Stock prices in London climbed on Wednesday as softer-than-expected UK inflation lifted hopes for a lower peak for interest rates, while large-cap overseas earners got a boost from a weaker pound.
The FTSE 100 index opened up 88.26 points, 1.2%, at 7,541.95. The FTSE 250 was up 460.88 points, 2.4%, at 19,079.10, and the AIM All-Share was 4.52 points, 0.6%, at 758.88.
The Cboe UK 100 was up 1.2% at 752.36, the Cboe UK 250 was up 2.4% at 16,745.20, and the Cboe Small Companies was up 0.5% at 13,545.44.
In European equities on Wednesday, the CAC 40 in Paris was up 0.8%, while the DAX 40 in Frankfurt was up 0.5%.
Inflation in the UK cooled more quickly than expected in June, figures from the Office for National Statistics showed on Wednesday.
Annually, 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.
Whilst still elevated by historical standards, June’s inflation rate was the lowest since March 2022.
The annual fall was led by easing price rises for motor fuels, as well as food and non-alcoholic beverages, furniture and household goods, and restaurants and hotels, the ONS said.
The crucial figure of core inflation - which excludes 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%.
‘Behind closed doors at the Bank of England there are likely to be some pretty intense discussions taking place between now and their next interest rate decision. This time the bank got its sums right, it had expected headline inflation in June to fall to 7.9% but Monetary Policy Committee members won’t be able to ignore that core figure,’ said AJ Bell’s Danni Hewson.
‘Markets are now pricing in a less strident move in August, with a rate hike of just a quarter percentage point rather than the half point that most had been considering just a few weeks ago and looking further out the expectation is for rates to top off at 5.75% rather than over six which had been on the cards.’
Sterling was quoted at $1.2953 early Wednesday, lower than $1.3083 at the London equities close on Tuesday.
The euro traded at $1.1233, slightly lower than $1.1237. Against the yen, the dollar was quoted at JP¥139.27, up versus JP¥138.76.
With markets rushing to price in a lower peak for interest rates, the outlook for the mortgage sector improved. Housebuilding stocks rallied in early trade, with Persimmon, Barratt, Taylor Wimpey, up 7.3%, 6.5%, and 6.6% respectively.
Other stocks in the property sector also made gains, with real estate platform Rightmove up 3.5%, and St James’s Place up 3.4%.
Segro rose 7.0%, as Exane BNP raised the commercial real estate firm’s stock to ’outperform’.
However, the good feeling wasn’t universal across the sector. On AIM, Watkin Jones shares plunged 35%.
The London-based developer and manager of rental properties said its Chief Executive Richard Simpson has stepped down. The firm’s Chief Investment Officer Alex Pease will take on the role of CEO on an interim basis.
Further, Watkin Jones said it expects an impairment charge of some £10 million, after reassessing the carrying value of certain assets. It also expects to increase its provision for remedial works for legacy properties by a further £30 million to £35 million.
Meanwhile, Hargreaves Lansdown rose 5.7%, as the retail investment platform reported strong new business wins. In the company’s fourth quarter ended June 30, net new business rose 6% to £1.7 billion from the previous quarter. Assets under administration climbed 1.5% over the quarter to £134.0 billion at the end of June.
In London’s small-caps, Restaurant Group rose 10%, reporting a recent climb in sales, despite lower footfall in May and June amid hot weather.
In the two weeks to July 16, which forms part of TRG’s third-quarter, like-for-like sales at Wagamama surged 21% on-year. Growth accelerated from 5% in the second quarter to July 2, and 2% in the first quarter, which ran to April 2.
Meanwhile, in the US on Tuesday, Wall Street ended higher, with the Dow Jones Industrial Average up 1.1%, the S&P 500 up 0.7% and the Nasdaq Composite up 0.8%.
Sentiment had been boosted by better-than-expected earnings from Bank of America and Morgan Stanley, despite slightly weak US retail sales and industrial production figures for June.
Later on Wednesday, there will be results from Goldman Sachs, IBM, Netflix and Tesla.
Gold was quoted at $1,980.76 an ounce early Wednesday, down from $1,982.17 on Tuesday. Brent oil was trading at $79.63 a barrel, lower than $79.67.
Trading was mixed in Asia on Wednesday, the Nikkei 225 index in Tokyo closed up 1.2%. In China, the Shanghai Composite was down 0.1%, while the Hang Seng index in Hong Kong was down 0.4%. The S&P/ASX 200 in Sydney closed up 0.6%.
Still to come on Wednesday’s economic calendar, there are final EU inflation figures for June at 1000 BST.
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