The FTSE 100 closed higher on Thursday, despite downbeat construction data, amid growing conviction of a US interest rate cut next week.
Matt Britzman at Hargreaves Lansdown said: “Investors are leaning into the idea that looser policy is on the way, which is fueling risk appetite and lifting everything from blue-chip stocks to small caps.
“Still, with inflation data and Federal Reserve decisions ahead, the path is far from set in stone.”
He added: “Expectations have changed enormously over the last month, so assuming any cut is a given could be a costly mistake, and volatility can return just as quickly if the rate-cutting narrative changes.
“One thing is clear: If markets want a Santa Claus rally, they need the Federal Reserve to stay in line.”
The FTSE 100 index closed up 18.80 points, or 0.2%, at 9,710.87. The FTSE 250 finished up 69.54 points, or 0.3%, at 22,070.99, and the AIM All-Share closed up 0.26 points at 749.43.
In London, figures showed UK construction activity fell at the fastest rate in five-and-a-half years in November, the 11th slowest month for construction output.
The S&P Global UK Construction Purchasing Managers' Index overall fell to 39.4 points in November from 44.1 in October. The reading was below the neutral 50-point mark that separates growth from contraction for the 11th straight month.
The rate of decline in total industrial activity was the steepest on record since May 2020.
Rob Wood of Pantheon Macroeconomics said the report points to “catastrophic conditions in the construction sector, with the balance of activity showing the steepest drop in production since the country went into lockdown in May 2020.”
“To say that construction companies were unhappy with budget speculation would be an understatement,” Wood added, although he believes that “the PMI remains too pessimistic.”
He said: “Looking ahead, we expect activity in the construction sector to remain weak in the coming months, although growth is likely to continue to outpace the catastrophic PMI.
“That said, risks must be to the downside, and it is now possible that construction output will fall in the coming months.”
In European stocks on Thursday, the CAC 40 in Paris closed up 0.4%, while the DAX 40 in Frankfurt closed up 0.8%.
In Europe, automakers boosted profits following news that U.S. President Donald Trump may try to lower fuel economy standards put in place by former President Joe Biden, aiming to make it easier for manufacturers to sell vehicles that run on fossil fuels.
Scope Markets' Joshua Mahony said: “While this is a move aimed at reducing costs for US consumers, it also provides a shot in the arm for European automakers who have struggled to dominate the electric vehicle space given rampant Chinese competition.”
The sector was further boosted by positive comments from Bank of America, which sees benefits for the sector from an expected reduction in regulatory pressures in 2026.
Bank of America upgraded Renault, up 6.4%, and Porsche SE, up 4.8%, to “buy” from “neutral” and Mercedes-Benz, up 4.1%, to “neutral” from “underperform.”
New York stocks fell slightly at the close of London stocks.
The Dow Jones Industrial Average, the S&P 500 index and the Nasdaq Composite fell 0.1%.
Trade Nation's David Morrison said the odds of a 25 basis point rate cut following next week's Federal Reserve policy meeting have risen, after several senior members of the Federal Open Market Committee said a weakening labor market was outweighing inflation fears when it came to considering rates.
Despite this, Morrison said there will be plenty of interest when the latest update to core PCE, the Federal Reserve's preferred measure of inflation, is released on Friday.
“Could it get so high that the Fed has to postpone a rate cut? It's unlikely, but stranger things have happened,” he added.
The pound was trading higher at US$1.3353 at the close of the London Stock Exchange on Thursday, up from US$1.3342 on Wednesday.
The euro stood at $1.1658, down from $1.1664. Against the yen, the dollar was trading lower at 154.75 yen against 155.02 yen.
The 10-year US Treasury yield was quoted at 4.10%, widening from 4.08%. The 30-year U.S. Treasury yield was unchanged at 4.76%, down from 4.75%.
The FTSE 250 saw big price swings, with SSP gaining double digits, while Trustpilot and Baltic Classifieds plunged.
London-based SSP, which operates Upper Crust, rose 11% as it reported trading had “gained momentum” in recent weeks and announced a “broad review” of its rail business in continental Europe.
The operator of food and beverage outlets in tourist destinations in 38 countries said it is also considering options to “realize value” in Travel Food Services, a newly listed Indian company.
The continental European division has struggled with a “slow return in passenger numbers” since the pandemic, the SSP said.
Trustpilot fell 32%, following a scathing report from short seller Grizzly Research, which accused the Copenhagen-based consumer review platform of “mafia-style extortion campaigns against non-paying companies.”
Grizzly said, citing its own research, that Trustpilot created “unsolicited review profiles for all types of businesses with the intent of attracting hyper-negative reviews and forcing these businesses to pay subscription deals to 'more actively manage' the reviews.”
But Trustpilot called the claims “selective, misleading and formulated to support a predetermined narrative.”
“It omits key context and publicly available facts, creating a false impression and shows a lack of understanding of how Trustpilot works. Trust is our guiding principle and is fundamental to everything we do,” the firm added.
The short seller also recently targeted Hello Fresh, sending its shares into a tailspin.
Also firmly in the red is Baltic Classifieds, down 14%, after warning that lower revenue growth and continued investment will depress margins in the near term.
Analysts were less than enthusiastic about the outlook commentary, with Panmure Liberum highlighting a “very poorly written statement” and “poor quality communications”, while Peel Hunt noted “less clarity in its outlook than usual”.
Brent oil was trading at $63.45 a barrel at the close of London stock exchanges on Thursday, up from $63.04 on Wednesday.
Gold was trading at $4,214.64 an ounce on Thursday, down from $4,222.94.
The biggest risers on the FTSE 100 were 3i, up 154.0p to 3,153.0p, Burberry, up 35.5p to 1,213.0p. 1,091.0p.
The biggest fallers on the FTSE 100 were Entain down 30.6p to 755.2p, Diageo down 68.0p to 1,682.0p, Auto Trader down 13.8p to 608.4p, London Stock Exchange down 178.0p to 8,690.0p. pence and Rightmove, which fell 9.6p to 522.8p.
Friday's economic calendar includes data on U.S. personal consumption spending, the Michigan Consumer Confidence Index and unemployment figures and average hourly wages in Canada. In the UK the Halifax House Price Index will be published.
There are no major events scheduled on Friday's UK corporate calendar.
Contributed by Alliance News.
