"Worrisome" core inflation tempers BoE cut hopes

(Alliance News) - Stock prices in London traded lower on Wednesday afternoon, after a more robust than expected UK inflation reading damped Bank of England rate cut expectations.

The FTSE 100 index traded down 28.02 points, 0.3%, at 8,388.43. The FTSE 250 was down 39.56 points, 0.2%, at 20,743.81. The AIM All-Share edged down 0.68 of a point, 0.1% at 806.41.

The Cboe UK 100 was down 0.3% at 837.38, the Cboe UK 250 was down 0.3% also, trading at 18,152.45, though the Cboe Small Companies rose 0.1% to 16,666.36.

In European equities on Wednesday, the CAC 40 in Paris was down 0.6%, while the DAX 40 in Frankfurt fell 0.2%.

The pound was quoted at USD1.2722 early Wednesday afternoon in London, up from USD1.2715 late Tuesday afternoon. It had spiked as high as USD1.2761 after the UK data, its best level in almost two months.

The euro stood at USD1.0837, down from USD1.0856. Against the yen, the dollar bought JPY156.45, rising from JPY156.10.

The UK consumer price index rose by 2.3% in April from a year before, slowing from a 3.2% annual increase in March, according to the Office for National Statistics.

Though inflation was hotter than market consensus of 2.1%, which would have been only a hair above the Bank of England's 2% target, the latest figure still is the coolest rate of inflation since July 2021.

Since then, inflation pressure has been robust, with the annual rate hitting a recent peak of 11.1% in October 2022.

On a monthly basis, consumer prices rose 0.3% in April, after they climbed 0.6% in March from February. The monthly reading topped the consensus of 0.2%, according to FXStreet.

"That differential between the encouraging 2.3% headline figure, and worrisome 3.9% core figure pushes the focus onto Andrew Bailey who needs to decide which of these will drive policy at Threadneedle Street. Crucially, we have also seen a major divergence between goods inflation (-0.8%) and services (5.8%), with the UK inflation problem now solely down to pricing within the services sector," Scope Markets analyst Joshua Mahony commented.

"For markets, we have seen the pound gain ground across the board, reacting to shifting rate expectations that have seen a June rate cut become increasingly unlikely."

The Federal Reserve will also be in focus, with minutes of its most recent meeting released at 1900 BST.

Lloyds Bank analysts commented: "Going into that meeting, markets were concerned that the Fed may signal a risk that interest rates may need to rise again. So they were relatively reassured by a message that the next move in interest rates is still likely to be down albeit that this may now take longer to come than previously expected because of sticky inflation. Today's minutes may reveal whether there were any serious risks of rates going up again. It will also be interesting to see whether there are any indications about how many times the majority of Fed policymakers now expect rates to be cut this year."

Also grabbing some of the spotlight across the Atlantic, chipmaker Nvidia, whose AI-driven stock market surge has been a key theme in recent months, reports first-quarter results after the closing bell in New York.

"All eyes will also be on the details of forward guidance; if positive, even if earnings fall slightly short of expectations, it could serve as a risk buffer as participants are more sensitive to future expectations in the AI/chip sector than past results," ActivTrades analyst Anderson Alves commented.

In London, Marks & Spencer jumped 6.2%, the best FTSE 100 performer. It reported annual earnings growth, hailing "market-leading" progress at both its Food and Clothing & Home offerings.

The retailer said statutory revenue in the year to March 30 rose 9.3% to GBP13.04 billion from GBP11.93 billion a year prior. Pretax profit jumped 41% to GBP672.5 million from GBP475.7 million.

AJ Bell analyst Russ Mould commented: "The turnaround story has been years in the making and it finally looks like the retailer has cracked it."

There was little progress for other FTSE 100 listed retailers, with JD Sports down 1.7% and Next losing 1.6%, hurt by the UK inflation data.

Mitchells & Butlers jumped 9.7%. The operator of restaurants and pubs, including Harvester and All Bar One, said revenue in the half year ended April 13 rose 8.9% to GBP1.40 billion from GBP1.28 billion a year prior. Pretax profit jumped to GBP108 million from GBP40 million.

On AIM, Powerhouse Energy Group soared 39% as it drew a line under a European patent matter.

The non-recyclable waste-to-energy conversion company said a patent claim issued by GetGo Recycling in October "has been resolved".

"An agreement has been reached to resolve the issues and the company looks forward to progressing its other patent applications within Europe and the rest of the world. The agreement ensures that no additional challenge to Powerhouse's patents worldwide will be raised by Onunda or any of its group companies, now or in the future," Powerhouse Energy said.

On Tuesday, the firm said it secured a patent in the UK for its technology, and is "already in discussions with a number of clients".

Powerhouse explained that the patent gives it intellectual property protection in the UK - which it expects to "become a key market" - for the technology to use recirculated synthesis gas to heat one or more chambers, and provide electrical power via a gas generator.

Brent oil was quoted at USD82.45 a barrel early Wednesday afternoon, down from USD82.66 late Tuesday. Gold was quoted at USD2,415.02 an ounce, declining from USD2,425.40.

By Eric Cunha, Alliance News news editor

Comments and questions to [e-mail]

Copyright 2024 Alliance News Ltd. All Rights Reserved.