MARKET REPORT: FTSE 250 celebrates best week for two years after weaker US inflation fuels hopes central banks could slow down rate hikes
The FTSE 250 clocked up its best weekly performance in two years after weaker US inflation fuelled hopes that central banks around the world could slow down interest rate hikes.
The index, which is a better barometer of the British economy than the more international FTSE 100, rose 1.23 per cent, or 238.97 points, to 19,616.21.
It means the FTSE 250 has gained 7 per cent this week – its best performance since November 2020 when the mid-cap index rose 7.5 per cent in the wake of a major Covid vaccine breakthrough and President Biden’s US election victory.
On the up: The index, which is a better barometer of the British economy than the more international FTSE 100, rose 1.23 per cent, or 238.97 points, to 19,616.21
This week’s rally provided a boost for investors with money in mid-cap stocks.
But it was a different story for those who own shares in the FTSE 100, with the top index down 0.78 per cent, or 57.3 points, to 7318.04 as the stronger pound hit blue-chip multi-nationals that earn money in dollars.
Analysts pointed towards figures on Thursday showing inflation in the US fell to 7.7 per cent last month – the lowest level since January. It sparked hopes that the worst of the inflation crisis has passed in the world’s largest economy – and prompted speculation the Fed could reduce the speed it raises interest rates, which stand between 3.75 per cent and 4 per cent.
The slump in US inflation saw the dollar take a hit while the pound extended its gains.
AJ Bell investment director Russ Mould said: ‘An easing in inflationary pressures will give central banks the world over the chance to pause or even switch to cutting interest rates from hiking them.
‘Cheaper money and cheaper credit could boost the economy and that’s why the FTSE 250, which is seen as being more sensitive to the economy, is flying.
‘Investors are, rightly or wrongly, starting to price in interest rate cuts and the boost to the economy and corporate earnings that they may provide.’
The outlook for the economy remained bleak, however, as official figures showed GDP shrank 0.2 per cent in the three months to September, leaving Britain on the brink of recession.
With Chancellor Jeremy Hunt set to hike taxes and cut spending in next week’s Budget, analysts fear a speedy recovery is unlikely.
Neil Wilson at Markets.com said: ‘Certainly the news from the economy is not that good so the FTSE250 must be catching a bid from the inflation fallout.’
Back in the FTSE100, Prudential surged to the top of the blue-chip leaderboard following a relaxation in China’s Covid measures for close contacts of cases and visitors.
Shares in the Asian-focused insurer soared 7.6 per cent, or 70.9p, to 1000.5p. China’s relaxed Covid measures also boosted oil prices, with crude up 2.5 per cent. It helped BP rise 1.6 per cent, or 7.65p, to 478.4p and Shell by 1.9 per cent, or 45p, to 2360p.
There was also a rally for Ocado, which benefited from the global rebound in technology stocks.
Shares in the online grocer surged 13.9 per cent, or 98.8p, to 812p.
Defence stocks swung into reverse as investors pulled their money out in response to the stronger pound. BAE Systems – which makes much of its money in dollars – slumped 8.1 per cent, or 63p, to 714p and QinetiQ fell 5.6 per cent, or 19.6p, to 333.2p.
Investment firm M&G rose 2.1 per cent, 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 housebuilding giants sounding the alarm over the weakening property market. The group said the value of net private reservations in the first 18 weeks of the financial year was nearly a fifth below the same period last year, at £505m versus £639m. Shares fell 0.4 per cent, or 1.8p, to 470p.