London Stocks Rise as Gold Miners Surge Amid Rate Cut Expectations
London's FTSE 100 and FTSE 250 indexes climbed, led by precious metal miners. Gold prices hit record highs as investors anticipate potential US interest rate cuts, while UK inflation expectations fell to a three-year low.
On September 13, 2024, London's stock markets experienced a positive trend, with the FTSE 100 rising 0.4% and the FTSE 250 increasing by 1%. Both indexes registered weekly gains, primarily driven by the remarkable performance of precious metal mining stocks.
The precious metal mining sector emerged as the standout performer, surging over 19.5% for the week and reaching its highest level in more than 15 months. Notable gainers included Fresnillo and Endeavour, which saw their shares climb 5.7% and 10.5%, respectively. This surge was attributed to gold prices scaling new heights against a weakening US dollar.
Investors' optimism regarding potential interest rate cuts by the US Federal Reserve fueled the rise in gold prices. The CME FedWatch Tool, which analyzes the probability of FOMC rate moves, indicated that traders had significantly increased their expectations of a 50 basis point rate cut from 14% to 43% in just one day.
While precious metal miners led the gains, the beverage sector experienced a decline of 1.2%. This downturn was triggered by Italian spirits group Campari's warning about a "very soft" industry environment in the current quarter. Consequently, UK-based Diageo saw its shares slip by 1.4%.
The British pound sterling touched a one-week high against the US dollar, influenced by reports suggesting a potential close call between a 25 or 50 basis point rate cut at the upcoming Federal Reserve meeting, scheduled for around September 18-20, 2024.
In a positive development for UK policymakers, the British public's inflation expectations for the coming year dropped to their lowest level in three years in August 2024. This data is likely to be considered by the Bank of England ahead of its upcoming interest rate decision, expected around September 18-20, 2024. According to a Reuters poll of economists, the BoE is anticipated to maintain current interest rates.
Among individual stocks, Vodafone shares rose 1.1% on expectations that its proposed merger with Three UK might receive regulatory approval, provided they can demonstrate the $19 billion deal's benefits for consumers. Meanwhile, Irish betting giant Flutter Entertainment saw a 1.4% increase in its share price after announcing plans to acquire a 56% stake in NSX Group, which operates Brazilian gaming group Betnacional, for approximately $350 million.
"The surge in precious metal mining stocks, coupled with the weakening dollar and expectations of rate cuts, has created a perfect storm for gold prices. This trend reflects investors' search for safe-haven assets amid economic uncertainties."
As the markets await the Federal Reserve's decision next week, the interplay between monetary policy expectations, currency movements, and sector-specific developments continues to shape the landscape of London's stock markets.
