FTSE nears record high as rate cut hopes buoy global stocks

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The FTSE 100 index closed in on its all-time high on Friday as stocks in the US and the UK headed for their best week this year, boosted by signals that major central banks are on course to cut interest rates.

London’s main stock index was 0.7 per cent higher at 7933.89 after Bank of England governor Andrew Bailey told the Financial Times markets are right to expect more than one reduction in borrowing costs this year.

The FTSE 100 had already climbed 1.9 per cent on Thursday after the BoE left interest rates on hold and is near its February 2023 peak of 8047.06.

The index’s gains came amid a global stock rally that followed Wednesday’s Federal Reserve meeting, at which the US central bank reiterated its forecasts for three quarter-point interest rate cuts this year.

Wall Street’s S&P 500 fell 0.1 per cent on Friday but remains 2.3 per cent higher since last Friday’s close, on track for its best week since December.

Europe’s region-wide Stoxx 600 was steady on Friday, and is up 1 per cent for the week.

Florian Ielpo at Lombard Odier Investment Managers said the prospect of lower borrowing costs made the rally more “sustainable” than in recent months, when indices climbed on the back of a few large stocks such as US tech giants.

“We’re seeing a better balance in the equity rally, which is good news for markets,” he said.

Traders in swaps markets are now fully pricing in three quarter-point interest rate cuts from the BoE by the end of 2024.

The implied probability of a first cut by June has risen to around 80 per cent, from 50 per cent at the start of the week. Pricing is similar for the Fed, with cuts forecast to begin in June or July.

The Swiss National Bank became the first major central bank to start loosening monetary policy on Thursday when it unexpectedly cut its headline interest rate by 0.25 percentage points to 1.5 per cent.

Bailey said rate cuts were “in play” at future BoE meetings this year adding that the fight against inflation was “an increasingly positive story”.

The BoE governor said things were “moving in the right direction” in tackling inflation. At this week’s Monetary Policy Committee meeting, two previously hawkish policymakers dropped their demands for a rise, instead voting with the majority to keep rates on hold.

Japan’s Nikkei 225 index rose 5.6 per cent this week, even though the Bank of Japan increased borrowing costs for the first time since 2007. Traders were reassured by signals that the BoJ’s benchmark rate, which remains just above zero, will not increase sharply following Tuesday’s rise.