The FTSE 100 outperformed European peers heading into Wednesday afternoon, with the interest rate sensitive house building sector shining after investors reeled in the Bank of England expectations after a cooler-than-expected UK inflation reading.
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 bank rate is close to its peak reinforced by the Wednesday morning reading.
While easing pressure off the Bank of England, the slowdown in inflation is also good news for the consumer, boosting shares in retailers and house builders.
The FTSE 100 index was up 56.28 points, 0.7%, at 7,716.48. The FTSE 250 was up 269.36 points, 1.5%, at 18,696.06, and the AIM All-Share was up 3.97 points, 0.5%, at 746.38.
The Cboe UK 100 was up 0.8% at 768.68, the Cboe UK 250 was up 1.6% at 16,320.45, and the Cboe Small Companies was up 0.5% at 13,444.40.
The UK headline inflation unexpectedly cooled last month, as stubborn core price pressure finally eased, figures from the Office for National Statistics showed. 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%.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, noted that the surprise fall ‘triggered a kneejerk sell off in sterling’, as BoE rate expectations eased.
The pound dropped to $1.2363 at midday on Wednesday in London, lower compared to $1.2399 at the equities close on Tuesday.
All eyes are on the BoE interest rate decision, which will be announced Thursday.
Markets are split between whether the bank will lift interest rates by 25 basis points or keep them on hold. The latest inflation data reinforced the notion that if the BoE hikes on Thursday, it could be the last in the current cycle.
‘Weaker inflation fuels the argument that interest rates no longer need to go up, or at least not by much more. That would be positive for property-related companies as well as retailers because consumers would, in theory, no longer face additional pressures on their finances,’ added AJ Bell analyst Russ Mould.
In the FTSE 100, shares in house builders jumped, as investors priced in the prospect of lower mortgage rates. Taylor Wimpey added 5.5% and Barratt rose 4.3%, while in the FTSE 250 Persimmon, Crest Nicholson and Vistry added 4.7%, 5.7%, and 1.8% respectively.
Retailers were also on the up. B&M, JD Sports, and Next were up 3.2%, 1.2%, and 1.4%, respectively.
Before the BoE makes its interest rate decision, the Federal Reserve will announce its own 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.
Back in London, Pearson lost 2.6%.
It has recruited the head of Microsoft Corp’s Industry Solutions business to be its new chief executive officer, in a move which may have caught investors unaware.
Omar Abbosh will replace Andy Bird early next year, who leaves after just three years in the hot seat at the London-based publisher of education materials. Bird, who spent 14 years at Walt Disney Co, joined the Pearson board as an independent non-executive director in May 2020 and moved to CEO in August of that year.
Amongst London’s small-caps, Oxford BioMedica rose 13%.
The cell and gene therapy company entered exclusive negotiations with Institut Meriueux for Oxford BioMedica to buy ABL Europe, a pure-play European contract development and manufacturing organization.
ABL has ‘specialised expertise’ in developing and making solutions for biotechs and biopharma, including gene therapy, oncolytic viruses and vaccine candidates.
The considering will be €15 million in Oxford BioMedica shares at an issue price of no less than 407.4p per share.
On AIM, Finsbury Food jumped 23% to 109.65p, after it said it has accepted a private equity buyout offer worth £143.4 million.
The takeover offer is from investment funds managed by Isle of Man-based asset manager DBAY Advisors. DBAY offered to pay 110p per Finsbury Food share, a 24% premium to the stock’s closing price in London on Tuesday.
‘DBAY believes strongly in the future potential of Finsbury but is firmly of the view that, in order to fulfil the growth potential of the business in the medium term, Finsbury needs to supplement its current organic growth with additional growth opportunities, including a meaningful and sustainable acquisition strategy,’ the two companies explained.
In European equities on Wednesday, the CAC 40 in Paris was up 0.4%, while the DAX 40 in Frankfurt was up 0.6%.
The euro stood at $1.0702, higher against $1.0691. Against the yen, the dollar was trading at JP¥147.89, up compared to JP¥147.71.
Stocks in New York were called higher. The Dow Jones Industrial Average, the S&P 500 index, and the Nasdaq Composite were all called down 0.2%.
Brent oil was quoted at $93.54 a barrel at midday in London on Wednesday, down from $95.20 late Tuesday. Gold was quoted at $1,931.88 an ounce, lower against $1,933.01.
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