FTSE 100 powers ahead as UK growth revised higher

​​​FTSE 100 set for strongest quarter in nearly two years

​The UK's benchmark index is poised to deliver its best three-month performance since the final quarter of 2022. With gains of approximately 6% over the period, it has outpaced the Euro Stoxx 50's more modest 3.8% advance.

​However, the FTSE 100 continues to trail the S&P 500, highlighting the divergence between UK and US equity markets. The underperformance reflects both structural differences in sector composition and the ongoing challenges facing UK-listed companies.

​The index's strength comes despite headwinds from a rising pound and falling oil prices. Both factors have weighed on some of the market's largest constituents, particularly multinationals and energy giants.

​UK economy shows resilience with upgraded growth figures

​Britain's economic performance in the second quarter (Q2) proved stronger than initially thought, with annual gross domestic product (GDP) growth revised upward to 1.4% from 1.2%. The quarterly growth rate held steady at 0.3%, suggesting a modest but consistent expansion.

​The construction and services sectors led the way, demonstrating the economy's shifting composition. This broad-based growth provides some reassurance that the recovery is not overly dependent on any single sector.

​These revised figures come as welcome news for policymakers grappling with persistent inflation concerns. The data suggests the economy is weathering higher interest rates better than some had feared.

​However, questions remain about sustainability. With consumer confidence still fragile and business investment subdued, the path ahead remains uncertain despite these positive revisions.

​Sterling strength creates headwinds for exporters

​The British pound has climbed above $1.34, reaching levels not seen for some time. This appreciation in sterling has created challenges for major exporters with significant overseas earnings.

​Companies like AstraZeneca, Unilever and BAE Systems have felt the pressure, as their foreign currency revenues translate into fewer pounds. This currency headwind has offset some of the operational gains these firms have achieved.

​The stronger pound reflects growing confidence in the UK economy and expectations around interest rate policy. However, for FTSE 100 companies deriving substantial income from abroad, it presents a significant challenge to earnings growth.

​Retail inflation accelerates to 19-month high

​Shop price inflation surged to 1.4% in September, marking its highest level in 19 months. The acceleration was driven primarily by DIY and gardening goods, suggesting seasonal factors may be at play.

​The British Retail Consortium has warned that new packaging taxes could keep prices elevated. This regulatory change threatens to maintain upward pressure on consumer prices even as other inflationary pressures ease.

​For retailers already operating on thin margins, this presents a delicate balancing act. They must decide whether to absorb these costs or pass them on to increasingly price-sensitive consumers.

​The inflation data adds complexity to the Bank of England's (BoE) policy decisions. With services inflation proving sticky, policymakers face difficult choices about the appropriate path for interest rates.

​Individual stock movers dominate trading activity

​ASOS shares tumbled 13% after the online fashion retailer guided earnings to the lower end of market forecasts. The warning highlighted ongoing challenges in the fast-fashion sector, where competition remains intense.

​Close Brothers experienced sharp declines following the announcement of unexpected costs. The financial services firm's troubles underscore the importance of rigorous risk management in uncertain markets.

​On the positive side, PayPoint surged over 5% after announcing a strategic deal with IDS. The partnership demonstrates how smaller companies can drive value through targeted acquisitions and partnerships.

​Other notable movers included Tortilla Mexican Grill, which dropped 10% on concerns about its French expansion. Meanwhile, AG Barr, Serica Energy and Boku advanced on solid operational updates.

​Wall Street edges higher despite shutdown concerns

​US equity indices closed modestly higher, with the Nasdaq leading gains. The Dow Jones Industrial Average rose 0.15%, whilst the S&P 500 added 0.26% and the Nasdaq climbed 0.48%.

​Investors largely shrugged off looming government shutdown risks, focusing instead on corporate fundamentals and monetary policy expectations. This resilience demonstrates the market's ability to look through short-term political noise.

​Technology stocks provided much of the support, with Nvidia advancing 2% and Microsoft gaining 0.6%. These gains helped lift the broader market as investors remained focused on artificial intelligence (AI) growth prospects.

​The modest gains came alongside continued expectations for Federal Reserve (Fed) rate cuts. Traders are pricing in an 89% probability of a 25 basis point reduction at the next policy meeting.

​Mergers and acquisitions activity picks up

​Electronic Arts jumped 4.5% following news of a $55 billion take-private deal. The transaction has fuelled hopes for increased merger and acquisition activity across the technology sector.

​Cannabis stocks also surged, with Canopy Growth, Cronos and Tilray posting sharp gains. The rally followed President Trump's endorsement of hemp-derived cannabidiol, raising hopes for regulatory changes.

​This deal activity provides a reminder that corporate transactions can drive significant short-term price movements. Investors watching for such opportunities need to stay informed about potential takeover targets.

​For those interested in trading these developments, understanding how to position ahead of potential deals requires careful analysis. Share dealing offers one way to gain exposure to these opportunities.

​Federal Reserve officials send mixed signals

​Cleveland Federal Reserve (Fed) President Hammack urged maintaining restrictive monetary policy to combat inflation. Her hawkish stance contrasts with more dovish voices on the Federal Open Market Committee (FOMC).

​St Louis Fed President Musalem signalled greater openness to additional rate cuts. This divergence in views among policymakers highlights the challenges facing the central bank as it navigates competing economic pressures.