By Carla Mozee, MarketWatch
Inflation rate flat in February
LONDON (MarketWatch) -- A run at fresh record high for U.K.'s
blue-chip stocks fell short Tuesday, with utility shares among
those finishing lower in the wake of a downgrade for the parent
company of British Gas.
The FTSE 100 fell 0.3% to 7,019.68, driven into the red shortly
before the session closed. Energy and mining shares finished lower,
with iron ore producer Rio Tinto PLC losing 2%.
Also among the worst performers were shares of Associated
British Foods PLC . They fell 2.9% as Credit Suisse cited continued
weakness in the euro as reason for cutting its earnings estimates
for ABF by 3% this year, and by 8% next year. ABF is behind the
Primark retail chain and runs sugar operations.
The FTSE 100 had earlier been in record territory, led by the
consumer-goods and services sectors as inflation data appeared
encouraging for the prospects of spending by British consumers. The
index on Monday
(http://www.marketwatch.com/story/ftse-100-pulls-back-from-record-high-2015-03-23)
notched a record high at 7,037.67.
Travel-related shares ended mostly higher on Tuesday. British
Airways parent company International Consolidated Airlines Group
PLC rose 3.6% and EasyJet PLC tacked on 0.9%.
Inflation: The Office for National Statistics said the annual
inflation rate was flat in February. That marked the weakest annual
inflation rate recorded in historical estimates since March 1960
(http://www.marketwatch.com/story/uk-inflation-rate-falls-to-zero-in-february-2015-03-24),
and the first time prices haven't risen since official records
began in 1989. The flat reading stemmed from a drop in prices in
oil, fuels as well as food.
The pound (GBPUSD) fell against the dollar after the data,
fetching $1.4875 compared with $1.4954 late Monday.
"The Bank of England has said that until the inflation situation
improves, and the numbers start to show signs that they will return
to the 2% target rate within the medium term, there will be no
intention to raise interest rates," said James Hughes, chief market
analyst at eToro, in a note Tuesday.
There's still the potential for "a small but temporary negative"
reading in consumer price inflation in March, Timo del Carpio,
European economist at RBC Capital Markets, said in a report. "In
part this reflects our view that it will take a few more months yet
for recent announcements of gas-price cuts by utility companies to
fully feed through to the data."
Utilities: From the utilities front, shares of Centrica fell
0.9% after Deutsche Bank downgraded the parent firm of British Gas
to hold from sell, citing risk from the U.K. general election in
May, the outcome of which is widely considered too close to
call.
Centrica shares looked as if they were pricing in a win by the
Conservative Party, but they "could be worth at least 20% less"
under a government led by the Labour Party than one by the
Conservatives, said Deutsche Bank. The valuation gap "could be much
bigger given that Labour leader Ed Miliband's mooted 10% energy
retail price cut would wipe out Centrica's group earnings."
In the utility group, SSE PLC fell 0.8%, United Utilities Group
PLC was off 0.2%, but National Grid PLC ended fractionally
higher.
Meanwhile, Wolseley PLC shares fell 2.6%, after the company
swung to an interim half-year net loss of 58 million pounds
(http://www.marketwatch.com/story/wolseley-falls-to-net-loss-but-lifts-dividend-2015-03-24)
($86.8 million). But the heating and plumbing products supplier
also raised its dividend by 10% to 30.25 pence a share.
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