London close: Stocks rise as US inflation comes in cooler

The FTSE 100 ended the session up 0.76% at 7,502.89, and the FTSE 250 was ahead 1.42% at 19,086.29.

Sterling was in a mixed state, last trading up 0.81% on the dollar at $1.2368, while it weakened 0.04% against the euro to change hands at €1.1639.

“After being in hibernation since the US November payrolls and services ISM reports, the peak inflation narrative got another lift this afternoon when US CPI rose by its lowest annual number this year, sending European markets sharply higher,” said CMC Markets chief market analyst Michael Hewson.

“A number of 7.1% was below expectations of 7.3% and offered a boost to those who think that the Federal Reserve may not have to go as hard, or as far on rate hikes as we head into 2023.”

Whether or not that narrative survived first contact with Fed chair Jay Powell tomorrow, and the post-meeting press conference, remained to be seen, Hewson said, but he added it was getting to the point that Fed officials could no longer dismiss the direction of travel for headline inflation as one single data point.

“A trend appears to be forming as far as inflation is concerned, with the only question now being whether we will start to see that same trend start to play out here in the UK and Europe.”

In economic news, the cost of living in the US slowed a bit more quickly than expected in November, as energy and used vehicle prices continued to retreat.

The Department of Labor reported a year-on-year increase in the headline consumer price index of 7.1%, short of expectations for a 7.3% rise, while at the core level, the annual rate slipped to 6.0% against the 6.1% economists had pencilled in.

In month-on-month terms, headline CPI increased by 0.1% and core CPI by 0.2% - both below the anticipated 0.3% readings.

Paul Ashworth, chief North America economist at Capital Economics, said November's consumer inflation print would be making it harder for the Federal Reserve to dismiss the previous month's better-than-expected figures as a one-off.

"The Fed will still hike its policy rate by 50-basis points tomorrow, and the new projections could show the peak above 5%, but the 0.2% month-on-month increase in core consumer prices in November provides strong support to our long-held view that mounting disinflation will soon persuade the Fed to move to the side line after one 25-basis point hike in early February,” he said.

On home shores, the number of people unemployed in the UK ticked higher in October according to official data, as real term wages fell.

The Office for National Statistics said the jobless rate rose 0.1 percentage points in the three months to October, to 3.7%.

Growth for both average total pay - which includes bonuses - and regular pay, which excludes them, was 6.1% over the three months, making for the strongest increase outside of the pandemic period.

Once adjusted for inflation, however, total and regular pay both fell in real terms by 2.7% year-on-year.

The ONS said the fall was among the largest since comparable records began in 2001.

It said that 417,000 working days were lost because of labour disputes in October, the highest since November 2011.

Another wave of industrial action was set to begin this week, with rail workers, nurses and postal staff all due to strike over pay and working conditions.

The ONS data also showed an uptick in the employment rate, however, which rose 0.2 percentage points to 75.6%.

It said the number of employees increased during the period, while the number of self-employed fell.

“The labour market has now turned,” said Kitty Ussher, chief economist at the Institute of Directors.

“While unemployment is still thankfully very low by historical standards, it has started to march upwards.

“The Bank of England therefore needs to pause for thought before continuing its aggressive path of interest rate rises.”

Elsewhere, supermarket sales surged last month according to fresh industry data, driven by historic levels of food inflation.

According to NielsenIQ, total till sales jumped 7.6% in the four weeks to 3 December, compared to growth of 5.3% in the previous month.

The spike in sales was largely a result of double-digit food inflation, however, with shoppers otherwise remaining cautious, Nielsen noted.

It said customers had focussed on core essentials during the month, boosting value growth in categories such as dairy, pet food and frozen food.

“With double digit food inflation, shoppers will be spending more to buy less this Christmas,” said Mike Watkins, head of retailer and business insight at the market research firm.

“If the current momentum is maintained, the sales at the grocery multiples will be the highest yet - around £12.6bn - in the next week, with spending during Christmas week ending 24 December topping £4bn for the first time.

“Even so, volume sales will fall by around 4% at the supermarkets this Christmas.”

Finally on data from the continent, German inflation nudged lower in November as energy prices softened.

According to the federal statistics office Destatis, the consumer price index rose 10.0% year-on-year in November, compared to 10.4% in October, and in line with both consensus and the first estimate.

The harmonised index of consumer prices was unchanged on the previous month at 11.3%.

German business sentiment meanwhile improved slightly in December, according to a survey from the ZEW Center for European Economic Research in Mannheim.

The headline investor expectations index rose to -23.3 from -36.7 in November, coming in above consensus expectations for a reading of -26.4.

At the same time, the current conditions index improved to -61.4 in December from -64.5 a month earlier, but was below consensus expectations of -57.0.

On London’s equity markets, Synthomer surged 13.03% after saying it had sold its laminates, films and coated fabrics businesses to Surteco North America for $255m (£208m).

The cash would be used to repay debt in order to strengthen the group's balance sheet and support a reduction in leverage, the company said.

Retailers were also on the rise, with online grocer Ocado Group ahead 4.57%, while JD Sports Fashion added 1.41% and B&Q owner Kingfisher gained 2.12%.

Asos shares bounced back 4.8% after Monday's fall, which was driven by a report that the fast fashion retailer was in talks with lenders on appointing a restructuring expert.

On the downside, engine maker Rolls-Royce was down 2.4% after JPMorgan Cazenove maintained its ‘underweight’ rating on the shares and placed them on ‘negative catalyst watch’.

British American Tobacco was in the red by 1.66% after the US Supreme Court rejected a bid from the tobacco industry to block a California ban on flavoured tobacco products overnight.

The ban, which was overwhelmingly approved by voters in November, would prohibit the sale of most flavoured tobacco products, including menthol cigarettes.

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

Market Movers

FTSE 100 (UKX) 7,502.89 0.76%
FTSE 250 (MCX) 19,086.29 1.42%
techMARK (TASX) 4,427.81 0.63%

FTSE 100 - Risers

Intermediate Capital Group (ICP) 1,235.00p 5.65%
Ocado Group (OCDO) 700.00p 4.57%
Antofagasta (ANTO) 1,483.00p 4.07%
Ashtead Group (AHT) 5,056.00p 3.82%
Prudential (PRU) 1,100.00p 3.68%
Scottish Mortgage Inv Trust (SMT) 780.00p 3.39%
Hargreaves Lansdown (HL.) 885.40p 3.39%
Smurfit Kappa Group (CDI) (SKG) 3,095.00p 3.27%
Convatec Group (CTEC) 234.80p 3.25%
SEGRO (SGRO) 818.00p 3.23%

FTSE 100 - Fallers

Rolls-Royce Holdings (RR.) 90.46p -2.56%
Centrica (CNA) 90.52p -1.84%
Imperial Brands (IMB) 2,026.00p -1.70%
British American Tobacco (BATS) 3,252.50p -1.66%
Pearson (PSON) 913.20p -1.49%
BAE Systems (BA.) 821.00p -1.20%
Informa (INF) 615.60p -1.03%
Vodafone Group (VOD) 86.49p -0.65%
Unilever (ULVR) 4,105.50p -0.40%
London Stock Exchange Group (LSEG) 7,608.00p -0.24%

FTSE 250 - Risers

Synthomer (SYNT) 132.70p 13.03%
Molten Ventures (GROW) 398.60p 8.08%
Hochschild Mining (HOC) 68.55p 5.95%
HGCapital Trust (HGT) 360.00p 5.88%
Mitchells & Butlers (MAB) 135.40p 5.70%
Aston Martin Lagonda Global Holdings (AML) 161.80p 5.61%
Bridgepoint Group (Reg S) (BPT) 204.80p 5.51%
IP Group (IPO) 60.75p 5.29%
Liontrust Asset Management (LIO) 1,080.00p 4.85%
ASOS (ASC) 568.00p 4.80%

FTSE 250 - Fallers

Volution Group (FAN) 350.50p -8.49%
Moonpig Group (MOON) 119.60p -3.55%
easyJet (EZJ) 369.80p -2.63%
Beazley (BEZ) 626.50p -2.49%
Ferrexpo (FXPO) 154.10p -1.91%
PureTech Health (PRTC) 279.50p -1.76%
ICG Enterprise Trust (ICGT) 1,148.00p -1.71%
Babcock International Group (BAB) 286.20p -1.45%
Jlen Environmental Assets Group Limited NPV (JLEN) 122.40p -1.29%
Balfour Beatty (BBY) 340.60p -1.22%