Stocks in London ended Wednesday higher, as a cooler than expected inflation reading took some heat of the Bank of England’s next interest rate decision.
‘With UK inflation finally slowing down, the markets are now expecting greater restraint from the Bank of England. The BoE still has some way to go in the current hiking cycle but will probably be less aggressive than some had predicted before today’s release,’ commented Ricardo Evangelista, senior analyst at ActivTrades.
The FTSE 100 index closed up 134.51 points, or 1.8% at 7,588.20 on Wednesday. The FTSE 250 ended up 704.30 points, or 3.8%, at 19,322.52. The AIM All-Share closed up 10.97 points, or 1.5%, at 765.33.
The Cboe UK 100 ended up 1.9% at 758.00, the Cboe UK 250 closed up 3.6% at 16,941.33, and the Cboe Small Companies ended 2.1% at 13,303.29.
Annually, UK consumer prices rose by 7.9% in June, cooling from an 8.7% jump in May. June’s reading was lower than market forecasts of 8.2%, as cited by FXStreet.
Core inflation - excluding energy, food, alcohol, and tobacco - unexpectedly cooled to an annual rate of 6.9%. It had been expected to remain unchanged from May’s reading of 7.1%.
Franceso Pesole at ING noted that the better-than-expected figures triggered a ‘large dovish repricing’ in Bank of England tightening expectations, and hit the ‘overbought pound.’
The pound was quoted at $1.2890 at the London equities close on Wednesday, down sharply from $1.3083 at the close on Tuesday. Prior to the inflation print on Wednesday morning, sterling had traded at $1.3022.
Stocks sensitive to higher interest rates were among the best performers in London, with housebuilders and property investors among the top stocks in the FTSE 100 at the close on Wednesday.
Persimmon jumped 8.6%, Land Securities 8.6%, Barratt Development 7.0%, and Taylor Wimpey 6.9%.
‘Housebuilders had been heavily sold off due to fears a sharp rise in interest rates would destabilise the housing market. While that’s certainly in motion, with plenty of people struggling with higher mortgage rates and a slowdown in property transactions, the valuations of housebuilders were effectively pricing in a deep rut. Today’s inflation news has spurred investors with an appetite for risk to go fishing for bargains in the space in the hope that the property market won’t experience a severe collapse,’ explained Danni Hewson, head of financial analysis at AJ Bell.
Antofagasta was one of the few blue-chip stocks in the red at the close, finishing 1.2% lower after it reduced its production guidance for the full year, amid construction work and environmental factors.
It lowered its copper production guidance to between 640,000 and 670,000 tonnes from 670,000 to 710,000 tonnes. The revised guidance would mean flat production volume compared to the 646,200 tonnes in 2022.
In the FTSE 250, Aston Martin jumped 9.0% after Goldman Sachs upgraded the luxury carmaker to ’buy’ from ’neutral’ as it anticipates the next 24-month period to be one of ‘steady progress’ for the firm.
‘Through to the end of 2024, we expect Aston Martin to unveil one new core model every quarter, creating an unprecedented pipeline. Over the same period, new specials should help bolster higher average selling prices, gross margins and ultimately [earnings before interest, tax, depreciation and amortisation],’ Goldman Sachs said.
Elsewhere in London, Pennpetro Energy added 5.5% after it announced it increased its interest in the Whistling Straits 5H well in Gonzales County, Texas to 100% from 25%. The company will assume operatorship of the well with immediate effect, in addition to just over 2,036 acres of oil leases.
‘This is a big game changer for the company,’ said Chief Executive Officer Tom Evans.
On AIM, MediaZest surged 38%. The audiovisual services firm said trading in the second half of its financial year has been ‘promising’ with ‘significant’ new business wins with both new and existing clients.
Looking ahead, MediaZest said it remains confident in an ‘encouraging’ outlook for the second half and expects to report improved financial results in ‘due course’.
In European equities on Wednesday, the CAC 40 in Paris ended up 0.2%, while the DAX 40 in Frankfurt ended flat.
The eurozone’s annual inflation rate also eased in June, though core consumer prices increased at a faster pace than expected.
Eurostat said the single currency area’s yearly inflation rate faded to 5.5% in June, from 6.1% in May. The figure was in line with an earlier estimate.
Excluding energy, food, alcohol and tobacco, the yearly core inflation rate picked up to 5.5% in June from 5.3% in May. The latest June figure topped an initial 5.4% estimate.
For analysts at Lloyds Bank, the still-elevated core inflation rate means that the European Central Bank is ‘highly likely’ to increase interest rates again next Thursday.
The euro stood at $1.1197 at the European equities close on Wednesday, down from $1.1237 at the same time on Tuesday.
Stocks in New York were higher at the London equities close, with the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite all up 0.4%.
Earnings season continued across the Atlantic on Wednesday with Goldman Sachs reporting a second-quarter profit fall, revenue decline and around $1 billion worth of impairments hurting its bottom-line.
Shares in the bank were up 1.6% at the time of the London equities close, however.
Results from Netflix and Tesla are still to come. The stocks were 0.9% and 1.8% higher, respectively, at the time of the London equities close.
‘Netflix will reveal how well its password sharing ban ramped up subscriptions and Tesla will reveal how much money the company earned by selling a record number of cars at discounted prices to increase market share. There is potential for good surprises for both, but expectations for Netflix and Tesla are strong, so they will certainly be harder to beat than the banks – which had rather soft expectations walking into this earnings season,’ said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Brent oil was quoted at $80.39 a barrel at the London equities close on Wednesday, up from $79.67 late Tuesday. Gold was quoted at $1,975.43 an ounce, lower against $1,982.17 at the close on Tuesday.
Against the yen, the dollar was trading at JP¥139.65 at the London equities close on Wednesday, up from JP¥138.76 late Tuesday.
In Thursday’s UK corporate calendar, there are full-year results from Babcock, Dunelm and IG Group. Anglo American, AJ Bell, BHP, SSE and Premier Foods will also release trading statements.
The economic calendar has the US weekly unemployment claims report at 1330 BST.
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