London close: FTSE 100 drifts lower as sterling gets kicked higher by CPI inflation

The FTSE 100 finished Tuesday down 0.15% to 7,500.44, and the FTSE 250 closed down 0.90% to 19,859.54. This was as other European indices rose, as did Wall St, too.

UK's consumer-price index was up 2.9% year-on-year in May, its highest level since June 2013 and up from 2.7% in April. CPI rose 0.3% on the month in May, from 0.5% in April.

"The FTSE 100 is in negative territory, while the FTSE 250, which is a better measure of the British economy is up nearly 1% on the day," said David Madden at CMC Markets UK.

He said the sharp spike in the UK inflation rate pushed sterling higher, and all of a sudden the attractiveness of internationally exposed FTSE 100 stocks diminished.

Joshua Mahony of IG said the bout of sterling strength did little to help the FTSE, which was tumbling into the close despite a particularly bullish session for markets over the pond.

"It is clear that inflation is running away from the Bank of England," said Mahony.

"Mark Carney and company will no doubt be wondering whether their accomodative stance will put yet more pressure on affordability as the cost of living runs away from wage growth."

Investors and traders alike were looking ahead to Wednesday's US Federal Reserve rate meeting, where a rise was widely expected. On Thursday, BoE was expected to stand pat on rates.

The BoE remained concerned by inflation, with the rate-setting Monetary Policy Committee meeting this week, the central bank is intent on "looking through" this spike in prices, with the increased political uncertainty giving even less of a chance of an interest rate rise soon.

Against this backdrop, markets were still trying to digest the fallout from last week's general election humiliation for PM Theresa May, with Brexit talks to begin on Monday.

"Traders are looking forward to hearing about the talks between the Conservatives and the Democratic Unionist Party (DUP)," said Madden.

"The UK has been in political limbo for the past few days, and investors would love nothing more than for it to be cleared up."

On Tuesday, market participants mulled reports that Labour and Tory MPs had met for secret talks to secure cross-party backing for a soft Brexit.

According to The Telegraph, some of the most senior members of May's team have been discussing ways to force the PM to make concessions on immigration, the customs union and the single market.

In UK corporate news, London Stock Exchange zipped ahead as it benefited from the European Commission draft on clearing, which was not as bad as feared. LSE was also lifted by target price increases at RBC Capital Markets and Credit Suisse.

Advertising giant WPP was boosted by an initiation at 'buy' from UBS, while Legal & General gained after saying it has had a strong start to the year.

Outsourcer Capita surged after it reported "good progress" on its restructuring and said the turnaround of IT Services was progressing better than expected, three months after its chief executive resigned and the outsourcing group was dumped out of the FTSE 100.

Merlin Entertainments was on the back foot after it warned over the impact of the UK terror attacks and 3i was hit by a downgrade at Morgan Stanley.

3i Group was on the back foot after Morgan Stanley downgraded the stock to 'equalweight' from 'overweight', saying it was time for profit taking. "While 3i's remaining PE portfolio provides upside earnings risk, we see better risk reward elsewhere in the asset management space," it said.

Ashtead retreated despite proposing to hike its dividend by almost a quarter after it beat the City's profit forecast and foresaw another good year ahead.

BAE Systems fell as Goldman Sachs removed the stock from its Conviction List but kept it at 'buy'.

Market Movers

FTSE 100 (UKX) 7,500.44 -0.15%
FTSE 250 (MCX) 19,859.54 0.90%
techMARK (TASX) 3,580.63 0.21%

FTSE 100 - Risers

London Stock Exchange Group (LSE) 3,582.00p 5.38%
Convatec Group (CTEC) 324.00p 3.02%
Paddy Power Betfair (PPB) 8,615.00p 2.99%
International Consolidated Airlines Group SA (CDI) (IAG) 602.00p 2.29%
easyJet (EZJ) 1,353.00p 2.11%
Smurfit Kappa Group (SKG) 2,324.00p 2.02%
Hargreaves Lansdown (HL.) 1,397.00p 1.75%
ITV (ITV) 185.30p 1.59%
Worldpay Group (WPG) 314.10p 1.55%
TUI AG Reg Shs (DI) (TUI) 1,159.00p 1.49%

FTSE 100 - Fallers

3i Group (III) 901.00p -2.96%
Merlin Entertainments (MERL) 489.50p -2.68%
Ashtead Group (AHT) 1,600.00p -2.50%
Centrica (CNA) 197.00p -1.79%
Standard Chartered (STAN) 769.30p -1.32%
Randgold Resources Ltd. (RRS) 7,365.00p -1.21%
BAE Systems (BA.) 659.50p -1.12%
Shire Plc (SHP) 4,285.00p -1.05%
Unilever (ULVR) 4,256.50p -1.02%
Pearson (PSON) 717.50p -0.90%

FTSE 250 - Risers

Capita (CPI) 634.00p 15.17%
Kennedy Wilson Europe Real Estate (KWE) 1,105.00p 7.28%
Sophos Group (SOPH) 446.90p 5.48%
Assura (AGR) 62.80p 4.41%
Acacia Mining (ACA) 272.30p 4.33%
Petrofac Ltd. (PFC) 396.10p 3.75%
Intermediate Capital Group (ICP) 902.00p 3.56%
Allied Minds (ALM) 140.40p 3.37%
Halma (HLMA) 1,178.00p 3.33%
GVC Holdings (GVC) 792.50p 3.19%

FTSE 250 - Fallers

Telecom Plus (TEP) 1,201.00p -7.76%
Nostrum Oil & Gas (NOG) 500.00p -3.38%
Hochschild Mining (HOC) 284.20p -3.07%
Centamin (DI) (CEY) 171.20p -2.73%
Daejan Holdings (DJAN) 6,200.00p -2.59%
IP Group (IPO) 132.00p -2.29%
CLS Holdings (CLI) 196.60p -2.26%
Petra Diamonds Ltd.(DI) (PDL) 121.60p -2.01%
Evraz (EVR) 192.80p -1.38%
Barr (A.G.) (BAG) 640.50p -1.24%