London open: Stocks rally on Fed comments; grocery price inflation eases

London stocks rose in early trade on Tuesday, taking their cue from a positive session on Wall Street, as hopes of a pause in US rate hikes helped to offset concerns over the conflict in the Middle East.

At 0820 BST, the FTSE 100 was up 0.9% at 7,556.44.

Federal vice chairman Philip Jefferson said in a speech on Monday to the National Association for Business Economics that he would "remain cognizant" of higher bond rates and "keep that in mind as I assess the future path of policy".

Meanwhile, Lorie Logan, president of the Fed Reserve Bank of Dallas, also suggested that higher bond rates could help the Fed to slow inflation.

Richard Hunter, head of markets at Interactive Investor, said: "Markets clawed back earlier losses to finish ahead, as dovish Federal Reserve comments broadly outweighed the concerns emanating from the current Middle East conflict.

"Even with the evolving situation in the Middle East, investors remained focused on the Fed’s current thinking on interest rates and the need to contain inflation. Comments from Fed officials provided a timely boost, suggesting that the recent gains in Treasury yields, which influence rates for borrowing levels, could be doing some of the heavy lifting for them.

"In turn, this would lessen the need for additional monetary tightening, which was the news investors had been waiting for. Markets adjusted the likelihood of a no-change decision at the November meeting up to almost 90% as a result, as did the December consensus which also rose to over 70%."

On home shores, industry research out earlier showed that retail sales slowed dramatically in September, as milder weather affected seasonal clothing purchases and the cost-of-living crisis prevented consumers taking on big-ticket items like furniture and electricals.

According to the monthly Retail Sales Monitor, put together by the British Retail Consortium (BRC) and KPMG, sales rose at a year-on-year clip of 2.7% in September, down from the 4.1% jump seen in August.

That was in line with the three-month average growth of 2.7% but well below the 12-month average of 4.2%.

Food sales were up 7.4% over the three months to September, while non-food sales were down 1.2%. In-store non-food sales edged just 0.3% higher over the three-month period, while online non-food sales dropped 3.6%.

"Sales growth in September slowed as the high cost of living continues to bear down on households," said BRC chief executive Helen Dickinson.

"Big ticket items such as furniture and electricals performed poorly as consumers limited spending in the face of higher housing, rental and fuel costs. The Indian summer also meant sales of autumnal clothing, knitwear and coats, have yet to materialise."

It's important to note that the BRC-KPMG figures are not adjusted for inflation. So, with inflation still running higher than normal levels, the overall rise in sales masked a likely drop in volumes once inflation is accounted for. "As inflation eases, so too will longer-term sales growth prospects," Dickinson said.

The BRC chief also said that coming months will be "crucial" for retailers after recent heavy investments to bring prices down.

Investors were also mulling the latest data from Kantar, which showed that grocery price inflation eased for the seventh month in a row in the four weeks to 1 October, to 11% - the lowest rate since July 2022.

Tom Steel, strategic insight director at Kantar, said: "Grocery price inflation is still very high, but shoppers will be relieved to see the rate continuing to fall. For the first time since last year, the prices of some staple foods are now dropping and that’s helping to bring down the wider inflation rate."

In equity markets, airlines were recovering from the previous day’s heavy losses, with IAG and Wizz Air both higher.

However, BP and Shell - which jumped on Monday on the back of surging oil prices - did the reverse.

Electricals retailer Currys was in the black after saying it had received interest from several potential buyers for its Greek business, Kotsovolos. Responding to speculation in local media, the company said it was evaluating some non-binding offers.

Outside the FTSE 350, Irish convenience food group Greencore rallied as it said FY23 adjusted operating profit was set to be ahead of current market expectations, at between £74m and £76m.

Market Movers

FTSE 100 (UKX) 7,556.44 0.86%
FTSE 250 (MCX) 17,707.94 0.77%
techMARK (TASX) 4,143.55 0.90%

FTSE 100 - Risers

Ocado Group (OCDO) 580.00p 3.13%
Severn Trent (SVT) 2,386.00p 2.80%
Prudential (PRU) 888.00p 2.28%
Mondi (MNDI) 1,394.00p 2.20%
Flutter Entertainment (CDI) (FLTR) 13,250.00p 2.16%
Barratt Developments (BDEV) 429.70p 2.09%
International Consolidated Airlines Group SA (CDI) (IAG) 149.60p 1.94%
Ashtead Group (AHT) 4,911.00p 1.89%
Hargreaves Lansdown (HL.) 755.60p 1.89%
Burberry Group (BRBY) 1,830.00p 1.86%

FTSE 100 - Fallers

BP (BP.) 517.80p -0.48%
Shell (SHEL) 2,638.50p -0.40%
Rio Tinto (RIO) 4,934.00p -0.21%
Compass Group (CPG) 2,045.00p 0.05%
Pershing Square Holdings Ltd NPV (PSH) 2,922.00p 0.14%
Spirax-Sarco Engineering (SPX) 9,086.00p 0.18%
Scottish Mortgage Inv Trust (SMT) 673.80p 0.30%
Dechra Pharmaceuticals (DPH) 3,800.00p 0.32%
B&M European Value Retail S.A. (DI) (BME) 569.00p 0.35%
Glencore (GLEN) 453.00p 0.50%

FTSE 250 - Risers

Wizz Air Holdings (WIZZ) 1,878.50p 3.73%
Pets at Home Group (PETS) 334.00p 3.60%
Bridgepoint Group (Reg S) (BPT) 191.00p 3.35%
Currys (CURY) 48.56p 3.32%
Coats Group (COA) 73.00p 2.82%
Wood Group (John) (WG.) 153.60p 2.81%
Foresight Group Holdings Limited NPV (FSG) 411.00p 2.75%
Bellway (BWY) 2,224.00p 2.58%
Grafton Group Ut (CDI) (GFTU) 865.80p 2.57%
Jupiter Fund Management (JUP) 88.70p 2.54%

FTSE 250 - Fallers

LXI Reit (LXI) 85.75p -4.40%
Target Healthcare Reit Ltd (THRL) 73.50p -2.26%
Vesuvius (VSVS) 392.00p -2.20%
Ferrexpo (FXPO) 74.30p -1.78%
Pacific Horizon Inv Trust (PHI) 530.00p -1.30%
Plus500 Ltd (DI) (PLUS) 1,350.00p -1.17%
European Opportunities Trust (EOT) 776.00p -0.64%
Hiscox Limited (DI) (HSX) 961.50p -0.62%
BH Macro Ltd. GBP Shares (BHMG) 378.00p -0.53%
Harbour Energy (HBR) 250.80p -0.48%