Markets in Europe received a double boost on Tuesday, with an easing of US inflation and hope for stimulus measures in China lifted stocks.
Inflation in the UK is running hotter than the Bank of England would like, however. The spotlight was back on Threadneedle Street on Tuesday after UK jobs data and as Governor Andrew Bailey speaks in front of a House of Lords committee.
Among individual shares, miners and luxury retail were boosted by China stimulus hope. London-listed housebuilders struggled as UK inflation worry persists.
The FTSE 100 index rose 24.09 points, 0.3%, at 7,594.78. The FTSE 250, however, slipped 2.31 points to 19,188.50, though the AIM All-Share added 2.24 points, 0.3%, to 794.72.
The Cboe UK 100 closed up 0.4% at 757.78, the Cboe UK 250 lost 0.1% to 16,714.76, and the Cboe Small Companies rose 0.2% to 13,895.43.
In European equities on Tuesday, the CAC 40 index in Paris added 0.6%, while the DAX 40 in Frankfurt rose 0.8%.
Stocks in New York were on the up at the time of the European close. The Dow Jones Industrial Average was up 0.5%, the S&P 500 added 0.7% and the tech-heavy Nasdaq Composite climbed 0.8%.
‘Despite some remaining concerns, technology stocks were driving the market and could continue to push it to the upside. The sector has been seeing strong earnings, with many companies beating estimates. Oracle reaffirmed this trend on Monday as investors could look forward to future positive results,’ DHF Capital analyst Ralph Ratterman commented.
Oracle’s stock was 2.1% higher in New York.
Ahead of Tuesday’s US inflation data, the debate was whether the Fed would hike or hold on Wednesday. A tamer US inflation reading put a pause by the Federal Reserve beyond all reasonable doubt.
Markets currently see a 94% chance that the US central bank will hold rates steady on Wednesday, according to the CME FedWatch Tool. That belief was strengthened after Tuesday’s US inflation reading. A day earlier, the likelihood of a pause stood at 79%, according to the tool.
The Fed announces its latest interest rate decision at 1900 BST on Wednesday. A press conference with Chair Jerome Powell follows at 1930 BST.
According to the Bureau of Labor Statistics said the US annual inflation rate eased to 4.0% last month, from 4.9% in April. The figure for May came in shy of FXStreet cited consensus, which had predicted an inflation rate of 4.1%.
Core inflation eased and landed in line with expectations, though it remains markedly high, giving something for the hawks to hang onto.
Core yearly inflation, which excludes food and energy, eased to 5.3% in May, as expected, from 5.5% in April.
‘Core inflation remains uncomfortably high for the Fed,’ analysts at Capital Economics commented.
‘With broader measures showing labour market conditions easing and wage growth slowing, we do anticipate the non-housing core services inflation will slow, but it is still far too high for the Fed‘s comfort. With employment growth still robust too, we expect a final 25bp rate hike from the Fed next month.’
The pound was quoted at $1.2609 at the time of the London equities close on Tuesday, up sharply from $1.2511 on Monday. The euro stood at $1.0795, up from $1.0754. Against the yen, the dollar was trading at JP¥140.05, higher compared to JP¥139.54.
The Bank of England announces an interest rate decision next week Thursday, but UK data put Threadneedle Street under the spotlight on Tuesday.
With another robust set of UK jobless data earlier on Tuesday, there is every chance the Bank of England is not done with its rate hikes yet.
The UK unemployment rate edged downward in the three months to April, while pay growth picked up.
Unemployment edged down to 3.8% in the three months to April from 3.9% in the three months to March. Market consensus, as cited by FXStreet, had expected unemployment to rise to 4.0%.
In the three months to April, annual growth in average total pay, including bonuses, picked up to 6.5% from 6.1% in the three months to March. This came above market consensus, which expected pay growth to hold steady.
Excluding bonuses, annual average earnings growth was 7.2% in the three months to April, compared to 6.8% in the previous three months. This was above expectations of 6.9% growth.
BoE Governor Bailey, testifying in front of the House of Lords in London, said inflation will come down, but at a slower pace than expected.
The expectation of more rate hikes hurt housebuilding shares. Persimmon was among the worst of the lot, losing 4.2%.
Bellway fell 3.4%. The housebuilder reported a ‘sustained improvement in sales demand’ during the spring selling season, compared with tougher trading conditions in the last three months of the 2022 calendar year.
From February 1 to June 4, Bellway said its overall reservation rate decreased by 25% to an average of 190 per week from 253 per week for the same period a year before. The reservation rate in the whole of first half ended January 31 was 32% lower year-on-year at 138 per week.
Housebuilders may come under pressure as mortgage rates continue to rise, according to a Rightmove tracker.
In the key five-year fixed term mortgages, with an 85% loan-to-value, the rate ticked up to 5.20% on June 13 from 5.02% a week prior. For five-year fixed term mortgages with a 60% loan-to-value, the average rate moved to 4.90% from 4.68%.
A year ago, those mortgage rates stood at 3.08% and 2.77%, respectively.
Mining shares ended higher on the hope of stimulus measures in China. China is a major customer of mining output. Glencore shares rose 4.9%, Antofagasta added 3.5% and Rio Tinto climbed 2.9%.
China is considering a package of stimulus measures to boost growth, Bloomberg reported, citing people familiar with the matter.
Possible measures include support areas including real estate. More interest rate cuts are also being considered, Bloomberg reported.
Luxury retail in Paris was also supported. LVMH added 1.2% and Kering rose 1.3%. Chinese consumers are major buyers of luxury goods.
Back in London, Harland & Wolff added 9.2%. The infrastructure firm, known for its 81-acre shipyard in Belfast, will team with Macduff Shipyards, Kongsberg Maritime and Echandia to create a UK consortium. The firms will look to develop and build a zero emissions harbour and coastal tug.
‘As part of our ongoing commitment to fully embrace the UK National Shipbuilding Office’s aims and in our drive to net zero, we are pleased to have put together this consortium. Not only are these the first vessels of this type to be designed and constructed in the UK, but they also provide firm foundations for the build of various vessels requiring this type of technology in the future. We are delighted by the initial feedback that we have received from potential clients and look forward to seeing these vessels come to life in our shipyards,’ H&W Chief Executive John Wood said.
Brent oil was quoted at $73.98 a barrel late Tuesday in London, up from $72.71 late Monday. Gold was quoted at $1,944.33 an ounce, lower against $1,957.18.
Prior to Wednesday’s Fed decision, there is a UK gross domestic product reading at 0700 BST, before eurozone industrial production data at 1000 BST.
In the UK corporate diary, electrical products retailer Marks Electrical and automotive dealer Motorpoint Group release annual results.
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