London midday: Stocks gain as Fed seems less likely to hike interest rates

The FTSE gained on Tuesday as investors evaluated UK inflation data and a key speech by Federal Reserve governor Lael Brainard.

UK inflation rose 0.6% in the year to August, unchanged from July’s growth but below estimates for a 0.7% increase, the Office for National Statistics revealed. An increase in food prices and air fares was offset by cheaper prices for hotel rooms.

“August’s inflation figure undershot the MPC’s 0.8% forecast in last month’s Inflation Report, so today’s inflation release increases the likelihood that the Committee follows through on its guidance and cuts interest rates once more this year,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

“Above-target inflation in 2017, however, likely will ensure that the MPC holds back from additional government bond purchases next year once the current £60bn tranche has been completed.”

The pound fell 0.51% against the dollar to $1.3269 at 1159 BST.

The Bank of England meets on Thursday to decide on policy but is expected to keep interest rates and the asset purchase programme unchanged.

Separately, the ONS revealed UK house price growth slowed in July following Britain’s vote to leave the European Union. Prices in July rose an annualised 8.3% to an average of £217,000, compared to an upwardly revised year-on-year increase of 9.7% in June.

Elsewhere, traders continued to mull over Brainard’s speech on Monday, which was seen to suggest the Fed will refrain from hiking interest rates at the 20-21 September policy meeting. Brainard said she wanted to see a stronger trend in US consumer spending and evidence of rising inflation before the Fed raises rates. Her comments came in contrast to more hawkish remarks from Fed policymakers last week, including Eric Rosengren and Robert Kaplan.

“The Federal Reserve blackout period is now upon us, giving traders a week to speculate on the impact of what has been said and the few pieces of data we get between now and the decision next Wednesday,” said Craig Erlam, senior market analyst at Oanda.

“While a hawkish consensus does appear to be building among the committee, the absence of some key policymakers from this makes a hike at the meeting next week very unlikely.”

In China, data showed the nation’s fixed-asset investment was unchanged at 8.1% in the January to August period, better than the 7.9% expected.

Chinese industrial production grew 6.3% year-on-year in August, beating estimates for a 6.2% rise and following a 6% gain the previous month, the National Bureau of Statistics revealed.

Retail sales in the nation jumped an annualised 10.6% in August after a 10.2% increase in July. Analysts had forecast no change in growth.

In Germany, inflation remained unchanged in August at a 0.4% year-on-year rise, Destatis said, as expected by analysts.

German economic sentiment held steady in September, according to the latest survey from the ZEW Center for European Economic Research in Mannheim.

The index of investor and analyst expectations came in at 0.5, in line with the previous month but falling short of analysts’ expectations for an improvement to 2.5.

Meanwhile, oil prices fell after the International Energy Agency said the crude market will be oversupplied at least through the six months of 2017. Brent crude dropped 2.0% to $47.37 per barrel and West Texas Intermediate declined 2.3% to $45.21 per barrel at 1150 BST.

On the company front, Associated British Foods shares fell as Numis downgraded its rating on the stock to ‘hold’ from ‘add’ and cut its target price to 2,942p from 3,016p following a trading update from the Primark owner.

JD Sports rallied after the sports, fashion and outdoor brand retailer posted its interim results for the 26 weeks to 30 July, with revenue up 20% to £970.57m compared to the first half of last year.

Ocado slumped as it claimed its best quarterly volume growth in four years, although a slight acceleration in group revenue growth in the third quarter thanks to the Morrisons deal was overshadowed by comments about the tough margin environment.

Internet and telephone based insurer Esure gained on plans to demerge financial services comparison website Gocompare.com from the company.

CYBG, the holding company of the Clydesdale and Yorkshire Bank, edged lower despite announcing that has hit its targets for the first year since flotation and upped its guidance for the next three years thanks to bigger cost cuts.

Market Movers

FTSE 100 (UKX) 6,713.62 0.19%
FTSE 250 (MCX) 17,782.42 0.29%
techMARK (TASX) 3,465.40 0.65%

FTSE 100 - Risers

Fresnillo (FRES) 1,681.00p 2.81%
Burberry Group (BRBY) 1,288.00p 2.06%
Carnival (CCL) 3,434.00p 1.84%
Glencore (GLEN) 183.70p 1.58%
Shire Plc (SHP) 4,822.00p 1.52%
Randgold Resources Ltd. (RRS) 7,530.00p 1.48%
Antofagasta (ANTO) 497.10p 1.47%
London Stock Exchange Group (LSE) 2,699.00p 1.35%
Coca-Cola HBC AG (CDI) (CCH) 1,651.00p 1.35%
CRH (CRH) 2,485.00p 1.35%

FTSE 100 - Fallers

Associated British Foods (ABF) 2,719.00p -3.41%
Intu Properties (INTU) 288.70p -2.27%
Provident Financial (PFG) 2,920.00p -1.88%
British Land Company (BLND) 635.50p -1.63%
Prudential (PRU) 1,349.00p -1.39%
easyJet (EZJ) 1,137.00p -1.30%
Standard Life (SL.) 338.10p -1.17%
HSBC Holdings (HSBA) 559.40p -1.10%
BP (BP.) 424.15p -1.06%
Taylor Wimpey (TW.) 153.30p -0.90%

FTSE 250 - Risers

JD Sports Fashion (JD.) 1,399.00p 4.95%
Allied Minds (ALM) 330.00p 3.06%
Fidessa Group (FDSA) 2,508.00p 2.70%
Vedanta Resources (VED) 511.50p 2.48%
Synthomer (SYNT) 354.40p 2.43%
Aberdeen Asset Management (ADN) 327.40p 2.28%
Aveva Group (AVV) 2,003.00p 2.25%
Lancashire Holdings Limited (LRE) 664.50p 2.23%
Investec (INVP) 469.60p 2.09%
Essentra (ESNT) 517.50p 2.07%

FTSE 250 - Fallers

Ocado Group (OCDO) 276.00p -14.29%
CYBG (CYBG) 261.20p -3.94%
Circassia Pharmaceuticals (CIR) 92.70p -2.73%
Restaurant Group (RTN) 387.30p -1.95%
Countrywide (CWD) 237.80p -1.94%
Workspace Group (WKP) 702.00p -1.75%
Entertainment One Limited (ETO) 210.30p -1.73%
Brown (N.) Group (BWNG) 196.80p -1.65%
Derwent London (DLN) 2,602.00p -1.63%
Tullett Prebon (TLPR) 371.30p -1.56%