and were on track for their second week of gains.
Optimism was lifted by data showing that Germany’s economy grew by 1.9% last year and probably stagnated in the last quarter of 2022, meaning Europe’s largest economy may dodge a winter recession.
US stocks were headed for a winning week, with the tech-focused Nasdaq index and the broader S&P 500 on track for their best weekly performance since November. The Nasdaq posted a five-day winning streak on Thursday, its longest rally since July.
But Wall Street opened lower on Friday, after JP Morgan said a mild recession is now the central case in its macroeconomic outlook. In late morning trading the S&P 500 index had dropped 0.4% to 3,966.99, down 16 points.
