London close: Inflation data pulls consumer stocks lower

The FTSE 100 finished the session down 0.26% at 7,830.70, and the FTSE 250 was off 0.29% at 19,890.90.

Sterling was meanwhile above the waterline, last gaining 0.58% on the dollar to $1.2357, as it strengthened 0.32% against the euro to trade at €1.1422.

“It’s been another broadly positive session for markets in Europe, after US inflation and retail sales pointed to a slowing economy, and the prospect of a slower path in rate hikes,” said CMC Markets chief market analyst Michael Hewson.

“The FTSE 100 has once again underperformed after the latest UK inflation numbers served to put upward pressure on the pound, after month-on-month inflation came in above expectations at 0.4%, and annual core inflation remained steady at 6.3%.

“This yield divergence is no better displayed than in two-year gilt yields, which have slipped by one-basis point, and US two-year yields, which are lower by 11-basis points.”

Hewson said that on the positive side on the UK benchmark, basic resource stocks were leading the way higher as copper prices rose to their strongest levels since June last year, pulling the likes of Glencore, Antofagasta and Anglo American higher.

“On the downside, soaring food price inflation, which came in at 16.9%, along with a stronger pound, appears to be weighing on consumer staples and retailers, with declines from the likes of Unilever, Reckitt Benckiser, Haleon, JD Sports and Next.”

In economic news, UK inflation eased in December but remained close to a 40-year high, according to figures from the Office for National Statistics.

Consumer price inflation eased to 10.5% from 10.7% in November, falling for the second month in a row.

Economists had been expecting the inflation rate to be unchanged.

A drop in petrol and clothing prices was behind the decline, helping to offset higher prices in hotels, restaurants, food and non-alcoholic drinks.

Meanwhile, the core rate of inflation - which excludes food, energy, alcohol and tobacco - was flat at 6.3%.

Capital Economics said the small fall in CPI inflation and unchanged core rate "suggests it is too early for the Bank of England to declare victory in its fight against inflation".

"This supports our view that the Bank will raise Bank Rate from 3.50% now to a peak of 4.50% in the coming months."

On the continent, meanwhile, consumer price inflation in the eurozone eased last month according to Eurostat, in line with an earlier flash estimate.

Final inflation was confirmed at 9.2% year-over-year, down from 10.1% in November.

That was primarily due to lower energy inflation, with energy prices in the bloc up 25.5% on the year in December, down from 34.9% growth the month before.

Core inflation rose by 0.2 percentage points to 5.2%, in line with the consensus expectations and the initial estimate.

“With core inflation likely to prove sticky, we maintain our ECB call of two further 50 basis points hikes in the first quarter,” said analysts at Oxford Economics.

“Beyond that, recent developments, both in terms of favourable inflation data and falling gas prices, support our call that the ECB is likely to pause afterwards.”

Across the pond, wholesale prices in the United States undershot market expectations by a wide margin at the end of last year.

According to the Department of Labor, final demand prices fell at a seasonally-adjusted month-on-month pace of 0.5% in December, compared to consensus expectations for a 0.1% retreat.

Compared to a year ago, final demand prices were ahead by 6.2%, below forecasts for a print of 6.8%.

Industrial output in the US meanwhile weakened noticeably at the tail-end of 2022, as production of business equipment fell sharply.

According to the Department of Commerce, total industrial production dropped in December at a seasonally-adjusted month-on-month pace of 0.7%, against expectations for a 0.1% fall.

That was on top of a downwards revision to the prior month's reading, to -0.6% from -0.2%.

Staying stateside, US retail sales softened by much more than expected towards the end of 2022.

The Department of Commerce said that in seasonally adjusted terms, retail sales volumes shrank by 1.1% month-on-month to reach $677.1bn, faster than the 0.8% fall expected.

Excluding automobile sales, volumes fell by 1.1%, also beating expectations for a 0.5% decline.

Finally on the economic front, the Bank of Japan surprised markets earlier by leaving its yield curve control measures unchanged, as it maintained its cheap-money policy, sparking a surge in equities but sending the domestic currency lower.

Markets had been expecting a change to the BoJ’s super-loose monetary policy after the central bank in December allowed the yield of the 10-year bond to move 0.5% away from its 0% target, instead of the previous 0.25% range limit set.

The BoJ kept short-term policy rates at -0.1% and long-term rates at around 0%.

Its tolerance range for 10-year government bond yields, which was expanded at the last meeting, was also maintained at a band of 0.50%.

“We think that the BoJ will continue to stick to its current YCC policy, after leaving YCC unchanged today,” Oxford Economics noted.

“The BoJ will continue to be forced to intervene in the Japanese government bond market actively in the coming quarters, but a slowdown in inflation together with calming global yields should gradually alleviate upward pressures on the yield curve in the second half of 2023.”

On London’s equity markets, online grocer Ocado Group added 3.93%, after tanking on Tuesday following a disappointing update on its Ocado Retail joint venture with Marks and Spencer Group.

Luxury fashion brand Burberry Group rose 3.3% despite saying it took a hit from Covid-19 disruption in its key market of China.

Like-for-like sales grew by only 1% to £756m in the three months to the end of December, compared with a rise of 7% a year earlier and against a forecast increase of 2%.

Diversified engineer Smiths Group rallied 1.49% after lifting its full-year guidance, while electricals retailer Currys surged 11.34% after it backed its full-year guidance, with a solid performance in the UK and Ireland helping to offset weakness in the international segment.

Antofagasta was in the black by 3.33%, even after the Chilean copper miner said output fell 10.4% last year, mainly due to lower ore grades and a drought.

The company said production of the key metal came in at 646,200 tonnes in 2022 - at the lower end of forecasts.

On the downside, TI Fluid Systems tumbled 13.86% after the company said sales in China had been hit in the fourth quarter due to Covid restrictions and a switch to electric vehicles in the country.

The manufacturer of automotive fluid storage systems for light vehicles said 2022 revenue was expected to be around €3.26bn, up 10% year on year.

However, it warned that group constant currency revenue growth was expected to be 100 basis points behind global light vehicle production (GLVP) growth due to the rapid transition of domestic Chinese original equipment manufacturers (OEM) to electric vehicles "which presents a short-term mix issue for the group in that market".

WH Smith slid 2.91% after reporting “continued momentum” across its global travel business since the start of the financial year, resulting in sales being up 48% on 2019 and 77% higher versus 2022.

That was despite passenger numbers remaining well below 2019 levels.

Meanwhile, its UK high street division delivered a good performance, the company said, in line with expectations.

In broker note action, British Land closed down 1.04% despite an upgrade to ‘buy’ at Bank of America Merrill Lynch, while Segro was hit 2.09% by a rating downgrade from the same outfit.

Reporting by Josh White for Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesti and Alexander Bueso.

Market Movers

FTSE 100 (UKX) 7,830.70 -0.26%
FTSE 250 (MCX) 19,890.90 -0.29%
techMARK (TASX) 4,500.19 -0.83%

FTSE 100 - Risers

Glencore (GLEN) 576.60p 4.29%
Ocado Group (OCDO) 761.80p 3.93%
Burberry Group (BRBY) 2,318.00p 3.34%
Antofagasta (ANTO) 1,799.50p 3.33%
Experian (EXPN) 3,049.00p 2.97%
International Consolidated Airlines Group SA (CDI) (IAG) 161.04p 2.61%
Anglo American (AAL) 3,672.50p 2.33%
Persimmon (PSN) 1,460.00p 2.28%
InterContinental Hotels Group (IHG) 5,580.00p 2.20%
Sage Group (SGE) 775.80p 2.03%

FTSE 100 - Fallers

BT Group (BT.A) 128.00p -3.18%
Haleon (HLN) 317.95p -2.83%
Diageo (DGE) 3,667.50p -2.63%
Reckitt Benckiser Group (RKT) 5,830.00p -2.54%
Coca-Cola HBC AG (CDI) (CCH) 1,919.00p -2.27%
SEGRO (SGRO) 832.20p -2.09%
GSK (GSK) 1,410.00p -1.93%
British American Tobacco (BATS) 3,070.50p -1.90%
Unilever (ULVR) 4,095.00p -1.69%
Whitbread (WTB) 2,978.00p -1.65%

FTSE 250 - Risers

Currys (CURY) 66.75p 11.34%
Dunelm Group (DNLM) 1,074.00p 3.77%
TUI AG Reg Shs (DI) (TUI) 190.45p 3.76%
ASOS (ASC) 761.00p 2.98%
Vesuvius (VSVS) 414.60p 2.93%
Digital 9 Infrastructure NPV (DGI9) 94.50p 2.83%
Coats Group (COA) 70.20p 2.78%
888 Holdings (DI) (888) 95.45p 2.30%
Greggs (GRG) 2,636.00p 2.17%
Pagegroup (PAGE) 453.40p 2.12%

FTSE 250 - Fallers

TI Fluid Systems (TIFS) 116.80p -13.86%
Baltic Classifieds Group (BCG) 144.20p -3.87%
Wood Group (John) (WG.) 147.90p -3.68%
Auction Technology Group (ATG) 733.00p -3.43%
NCC Group (NCC) 188.40p -3.38%
Assura (AGR) 55.30p -3.07%
Bridgepoint Group (Reg S) (BPT) 234.80p -3.06%
Supermarket Income Reit (SUPR) 101.50p -2.87%
Moonpig Group (MOON) 113.40p -2.83%
Synthomer (SYNT) 146.40p -2.59%