London close: Stocks strengthen as US inflation comes in below forecasts

London stocks managed to close above the waterline on Wednesday, as investors digested the news that consumer inflation in the US slowed more than expected in July.

The FTSE 100 ended the session up 0.25% at 7,507.11, and the FTSE 250 was ahead 1.94% at 20,298.00.

Sterling was also in positive territory, last rising 1.32% on the dollar to trade at $1.2240, and strengthening 0.29% against the euro to €1.1862.

“Markets in Europe received a modest uplift on the back of two positive factors today,” said CMC Markets chief market analyst Michael Hewson.

“In what appears to be good news for the peak inflation narrative, US headline CPI fell from 9.1% to 8.5% in July, with core prices remaining steady at 5.9%, prompting investors to pare back expectations of a September rate hike from the Fed to 50-basis points from 75.

“There was also better news out of Ukraine after it was announced that oil flows in the southern part of the Druzhba pipeline had restarted, helping to push markets in Europe back to the top end of their recent ranges, although we have drifted off the highs of the day.”

In economic news, US inflation slowed more than expected in July, with the the Bureau of Labor Statistics reporting that it advanced at an 8.5% clip, down from June's 40-year high of 9.1%.

Compared to the previous month's rate, CPI was unchanged after rising at a 17-year high print of 1.3%, below forecasts of 0.2%.

The gasoline index fell 7.7% in July to offset increases in the food and shelter indices.

Core inflation remained steady at 5.9%, beating market expectations for a reading of 6.1% and going a ways to indicate that inflation may have finally peaked.

“US markets have basked in the glow of a welcome decline in headline inflation, with optimists hoping that this could mark the beginning of a downward journey for prices,” said IG senior market analyst Joshua Mahony.

“The recent decline in energy prices has hinted towards a potential easing of CPI inflation today, yet the fact that core CPI stands at 5.9% does highlight that it is not only an energy story in play here.”

On the continent, German inflation fell slightly in July to 7.5%, with the official data confirming initial estimates.

The figure compared with the 7.6% recorded in June, and reflected the impact of government interventions.

"The main reason for the high inflation still is price rises for energy products,” said Germany’s federal statistics office Destatis.

“Two measures of the relief package have had a slight downward effect on the overall inflation rate since June - the nine euro [rail] ticket and the fuel discount.

“Additional factors are again delivery bottlenecks due to interruptions in supply chains and marked price increases at upstream stages in the economic process.”

In China, meanwhile, official data showed consumer inflation hitting a two-year high in July, driven by surging pork prices.

The headline consumer price index rose by 2.7% in July, missing forecasts of a 2.9% increase.

Pork prices rose 20.2% year on year - the first increase since September 2020.

Fresh fruit and vegetable prices also jumped in July, up by 16.9% and 12.9% from a year ago, respectively, according to the National Bureau of Statistics.

Producer price inflation, meanwhile, slowed to 4.2% in July from 6.1% in June as commodity prices weakened.

On home shores, it was suggested that the government was working on a new cost-of-living package to support Britons facing monumental uplifts in bills and prices, for the next prime minister to consider.

Treasury minister Simon Clarke tweeted that work was being undertaken, amid widespread calls for action from Westminster.

“Of course, the Government is working up a package of cost of living support that the next Prime Minister can consider when they take office,” Clarke said on Twitter.

The claims came on the back of fresh projections that the energy price cap could reach more than £4,000 in January.

On Tuesday, Cornwall Insight lifted its previous forecast for the January price increase by £650 amid spiralling prices for wholesale natural gas.

It said the typical household would face bills of £4,266 per year - equivalent to £355.50 per month.

In equity markets, Aviva jumped 12.21% after the insurer reported a 14% increase in first-half operating profit and said it expects to announce a share buyback with its full-year results.

Admiral Group advanced 12.63% after it posted a drop in first-half profit, pointing to a "more turbulent cycle than usual"” and high inflation.

In the six months to 30 June pre-tax profit fell 48% to £251.3m, while compared to the same period in the pre-pandemic 2019 period, pre-tax profit was ahead 19%.

Peer Direct Line was also up, closing the session 4.85% firmer.

Prudential reversed earlier losses to eke out gains of 0.51% after the Asia-focused insurer posted a rise in first-half operating profit but struck a cautious note over the outlook.

Elsewhere, TP Icap was boosted 13.58% by well-received half-year results, while 4imprint Group gained 10.75% after it said customer demand was at record levels and posted a surge in first-half profits.

Holiday organiser TUI managed to close ahead 1.36%, after it said the travel chaos seen across Europe recently had pushed it to a third-quarter operating loss as it incurred extra costs, but added that summer bookings were close to pre-pandemic levels.

Royal Mail finished the day 1.09% firmer, even after it emerged around 115,000 of its workers would strike over four days in August and September in a dispute over pay.

In broker note action, retailer Pets at Home was lifted 6.28% by an initiation at ‘buy’ by Jefferies, while XP Power jumped 4.66% despite a downgrade to ‘hold’ at HSBC.

RS Group pushed 6% higher after it announced the acquisition of Mexican industrial and automation product and service solutions distributor Risoul for $275m.

On the downside, Quilter lost 3.3% after the artist formerly known as Old Mutual Wealth Management reported a decline in first-half assets under management and administration but a rise in profits.

Hochschild Mining fell 1.78%, despite the miner being granted a key permit from Brazil's Goiás state's environmental authority enabling it to start construction of a processing plant and begin mine pre-stripping.

The company said the permit also allowed the construction of all of the required site infrastructure for progressing the project's critical paths.

Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesti and Iain Gilbert.

Market Movers

FTSE 100 (UKX) 7,507.11 0.25%
FTSE 250 (MCX) 20,298.00 1.94%
techMARK (TASX) 4,356.21 0.72%

FTSE 100 - Risers

Admiral Group (ADM) 2,216.00p 12.63%
Aviva (AV.) 464.90p 12.21%
Ocado Group (OCDO) 925.00p 6.64%
Abrdn (ABDN) 171.35p 6.33%
Flutter Entertainment (CDI) (FLTR) 9,156.00p 6.29%
Intermediate Capital Group (ICP) 1,551.00p 6.16%
RS Group (RS1) 1,078.00p 6.00%
Smurfit Kappa Group (CDI) (SKG) 3,194.00p 5.13%
Mondi (MNDI) 1,549.50p 4.91%
Ashtead Group (AHT) 4,687.00p 4.78%

FTSE 100 - Fallers

GSK (GSK) 1,556.60p -5.48%
Centrica (CNA) 79.52p -5.47%
SSE (SSE) 1,767.00p -2.38%
HSBC Holdings (HSBA) 545.00p -1.54%
Standard Chartered (STAN) 603.20p -1.47%
Reckitt Benckiser Group (RKT) 6,566.00p -1.44%
BT Group (BT.A) 158.75p -1.37%
Smith & Nephew (SN.) 1,065.50p -1.34%
National Grid (NG.) 1,139.00p -1.17%
Harbour Energy (HBR) 360.00p -1.15%

FTSE 250 - Risers

TP Icap Group (TCAP) 150.50p 13.58%
Carnival (CCL) 768.20p 11.56%
4Imprint Group (FOUR) 3,710.00p 10.75%
Synthomer (SYNT) 211.40p 8.24%
Future (FUTR) 1,821.00p 7.56%
Auction Technology Group (ATG) 977.00p 6.66%
Discoverie Group (DSCV) 789.00p 6.33%
Kainos Group (KNOS) 1,439.00p 6.28%
Pets at Home Group (PETS) 362.40p 6.28%
Countryside Partnerships (CSP) 284.00p 6.21%

FTSE 250 - Fallers

Drax Group (DRX) 736.00p -5.52%
Quilter (QLT) 115.80p -3.30%
Tullow Oil (TLW) 50.90p -3.14%
Telecom Plus (TEP) 2,145.00p -2.05%
Hochschild Mining (HOC) 80.05p -1.78%
Network International Holdings (NETW) 200.20p -1.67%
Wood Group (John) (WG.) 153.55p -1.54%
Energean (ENOG) 1,218.00p -1.46%
Petrofac Ltd. (PFC) 115.30p -1.37%
NB Private Equity Partners Ltd. (NBPE) 1,585.00p -0.94%