Stocks in London closed higher on Wednesday, as UK consumer price index inflation cooled by more than expected in August.
The mood was also optimistic ahead of interest rate decisions from the US Federal Reserve and the Bank of England.
The FTSE 100 index closed up 71.45 points, 0.9%, at 7,731.65. The FTSE 250 ended up 285.67 points, 1.6%, at 18,712.37, and AIM All-Share closed up 4.29 points, 0.6%, at 746.70.
The Cboe UK 100 ended up 1.1% at 771.07, the Cboe UK 250 closed up 1.8% at 16,346.39, and the Cboe Small Companies ended up 0.5% at 13,444.48.
Investors are keeping an eye on the Federal Reserve’s interest rate decision at 1900 BST on Wednesday.
The US central bank is widely expected to leave interest rates unchanged after raising them to their highest level in 22 years in July. The focus will therefore lie on the central bank’s forward guidance and economic projections.
According to the CME FedWatch Tool, there is a 99% chance the central bank will leave the federal funds rate range unchanged at 5.25% to 5.50%.
At the November meeting, CME data indicates the market predicts a 73% likelihood of no change to rates, but 27% are anticipating a 25 basis point hike.
‘The Fed is broadly expected to keep the interest rates unchanged; the policymakers will likely sound satisfied with the progress on inflation, and they could revise their growth forecasts significantly higher. Strong growth forecast could trigger a fresh wave of hawkish trades across stock, bond, and currency markets,’ said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Stocks in New York were mixed at the London equities close and ahead of the Fed’s decision. The DJIA up 0.5% and the S&P 500 index up 0.2%. The Nasdaq Composite was down 0.3%.
After the decision, focus will quickly switch to the BoE’s latest interest rate decision. It will be announced at 1200 BST on Thursday.
A quarter-point hike will take the benchmark bank rate to 5.50% from 5.25%. It will shoot up UK interest rates to their highest level in roughly 16 years and it will be Threadneedle Street’s 15th successive hike. In a bid to keep a lid on rampant inflation, the BoE has lifted rates by a total of 515 basis points so far in this hiking cycle.
The decision, however, was muddied on Wednesday, following figures from the Office for National Statistics.
A hike on Thursday was largely seen as a foregone conclusion prior to the data, but the surprising slowdown in UK inflation means the decision is on somewhat of a knife-edge. Either way, the notion that the bank rate is close to its peak was reinforced by the Wednesday morning reading.
The UK headline inflation unexpectedly cooled last month, as stubborn core price pressure finally eased. Market forecasts had been expecting inflation to creep back up, amid the rising cost of fuel.
Annually, UK consumer prices rose by 6.7% in August, easing from a 6.8% rise in July. August’s reading undershot market forecasts, as cited by FXStreet, which had predicted the inflation rate to heat up to 7.1%.
The annual core inflation rate - which excludes energy, food, alcohol and tobacco - cooled to 6.2% in August, from July’s reading of 6.9%. August’s reading had been expected to come in at 6.8%.
Berenberg analyst Kallum Pickering said Wednesday’s data means the decision is now on a ‘knife-edge’.
In the FTSE 100, shares in house builders jumped, as investors priced in the prospect of lower mortgage rates. Taylor Wimpey added 5.2% and Barratt rose 4.5%, while in the FTSE 250 Persimmon, Crest Nicholson and Vistry added 4.8%, 6.4%, and 2.8% respectively.
Elsewhere in the FTSE 100, WPP lost 2.1%. Exane BNP cut the advertising and corporate communications firm to ’neutral’.
In the FTSE 250, Elementis closed up 10%.
The speciality chemicals firm responded publicly to an open letter from Franklin Templeton, saying that it disagrees with the shareholder’s request to sell off its ‘attractive assets’.
Franklin Mutual Advisors LLC, an investment advisory firm parented by Franklin Templeton, published an open letter earlier on Wednesday requesting that the Elementis board ‘initiate an immediate sale of the company’.
London-based Elementis said it has discussed the matter at length with Franklin, which controls a 9.8% shareholding in Elementis on behalf of its clients.
However, Elementis responded: ‘After careful consideration, with the support of its advisors, the board does not consider an immediate sale of the company to be in the best interests of its shareholders.’
Amongst London’s small-caps Wincanton rose 16%, after it said it has reached an agreement with its pension scheme.
The strength of the scheme means that it is well positioned to meet its obligations to both deferred members and current pensioners, Wincanton said.
‘We are delighted with the outcome of the 2023 Triennial Valuation, which is the result of a well-executed investment strategy by the scheme Trustees and strong cash generation from the group enabling consistent contributions into the scheme in recent years,’ said Chief Financial Officer Tom Hinto.
In European equities on Wednesday, the CAC 40 in Paris ended up 0.7%, and the DAX 40 in Frankfurt closed 0.8% higher.
The pound was quoted at $1.2396 at the London equities close Wednesday, lower compared to $1.2399 at the close on Tuesday. The euro stood at $1.0718 at the European equities close Wednesday, up against $1.0691 at the same time on Tuesday. Against the yen, the dollar was trading at JP¥147.64, lower compared to JP¥147.71 late Tuesday.
Brent oil was quoted at $94.40 a barrel at the London equities close Wednesday, down from $95.20 late Tuesday. Gold was quoted higher at $1,945.43 an ounce at the London equities close Wednesday against $1,933.01 at the close on Tuesday.
In Thursday’s UK corporate calendar, Next and JD Sports will publish half year results.
As well as the BoE’s interest rate decision, the economic calendar for Thursday has the US unemployment insurance weekly claims report.
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