Brighter US outlook fires up European stocks

The FTSE 100 recorded strong gains on Friday as US data pointed to resilient consumer spending and relatively subdued inflation, keeping hopes for rate cuts across the pond on track.

The FTSE 100 index closed up 70.85 points, 0.8%, at 9,284.83. The FTSE 250 ended 93.71 points higher, 0.4%, at 21,681.48, and the AIM All-Share ended up 3.91 points, 0.5%, at 777.53.

For the week, the FTSE 100 rose 0.7%, the FTSE 250 advanced 0.4% and the AIM All-Share climbed 0.4%.

Figures from the Bureau of Economic Analysis showed US inflation pressure was largely steady in August.

The core personal consumption expenditures price index, which is the Federal Reserve’s preferred inflationary measure, rose 2.9% on-year in August, matching the pace of growth from July and landing in line with FXStreet cited consensus.

The core reading excludes food and energy. The headline PCE price index rose 2.7% on-year last month, picking up speed slightly from 2.6% in July, as expected.

In addition, the report showed personal income rose 0.4% month-over-month, the same as in the month prior. Consumer spending grew 0.6% month-on-month in nominal terms, coming on the heels of 0.5% gains in the two months prior.

Personal income beat consensus of 0.3%, while spending beat a forecast of 0.5%.

Barclays analyst Pooja Sriram called the inflation figures subdued although she expects core inflation to firm in the coming months amid tariff pass-through.

Analysts at TD Economics said the data, following strong economic growth figures on Thursday, suggests that the US consumer is in “somewhat better shape than previously thought”.

“Overall, an improved growth trend and persistent inflation lean in favour of the Fed potentially having to do a little less in the way of rate cuts to support the economy. This may put some doubt on the interest rate path, though it does not derail the case for two more rate cuts by the end of this year,” the broker said.

The CME FedWatch tool puts an 86% chance of a quarter point rate cut at the Federal Open Market Committee meeting in October, unchanged from Thursday.

The pound was quoted higher at 1.3399 dollars at the time of the London equity market close on Friday compared with 1.3348 dollars on Thursday. The euro stood at 1.1692 dollars, higher against 1.1676 dollars. Against the yen, the dollar was trading at 149.51 yen, lower compared with 149.74 yen.

The yield on the US 10-year Treasury was quoted at 4.18% trimmed from 4.20% on Thursday. The yield on the US 30-year Treasury stood at 4.75%, narrowed from 4.76%.

In European equities on Friday, the CAC 40 in Paris closed up 0.8%, as was the DAX 40 in Frankfurt.

Stocks in New York were mixed at the time of the London close. The Dow Jones Industrial Average was up 0.4%, the S&P 500 index was 0.2% higher, while the Nasdaq Composite was down 0.1%.

On the FTSE 100, Intercontinental Hotels topped the blue-chip leaderboard, rising 4.0%, as JP Morgan double upgraded the hotel operator to ‘overweight’ from ‘underweight’.

IHG is a “quality compounder” benefiting from superior earnings visibility and execution, in JPM’s view, adding this is “key” in times of revenue per average room uncertainty.

Pharmaceutical stocks shrugged off new tariffs from the US with AstraZeneca up 0.4% and GSK up 1.1%.

Russ Mould, investment director at AJ Bell, explained that drug companies are exempt from the 100% tariffs on US imports if they are building a factory in the country.

“That means AstraZeneca and GSK are safe as they’ve both unveiled big investments in the US in what look like strategic moves to get on the right side of Trump,” he said.

“Being exempt is a big win for these companies given previous uncertainty over how they might be affected by Trump’s repeated threats for tariffs on the pharmaceutical sector,” he added.

Phoenix Group rose 1.9% as RBC Capital Markets raised its share price target and reiterated an ‘outperform’ rating.

“Phoenix shares continue to trade at a notable valuation discount versus peers, likely reflecting perceptions that are increasingly unwarranted, in our view,” RBC said.

The broker expects Phoenix to start deploying excess capital supporting buybacks alongside financial 2026 results.

Pennon Group climbed 0.2% as it said its financial performance remains on track, although guidance fell short of consensus, amid the benefits and challenges from the hot weather.

In a trading statement covering April 1 to September 25, the Exeter-based water utility company explained that high demand for water over the summer due to the hot weather was more than offset in revenue by increased meter usage, deferring sales into financial 2027.

In addition, the hot weather also resulted in higher operational costs to respond to the increased demand and operational pressure on the networks.

Despite this, Pennon said it has made a “strong return” to profitability, with earnings before interest, tax, depreciation and amortisation anticipated to increase by 60% year-on-year, net of revenue deferred into financial 2027.

In the financial year to March 2025, Pennon reported underlying Ebitda of £335.6 million.

Analysts at Jefferies said this was slightly below consensus of 66%/67% although part of the variation could be driven by the profiling of revenues from the current year into next to manage the bill profile.

Brent oil advanced to 70.64 dollars a barrel on Friday from 69.15 dollars late on Thursday. Gold firmed to 3,775.97 dollars an ounce on Friday, up against 3,729.67 dollars on Thursday.

The biggest risers on the FTSE 100 were Intercontinental Hotels Group, up 350.0 pence at 9,124.0p, Hikma Pharmaceuticals, up 52.0p at 1,644.0p, Babcock International, up 39.0p at 1,273.0p, NatWest, up 15.2p at 520.4p and Kingfisher, up 8.2p at 301.0p.

The biggest fallers on the FTSE 100 were Rio Tinto, down 84.5p at 4,831.5p, Coca-Cola Europacific Partners, down 80.0p at 6,620.0p, Spirax, down 80.0p at 6,795.0p, Bunzl, down 24.0p at 2,336.0p and Scottish Mortgage Investment Trust, down 11.0p at 1,120.0p.

Monday’s global economic calendar has UK mortgage approvals figures, US pending home sales numbers and Spanish CPI data. Later in the week, a slew of data on the US jobs market will be released, culminating in Friday’s nonfarm payrolls.

Monday’s UK corporate calendar sees third quarter results from cruise operator Carnival. Later in the week, food retailer Tesco reports half-year results while bakery chain Greggs issues a third quarter trading statement.

Contributed by Alliance News