London close: Stocks maintain gains on cooler inflation reading

London markets closed positively on Wednesday after a larger-than-anticipated decline in UK inflation sparked optimism about potential interest rate cuts.

The FTSE 100 index gained 0.62%, closing at 7,486.91 points, while the FTSE 250 also showed strength with a 0.76% increase, finishing the day at 18,676.48.

In currency markets, sterling was last down 0.53% on the dollar to trade at $1.2433, while it dropped 0.28% against the euro to change hands at €1.1457.

“Better US PPI and retail sales figures have piled on the good news, helping equities around the globe to extend their gains,” said IG chief market analyst Chris Beauchamp.

“Investors continue to rejoice in the hope of no more Fed rate hikes, with UK traders cheered by this morning’s CPI drop, too.

“Overall the skies have cleared dramatically for markets, and hopes of a soft landing and improved earnings have driven flows back into stocks.”

Beauchamp added that UK inflation had slowed sharply, relieving pressure on the Bank of England to hike rates again.

“While bank stocks will have to get used to a world without a steady rise in interest income, the prospect of easing pressures on the UK economy continues to support bank stocks, which made further headway this afternoon.”

UK inflation falls to two-year low

In economic news, the Office for National Statistics reported a significant decrease in UK inflation to a two-year low in October.

The drop was attributed to reduced energy prices following a cut in the energy price cap.

Annual consumer price inflation fell from 6.7% in September to 4.6% in October, surpassing economists’ expectations for a decline to 4.8%.

The most substantial contribution to the decline came from housing and household services, while gas costs plummeted 31%, compared to a 1.7% increase in September, and electricity costs dropped 15.6% in October, contrasting with a 6.7% rise in the prior month.

On a monthly basis, CPI remained unchanged in October, in contrast to a 2.0% increase during the same period last year.

Core CPI, which excludes energy, food, alcohol, and tobacco, increased by 5.7% in the year to October, down from 6.1% in the prior month, slightly below the anticipated 5.8%.

“Looking ahead, our forecast is that the downward trends in CPI and core inflation will stall over the next few months before starting to edge lower again in February,” said Paul Dales, chief UK economist at Capital Economics.

“But even then, we think the restrictions on labour supply and the stickiness of inflation expectations will mean that inflation fades slowly rather than suddenly.

“That explains why we think the Bank won’t feel comfortable cutting interest rates until late in 2024 rather than in mid-2024 as priced into financial markets.”

Official data meanwhile revealed that UK house prices experienced their first annual decline in over a decade in September.

According to the ONS, average house prices decreased by 0.1% in the 12 months leading up to September, marking a notable shift from the revised 0.8% increase in August.

It was the first official fall in house prices since April 2012, with the cost of an average house in the UK remaining relatively stable at £291,000, similar to the figure reported in September 2022.

On the continent, data from Eurostat revealed that industrial output in the eurozone contracted more than anticipated in September.

Production declined by 1.1% across the single-currency bloc, reversing the 0.6% increase observed in August.

The decrease was more significant than the market consensus, which expected a milder drop of 0.7%.

Compared to September 2022, output in September 2023 was 6.9% lower, surpassing the 5.1% year-on-year decline reported the previous month and exceeding analysts’ expectations of a 6.3% fall.

Across the pond, wholesale prices in the United States recorded a larger-than-anticipated decrease in October, according to fresh data.

According to the Department of Labor, seasonally adjusted producer prices fell 0.5%, surpassing the consensus estimate of 0.1%.

September’s previously reported increase was revised downward by two-tenths of a percentage point to 0.4%.

Final demand prices for goods dropped by 1.4% compared to September, primarily driven by a 6.5% decline in energy prices, while final demand services prices remained unchanged, while trade prices, including retailers’ margins, fell by 0.7%.

Meanwhile, consumer outlays in the US remained resilient in October, defying expectations.

According to the Department of Commerce, retail sales volumes dipped by a seasonally-adjusted 0.1% month-on-month in October, reaching $705bn.

Economists anticipated a steeper decline of 0.3%.

Furthermore, September’s increase was revised upward by two-tenths of a percentage point to 0.9%.

Finally on data, China’s economy showed signs of improvement in October, with official data published on Wednesday revealing larger-than-expected improvements in retail sales and factory output.

According to the National Bureau of Statistics, retail sales increased by 7.6% year-on-year in October, building on September’s 5.5% rise, exceeding analysts’ expectations of a 7% uplift.

Industrial production also saw growth, rising by 4.6%, slightly ahead of September’s 4.5% increase and representing the most robust growth since April.

Fixed asset investment rebounded with a 2.9% year-on-year increase following September’s 3.9% slump.

Experian jumps on results, FDM slides further

On London’s equity markets, information services giant Experian jumped 6.68% after strong first-half results, with positive contributions from all regions and the company reaffirming its full-year guidance.

Analysts at Shore Capital said that after the recent warning from sector peer TransUnion last month, which reported weak quarterly figures and cut its full-year outlook, Experian’s results “will be a relief to many”.

Energy company SSE also made gains, rising 2.25% after its half-year earnings surpassed expectations.

Plastic piping specialist Genuit Group leapt 6.51% after it announced that its full-year adjusted operating profit, previously set at £89.7m, was expected to exceed market expectations.

Wealth manager St James’s Place rallied with a 6.9% increase after it defended its decision not to reduce share awards for top executives last year despite a decline in its share price.

Mining giant Anglo American gained 3.06% after JPMorgan Cazenove reiterated its ‘overweight’ rating on its shares following the company’s agreement to purchase a 77% stake in Teck Resources’ metallurgical coal business, Elk Valley Resources, for $6.93bn.

JPM said the acquisition underscores Anglo’s discount to peers and opportunity to crystallise value.

“For Anglo American, although this likely removes Glencore as a potentially interested party in its met coal assets, it underscores our belief that further met coal mergers and acquisitions are likely if the steel sector views coking coal supply security as a critical long-term concern,” the bank said.

“It also highlights a potential opportunity for Anglo American to crystallise value through further reducing its coal exposure, [having exited] thermal coal in 2021.”

On the downside, FDM Group Holdings fell 3.1% after its warning on Monday, stating that its 2024 performance would be affected by a lower-than-expected number of consultants assigned to clients at the beginning of the year.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 7,486.91 0.62%
FTSE 250 (MCX) 18,676.48 0.76%
techMARK (TASX) 4,094.53 0.21%

FTSE 100 - Risers

Experian (EXPN) 2,883.00p 7.53%
St James's Place (STJ) 704.00p 6.57%
Ocado Group (OCDO) 596.20p 5.60%
International Consolidated Airlines Group SA (CDI) (IAG) 161.05p 4.65%
Glencore (GLEN) 464.70p 3.27%
Anglo American (AAL) 2,210.50p 3.13%
Convatec Group (CTEC) 225.40p 2.73%
Scottish Mortgage Inv Trust (SMT) 728.40p 2.50%
Weir Group (WEIR) 1,844.00p 2.39%
Antofagasta (ANTO) 1,377.00p 2.38%

FTSE 100 - Fallers

CRH (CDI) (CRH) 4,802.00p -2.24%
Tesco (TSCO) 273.50p -1.83%
Diageo (DGE) 2,845.50p -1.83%
Pearson (PSON) 950.00p -1.49%
Flutter Entertainment (CDI) (FLTR) 12,585.00p -1.49%
Centrica (CNA) 147.60p -1.47%
Entain (ENT) 868.40p -1.41%
Unite Group (UTG) 989.50p -1.35%
B&M European Value Retail S.A. (DI) (BME) 550.40p -1.33%
Sainsbury (J) (SBRY) 265.60p -1.23%

FTSE 250 - Risers

Genuit Group (GEN) 314.00p 7.53%
Syncona Limited NPV (SYNC) 135.00p 5.47%
Ceres Power Holdings (CWR) 217.00p 5.34%
Helios Towers (HTWS) 74.75p 4.62%
Hilton Food Group (HFG) 720.00p 4.50%
Mobico Group (MCG) 68.05p 4.45%
Wetherspoon (J.D.) (JDW) 740.00p 4.30%
Wizz Air Holdings (WIZZ) 1,875.50p 4.25%
Aston Martin Lagonda Global Holdings (AML) 224.20p 4.18%
Abrdn Private Equity Opportunities Trust (APEO) 464.00p 4.15%

FTSE 250 - Fallers

Darktrace (DARK) 349.30p -4.33%
TBC Bank Group (TBCG) 2,660.00p -3.80%
Supermarket Income Reit (SUPR) 82.70p -3.50%
Hammerson (HMSO) 27.00p -3.30%
FDM Group (Holdings) (FDM) 383.00p -3.16%
Lancashire Holdings Limited (LRE) 673.50p -2.25%
Indivior (INDV) 1,317.00p -2.23%
PZ Cussons (PZC) 137.00p -2.14%
Close Brothers Group (CBG) 789.00p -2.11%
Johnson Matthey (JMAT) 1,552.50p -2.08%