London close: Stocks rise as US inflation undershoots forecasts

The FTSE 100 rose by 0.83%, closing at 8,215.48, while the FTSE 250 saw a more substantial increase of 1.14%, finishing at 20,497.40.

In currency markets, sterling was last up 0.79% on the dollar to trade at $1.2841, while it slipped 0.18% against the euro, changing hands at €1.1842.

“Just when all hope of a rate cut in 2024 seemed lost, today’s CPI reading has provided fresh reasons to expect a cut this year,” said IG chief market analyst Chris Beauchamp.

“While the Fed decision is still to come, and might surprise with hawkish commentary, markets might well choose to ignore tonight and hope today marks the resumption of the downward trend in inflation that gave such hope in the second half of 2023.”

Beauchamp said the past few sessions had seen stock markets hit by several blows - first the strong payrolls reading, and then the surprise French election, which took US and then European markets down in turn.

“But the afternoon has seen a classic risk-on move - stocks are up, and the dollar and volatility are both down.

“Today’s post-CPI reaction shows there is still plenty of money prepared to get behind further gains in equities, though the Fed meeting tonight could still be a trigger for more volatility.”

US inflation comes in cooler than expected, UK economy stagnates

In economic news, the cost of living in the US remained unchanged in May, driven by a significant decrease in energy prices.

The Department of Labor reported that headline consumer prices were flat for the first time since July 2022, contrary to economists' expectations of a 0.1% rise.

Annually, the headline CPI growth rate eased to 3.3%.

Energy prices fell by 2.0%, breaking a three-month streak of increases, while food prices inched up by 0.1%.

Core CPI, excluding energy and food, rose by just 0.2%, below the forecasted 0.3%, while supercore services prices, excluding housing, dipped by 0.04%, marking their first decline since September 2021.

Year-on-year, underlying inflation dropped to 3.4% from 3.6% in April.

Notably, prices for new vehicles and apparel declined, while medical care commodities surged by 1.3%, and shelter costs rose by 0.4%, contributing to a 5.4% annual increase.

“The May consumer price index was softer than expected and showed continued disinflationary progress, which will be welcomed by the Federal Reserve," said Bernard Yaros, lead US economist at Oxford Economics.

“Yet, after a string of unfavourable inflation readings at the beginning of the year, the central bank will need a bit more evidence to ensure that inflation is sustainably headed to its 2% target.”

On home shores, the UK economy showed no growth in April, following a 0.4% expansion in March, as per the Office for National Statistics.

That stagnation aligned with analysts' expectations.

The services sector grew by 0.2% in April, marking its fourth consecutive monthly increase, and 0.9% over the three months to April.

However, production output fell by 0.9% after a 0.2% rise in March but was up 0.7% over the three-month period.

Construction output declined by 1.4% in April, continuing its three-month fall, down 2.2% over the same period.

The ONS attributed the declines in manufacturing and construction to unusually wet weather, with April’s rainfall at 155% of the long-term average.

“Overall, despite the stalling of the recovery in April, the dual drag on economic growth from higher interest rates and higher inflation will continue to fade throughout the year,” said Paul Dales, chief UK economist at Capital Economics.

“That will generate a bit of an economic tailwind for the next government.”

A Reuters poll meanwhile indicated that the Bank of England was currently expected to cut interest rates in August, marking the first reduction since 2020.

Out of 65 economists surveyed, all but two picked a rate cut by the BoE's Monetary Policy Committee in August, with the remaining two anticipating a September cut.

Since December 2021, the BoE has raised rates 14 times to 5.25%, a 16-year high, in an effort to curb soaring inflation.

With inflation now down to 2.3% from a peak of 11.1% in October 2022, the central bank had paused rate hikes since August 2023.

However, high wage and services inflation persist at around 6%.

The poll's median forecast suggests the Bank Rate will drop to 4.75% by year-end.

Finally on data, China saw a slight increase in consumer inflation in May, with the consumer price index rising by 0.3%, unchanged from April and slightly below the expected 0.4% increase, according to the National Bureau of Statistics.

Month-on-month, CPI fell by 0.1%, reversing April's 0.1% rise.

Meanwhile, producer prices declined by 1.4%, an improvement from April's 2.5% drop and better than the anticipated 1.5% fall.

Producer prices have remained in deflation since 2022, reflecting ongoing challenges in the industrial sector.

Rentokil in the green, L&G slides on share buyback plans

On London’s equity markets, Rentokil Initial surged 14.14% after reports that activist investor Nelson Peltz’s Trian Management had acquired a substantial stake in the pest control company.

According to Bloomberg, Trian Management was now among Rentokil's top 10 shareholders.

On the downside, Legal & General Group dropped 5.47% after announcing a £200m share buyback.

The company revealed plans to restructure into three core units and pledged to increase shareholder returns.

Legal & General projected a 5% dividend growth in 2024, followed by 2% annual growth, alongside additional share repurchases from 2024 to 2027.

“The strategy and targets set out today signal L&G’s ambition and commitment to invest to grow our business, and reward our shareholders for their support,” said chief executive António Simões.

Safestore Holdings fell 4.17% as the self-storage company indicated that it expects annual earnings to fall within the lower half of consensus forecasts.

The decline followed a report of reduced interim core earnings amid challenging market conditions.

Octopus Renewables Infrastructure Trust slipped 2.15% after updating investors on its construction and development activities.

Outside the FTSE 350, DFS Furniture declined by 1.95%.

The sofa retailer issued another profit warning, citing weaker demand and disruptions in the Red Sea.

DFS revised its pre-tax profit forecast for the 2024 financial year to between £10m and £12m, down from previous guidance of £20m to £25m.

The company also noted a potential additional profit risk of up to £4m if Red Sea shipping delays persist until year-end.

Revenue expectations were adjusted to between £995m and £1bn, down from the prior range of £1bn to £1.02bn.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 8,215.48 0.83%
FTSE 250 (MCX) 20,497.40 1.14%
techMARK (TASX) 4,815.44 0.33%

FTSE 100 - Risers

Rentokil Initial (RTO) 472.20p 13.73%
St James's Place (STJ) 533.00p 4.92%
Persimmon (PSN) 1,498.00p 3.88%
3i Group (III) 3,082.00p 3.77%
Rightmove (RMV) 573.00p 3.69%
Intermediate Capital Group (ICG) 2,352.00p 3.61%
Diploma (DPLM) 4,234.00p 3.42%
Halma (HLMA) 2,350.00p 3.34%
Kingfisher (KGF) 263.20p 3.30%
RS Group (RS1) 725.50p 3.11%

FTSE 100 - Fallers

Legal & General Group (LGEN) 229.80p -5.47%
B&M European Value Retail S.A. (DI) (BME) 472.20p -2.41%
Flutter Entertainment (DI) (FLTR) 14,240.00p -1.80%
Vodafone Group (VOD) 69.00p -1.57%
Smurfit Kappa Group (CDI) (SKG) 3,542.00p -1.34%
BP (BP.) 464.90p -0.74%
Ocado Group (OCDO) 352.10p -0.68%
GSK (GSK) 1,605.00p -0.62%
Mondi (MNDI) 1,469.50p -0.61%
Glencore (GLEN) 462.90p -0.57%

FTSE 250 - Risers

Ibstock (IBST) 159.20p 5.15%
Workspace Group (WKP) 583.00p 4.69%
OSB Group (OSB) 470.20p 4.07%
Howden Joinery Group (HWDN) 895.00p 4.07%
SSP Group (SSPG) 169.00p 3.87%
Derwent London (DLN) 2,380.00p 3.66%
Investec (INVP) 539.00p 3.64%
Redrow (RDW) 719.00p 3.53%
Genuit Group (GEN) 451.00p 3.44%
Supermarket Income Reit (SUPR) 72.90p 3.40%

FTSE 250 - Fallers

FirstGroup (FGP) 157.60p -4.37%
Safestore Holdings (SAFE) 793.50p -4.17%
Caledonia Investments (CLDN) 3,460.00p -2.59%
BH Macro Ltd. GBP Shares (BHMG) 346.50p -2.25%
Octopus Renewables Infrastructure Trust (ORIT) 72.80p -2.15%
Apax Global Alpha Limited (APAX) 151.20p -1.95%
Playtech (PTEC) 462.00p -1.91%
Petershill Partners (PHLL) 207.00p -1.90%
IP Group (IPO) 46.85p -1.88%
Direct Line Insurance Group (DLG) 198.00p -1.66%