London midday: Stocks rally as UK inflation rises to 11-month high

London stocks advanced on Tuesday as the latest figures showed UK inflation rose to an 11-month high in December and as disappointing Chinese data raised stimulus hopes.

The UK consumer price index increased 0.2% year-on-year in December, as expected by analysts, compared to 0.1% in November, the Office for National Statistics revealed.

A jump in airfares last month was offset by another slump in oil prices.

Core inflation, which excludes volatile items such as fuel and food, rose 1.4% year-on-year in December, following a 1.2% increase in November. Analysts had pencilled in a 1.2% increase.

“Although CPI core inflation has been trending slightly up since June 2015, we believe the Bank of England would like solid proof that core inflation is increasing,” said Danske Bank.

“Our main scenario is that the BoE will increase the Bank Rate for the first time in Q2 16, probably in May.”

The Bank of England is targeting inflation of 2% and left interest rates unchanged last month in light of weak CPI.

BoE Governor Mark Carney was due to speak in London at 1200 GMT, potentially offering clues on when the central bank might raise rates.

Elsewhere, China’s gross domestic product rose 6.8% in the fourth quarter compared to the same period a year ago, weakening from the previous quarter’s 6.9%. Analysts had expected GDP to remain unchanged from the third quarter and the government is targeting 7% growth.

“On this occasion, I think the markets may have been relieved that the numbers were not as bad as they could have been, given the challenges facing the economy during this period of transition and slowing global growth,” said Craig Erlam, senior market analyst at Oanda.

“There is also the fact that there is still plenty of scope for fiscal and monetary stimulus to plug any gaps that appear in the coming years during this period of transition, which occurs at a time when the country is also trying to liberalise its markets, something that has faced many challenges already and will likely continue to do so this year.”

Separately data showed Chinese retail sales rose 11.1% year-on-year in December, missing expectations for an 11.3% increase.

Industrial production climbed 5.9% in December from a year ago, below estimates for a 6% gain.

In the Eurozone, inflation rose 0.2% in December, up from 0.1% in November but well below the European Central Bank’s target of just below 2%.

Eurostat said an increase in prices at restaurants, cafes, tobacco and vegetables was offset by declines in fuels for transport, heating oil and gas.

Meanwhile, oil prices recovered from the previous session with Brent crude up 5.5% to $30.23 per barrel and West Texas Intermediate up 4.0% to $30.18 per barrel.

However, the International Energy Agency warned in its monthly report that crude oil is expected to remain oversupplied until at least late this year. The IEA said oil prices will fall further as supply exceeds demand, while Iran’s return to the market is unlikely to be balanced out by production cuts from other countries.

In corporate stocks, miners were the biggest risers at midday as investor sentiment in China improved on hopes of further stimulus and as the country’s President Xi Jinping left on Tuesday for the Middle East to try to forge deals for laying infrastructure in the region. Anglo American, Glencore and BHP Billiton rallied.

AstraZeneca gained after Barclays upgraded the stock to ‘equalweight’ from ‘underweight’ and lifted the target price to 5,000p from 4,400p following a review of the pipeline and the recent Acerta Pharma and ZS Pharma deals.

BAE Systems slumped after Credit Suisse downgraded the stock to ’underperform’ from ‘neutral’, saying it was not the bank’s preferred defence name, particularly after its recent strong run.

Rio Tinto jumped as it increased iron ore production in the fourth quarter of 2015 by 11% to 87m tonnes.

Unilever was a high riser as it said pre-tax full year profits fell 6% to €7.2bn, despite a 10% rise in turnover to €53.27bn.

British Land edged up as it hailed a strong third quarter for retail and offices, with a dividend up 2.5%.

Market Movers

FTSE 100 (UKX) 5,903.39 2.14%
FTSE 250 (MCX) 16,160.58 1.26%
techMARK (TASX) 3,093.76 1.30%

FTSE 100 - Risers

Anglo American (AAL) 259.15p 11.39%
Glencore (GLEN) 83.54p 11.16%
BHP Billiton (BLT) 646.30p 6.16%
Old Mutual (OML) 160.20p 5.53%
Rio Tinto (RIO) 1,720.00p 5.36%
Antofagasta (ANTO) 367.60p 5.03%
TUI AG Reg Shs (DI) (TUI) 1,223.00p 4.44%
Prudential (PRU) 1,401.50p 4.08%
Aberdeen Asset Management (ADN) 231.70p 3.62%
Lloyds Banking Group (LLOY) 66.10p 3.35%

FTSE 100 - Fallers

BAE Systems (BA.) 503.50p -1.08%
Tesco (TSCO) 160.40p -0.71%
Worldpay Group (WI) (WPG) 301.90p -0.00%
SABMiller (SAB) 4,134.00p 0.27%
Smith & Nephew (SN.) 1,108.00p 0.45%
Sainsbury (J) (SBRY) 240.70p 0.50%
Imperial Tobacco Group (IMT) 3,586.00p 0.50%
Direct Line Insurance Group (DLG) 371.20p 0.57%
Merlin Entertainments (MERL) 407.10p 0.69%
Associated British Foods (ABF) 3,025.00p 0.77%

FTSE 250 - Risers

Ocado Group (OCDO) 279.00p 15.05%
Evraz (EVR) 62.90p 7.43%
Ophir Energy (OPHR) 85.80p 6.06%
Tullow Oil (TLW) 133.70p 5.94%
Vedanta Resources (VED) 214.80p 4.37%
Man Group (EMG) 157.10p 4.32%
Cairn Energy (CNE) 133.90p 4.12%
Investec (INVP) 429.70p 3.62%
Fidelity China Special Situations (FCSS) 125.00p 3.56%
BGEO Group (BGEO) 1,711.00p 3.51%

FTSE 250 - Fallers

Home Retail Group (HOME) 149.70p -2.22%
Allied Minds (ALM) 289.10p -2.00%
Jardine Lloyd Thompson Group (JLT) 858.00p -1.94%
Vesuvius (VSVS) 288.50p -1.67%
Jimmy Choo (CHOO) 128.10p -1.46%
Savills (SVS) 788.00p -1.44%
Marshalls (MSLH) 306.20p -0.97%
Tullett Prebon (TLPR) 317.90p -0.97%
Restaurant Group (RTN) 512.00p -0.78%
SIG (SHI) 132.10p -0.75%