London close: Stocks flat on UK inflation, geopolitical woes

London stocks finished flat on Tuesday as investors weighed stronger-than-forecast UK inflation data against geopolitical worries and the International Monetary Fund’s downgrade on its global growth forecast.

The UK consumer price index rose 0.5% in the year to June, which was higher than the 0.3% increase a month ago and topped economists' predictions for a 0.4% rise, the Office for National Statistics revealed. Month-on-month, CPI was up 0.2%, the same rate as last month, as forecast.

“Today’s figures were collected before the EU referendum, so recent falls in the value of the pound will have had no impact on them,” ONS statistician Phil Gooding said.

“The rising cost of European air flights, possibly boosted by the Euro football championships, was the biggest reason for this month’s increase in inflation. The growing cost of oil, feeding through to petrol prices, also helped nudge up CPI," he added.

Economist Howard Archer at IHS Global Insight said the sterling weakness following the 23 June Brexit vote looks set to increasingly feed through over the coming months to markedly push inflation higher as it raises prices for imported goods and services, oil and commodities.

Archer forecasts consumer price inflation, helped by the soft pound, will rise to around 1.5% by the end of 2016, moving above the Bank of England's 2% target around spring 2017.

Meanwhile, geopolitical concerns continued to grow amid the turmoil in Turkey and in the wake of the recent terror attacks in Nice and Germany.

The IMF also cut its forecast for global growth, saying Brexit has “thrown a spanner in the works” of the world’s economic recovery. The IMF expected global growth of 3.1% in 2016 and 3.4% in 2017, both 0.1 points lower than forecast in April. It predicted the UK economy to grow by 1.3% in 2017, 0.9 points lower than its previous estimate.

The uncertainty surrounding Brexit hit German investor confidence in July, according to a survey from the ZEW Center for European Economic Research in Mannheim. The indicator of economic sentiment fell to -6.8 from 19.2 in June, missing expectations for a reading of 9.0.

In the UK, house prices rose 1.1% in May compared to a month ago, even in the uncertainty leading up to Britain’s European Union referendum on 23 June, the Office for National Statistics revealed. The average price of a home in the UK was £211,230 in May, up 8.1% on the same month a year ago. It followed April’s 8.2% year-on-year increase and 0.8% month-on-month gain.

In the US, housing starts rose 4.8% year-on-year to 1.189m in June, smashing forecasts for a 0.2% increase to 1.65m. Building permits climbed 1.5% to 1.153m, compared to estimates for a 1.2% gain to 1.150m.

In company news, Rio Tinto shares fell as it said second quarter iron ore production from its mines in Western Australia's Pilbara rose 8% to nearly 81m from the same time a year ago. Pilbara iron ore shipments rose 6% to 82.2m tonnes.

Fellow miners Glencore, Anglo American and BHP Billiton also slumped.

“With risk appetite on the wane for now, it is not surprising to see miners take a hit, with Rio’s decision to boost iron ore output resurrecting the ghost of vast surpluses of metals,” said Chris Beauchamp, senior market analyst at IG.

“Now might not be the time to be putting a foot on the production accelerator, but management can hardly be blamed for seeking an escape route after a long period of difficult trading.”

Evraz dropped as the Russian steel maker consolidated second quarter crude steel output fell 9.9% to 3.2m tonnes against the previous three months, primarily due to planned capital repairs at a blast furnace.

On the upside, Sky shares gained as RBC Capital Markets lifted its rating on the stock to ‘outperform’ from ‘underperform’ and raised its target price to 1,100p from 1,000p.

Royal Mail also rallied as it said trading for the three months ended 26 June was in line with its expectations, with group revenue up 1% and UK revenue down 1%.

Coca-Cola HBC jumped as analysts at JP Morgan raised their recommendation from ‘neutral’ to ‘overweight’ and their price target from 1,500p to 1,800p.

Market Movers

FTSE 100 (UKX) 6,697.37 0.03%
FTSE 250 (MCX) 16,904.32 0.22%
techMARK (TASX) 3,391.87 0.53%

FTSE 100 - Risers

Coca-Cola HBC AG (CDI) (CCH) 1,569.00p 3.16%
Land Securities Group (LAND) 1,073.00p 2.98%
Dixons Carphone (DC.) 341.20p 2.46%
Paddy Power Betfair (PPB) 8,780.00p 2.15%
British Land Company (BLND) 640.00p 1.91%
Royal Mail (RMG) 511.00p 1.79%
Randgold Resources Ltd. (RRS) 8,940.00p 1.59%
Sage Group (SGE) 677.50p 1.42%
Taylor Wimpey (TW.) 149.70p 1.35%
London Stock Exchange Group (LSE) 2,721.00p 1.19%

FTSE 100 - Fallers

Rio Tinto (RIO) 2,377.00p -3.47%
Glencore (GLEN) 180.05p -3.41%
BHP Billiton (BLT) 948.30p -2.92%
Antofagasta (ANTO) 490.20p -2.54%
ITV (ITV) 185.80p -2.52%
Anglo American (AAL) 814.40p -2.12%
easyJet (EZJ) 1,117.00p -1.85%
Sainsbury (J) (SBRY) 226.90p -1.56%
International Consolidated Airlines Group SA (CDI) (IAG) 424.50p -1.35%
Aviva (AV.) 380.60p -1.25%

FTSE 250 - Risers

NCC Group (NCC) 319.50p 4.31%
Paysafe Group (PAYS) 399.90p 3.55%
Vesuvius (VSVS) 354.00p 3.42%
Metro Bank (MTRO) 1,958.00p 3.22%
Shaftesbury (SHB) 891.50p 3.00%
Dechra Pharmaceuticals (DPH) 1,238.00p 2.74%
Sports Direct International (SPD) 263.10p 2.73%
Fidessa Group (FDSA) 2,421.00p 2.72%
IP Group (IPO) 153.00p 2.68%
TalkTalk Telecom Group (TALK) 222.00p 2.54%

FTSE 250 - Fallers

Cairn Energy (CNE) 189.90p -5.19%
Circassia Pharmaceuticals (CIR) 96.50p -4.46%
Tullow Oil (TLW) 216.50p -3.48%
Electrocomponents (ECM) 258.90p -3.03%
Weir Group (WEIR) 1,503.00p -2.97%
DFS Furniture (DFS) 210.40p -2.91%
SIG (SHI) 107.00p -2.90%
Essentra (ESNT) 629.50p -2.85%
Marshalls (MSLH) 256.00p -2.74%
Evraz (EVR) 158.00p -2.71%