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London open: Stocks fall as inflation sticks at 8.7%
London stocks fell in early trade on Wednesday as investors mulled a higher-than-expected UK inflation print, ahead of this week’s Bank of England rate announcement.
At 0830 BST, the FTSE 100 was down 0.5% at 7,532.70.
Figures out earlier from the Office for National Statistics showed that consumer price inflation came in higher than expected in May, while core inflation hit a 31-year high.
CPI remained at 8.7%, coming in above expectations for a decline to 8.4% and putting pressure on the Bank of England to keep hiking rates.
Meanwhile, core inflation – which strips out elements such as food and energy – rose to 7.1% from 6.8% in April, hitting its highest level since 1992. Analysts were expecting it to be unchanged.
ONS chief economist Grant Fitzner said airfares and second-hand cars were keeping inflation high, along with live music events and computer games.
Capital Economics said the rise in inflation “increases the chances that the Bank raises interest rates by 50 basis points tomorrow rather than the 25bps rise from 4.50% to 4.75% we are forecasting”.
“Either way, the acceleration in core inflation leaves the UK looking increasingly like the global outlier and the ‘stagflation nation’,” said chief UK economist Paul Dales.
Matt Britzman, equity analyst at Hargreaves Lansdown, said: “In equity markets, the FTSE 100 opened lower as markets weigh up the impact of sticky inflation and the potential for higher rates.
“The real question from here is at what stage does this start to feed through to materially impact corporate earnings. Businesses have been able to hike prices and demand remains pretty good across a range of sectors. But as more homeowners roll on to higher-rate mortgages that’ll eat into their disposable income, it’s hard to see a world where that doesn’t materially impact spending.”
In equity markets, Berkeley Group was under the cosh as it posted a 9.5% jump in full-year pre-tax profit but struck a cautious note over the outlook.
Housebuilders more generally were in the red, as the latest inflation data added to expectations of a rate hike on Thursday, which will see the cost of borrowing surge further.
Commenting on the CPI data, Britzman said: “This read won’t do policymakers any favours who are under increasing pressure to keep inflation coming down in the UK, but it’s looking stickier as the months roll by.
“For anyone looking to take out a new mortgage, or those needing to re-mortgage, this will be disappointing news and all but guarantees a rate hike from the Bank of England on Thursday and likely baked in further down the line. With rates already sky-high compared to recent years, it’s especially painful for those who took out a mortgage at ultra-low rates and now face a spike in costs just to keep a roof over their heads.”
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Ocado Group Plc | +1.93% | +8.20 | 432.20 |
| 2 |  |
Crh Plc | +1.65% | +68.00 | 4,177.00 |
| 3 |  |
Prudential Plc | +1.27% | +14.00 | 1,114.50 |
| 4 |  |
Tui Ag | +1.13% | +6.50 | 583.50 |
| 5 |  |
Carnival Plc | +0.99% | +11.00 | 1,122.50 |
| 6 |  |
Bp Plc | +0.91% | +4.15 | 458.10 |
| 7 |  |
Rolls-royce Holdings Plc | +0.83% | +1.30 | 158.30 |
| 8 |  |
Ferguson Plc | +0.73% | +85.00 | 11,775.00 |
| 9 |  |
Standard Chartered Plc | +0.67% | +4.60 | 691.20 |
| 10 |  |
Hiscox Ltd | +0.64% | +7.00 | 1,102.00 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
British Land Company Plc | -2.98% | -10.00 | 325.90 |
| 2 |  |
Smith (ds) Plc | -2.88% | -8.90 | 299.70 |
| 3 |  |
Barratt Developments Plc | -2.82% | -12.50 | 431.10 |
| 4 |  |
Burberry Group Plc | -2.82% | -63.00 | 2,173.00 |
| 5 |  |
Persimmon Plc | -2.37% | -28.00 | 1,155.00 |
| 6 |  |
Fresnillo Plc | -2.26% | -14.60 | 630.60 |
| 7 |  |
Berkeley Group Holdings (the) Plc | -2.22% | -87.00 | 3,825.00 |
| 8 |  |
Bt Group Plc | -2.22% | -3.00 | 132.05 |
| 9 |  |
Mondi Plc | -2.14% | -26.50 | 1,212.50 |
| 10 |  |
Land Securities Group Plc | -2.07% | -12.00 | 568.20 |
US close: Stocks weaker ahead of Fed chair’s testimony
Wall Street’s leading indices concluded Tuesday’s trading session with losses following a long holiday weekend, as investors kept a cautious stance ahead of Federal Reserve Chairman Jerome Powell’s upcoming Congressional testimony.
At the close, the Dow Jones Industrial Average was down 0.72% at 34,053.87, while the S&P 500 retreated 0.47%, finishing at 4,388.71.
The tech-heavy Nasdaq Composite meanwhile trimmed 0.16%, closing at 13,667.29.
In the foreign exchange market, the dollar advanced against both the sterling and the euro, strengthening by 0.18% to 78.32 pence and by 0.05% to 91.6 euro cents respectively.
However, it weakened against the yen, declining by 0.38% to change hands at JPY 141.44.
“US stock indices followed Asian and European indices lower as liquidity returned with US markets reopening after their long weekend,” said IG senior market analyst Axel Rudolph.
“China’s 10 basis point rate cut didn’t revive sentiment with investors, instead focusing on tomorrow and Thursday’s testimony by the Fed chair at the US senate banking committee.”
Home construction soars past expectations; China cuts key lending rates
Data released earlier revealed that housing starts, when adjusted for seasonality, catapulted at a rate of 21.7% month-on-month in May.
The impressive upswing propelled the annual rate of new constructions to 1.631 million, notably surpassing the consensus forecast of 1.4 million.
April’s pace had meanwhile been downwards revised to 1.34 million.
Earlier in the global day, China’s central bank enacted notable cuts to two essential lending rates.
For the first time in nearly a year, the one-year loan prime rate was reduced by 10 basis points to settle at 3.55%.
Simultaneously, the five-year rate underwent a similar decrease, landing at 4.2% following a 10 basis points cut.
Eli Lilly rises on acquisition, Boeing slips despite new orders
In equity markets, Eli Lilly‘s shares appreciated by 0.95% following the company’s announcement of a significant acquisition.
The pharmaceutical firm has agreed to purchase Dice Therapeutics in a deal worth $2.4 billion.
PayPal Holdings jumped 3.7% after announcing a partnership with global investment firm KKR.
The partnership aimed to launch buy now, pay later (BNPL) loans in the European market – an increasingly popular model for consumer spending.
On the downside, despite the announcement of a series of new orders for jets at the Paris Air Show, Boeing‘s shares suffered a 3.46% decline.
Market commentators speculated that the response might be a case of ‘buy the rumour, sell the news.’
Wednesday newspaper round-up: Minimum wage, Rolls-Royce, CBI, Debenhams
Some of the UK’s best known retailers including WH Smith, Marks & Spencer, Argos and LloydsPharmacy are at the head of a list of more than 200 companies collectively fined £7m for failing to pay the legal minimum wage. The businesses were also forced to pay out £4.9m to about 63,000 workers left out of pocket after violations of the rules were uncovered by inspectors at HMRC, varying from breaches related to asking workers to pay for aspects of their uniform to paying the incorrect apprenticeship rate. – Guardian
Rolls-Royce’s new boss has said the British company is ready to rejoin the market for smaller jet engines once manufacturers build a new generation of planes. Tufan Erginbilgic told reporters at the Paris air show on Tuesday that the company was “actually ready” to re-enter the market for engines for single-aisle jets, although it would probably take a decade for a new opportunity to come up. – Guardian
A plan to build the first supersonic passenger jet since the Concorde has taken a significant step forward after the company behind the effort signed key deals to design and build the plane. Boom Supersonic, which aims to have Concorde-style jets flying by 2027, said Italian aerospace giant Leonardo would make part of the fuselage on its new aircraft. – Telegraph
The CBI has been barred from attending meetings with other top lobby groups as it seeks to re-establish itself after a sexual misconduct scandal. It has been denied entry to meetings with ministers alongside other leading business groups, including the Federation of Small Business, the British Chambers of Commerce, the Institute of Directors and Make UK, according to the Financial Times. – The Times
The true cost of Debenhams’ demise has been laid bare in documents that show clothing suppliers, landlords and lenders will not recover £1.3 billion they were owed before the retailer collapsed. The beleaguered British department stores group fell into liquidation in December 2020, bringing down the curtain on 242 years of trading. The pandemic proved to be the final straw for a business that had been struggling for years, falling into administration in 2019 before Covid-19 struck. – The Times
