ADVFN Morning London Market Report: Wednesday 16 June 2021

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London open: Stocks rise as inflation jumps past BoE target

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London stocks rose in early trade on Wednesday as investors digested news that inflation jumped past the Bank of England’s 2% target in May for the first time in nearly two years.

At 0835 BST, the FTSE 100 was up 0.5% at 7,205.86.

Figures released earlier by the Office for National Statistics showed that consumer price inflation rose to 2.1% in May from 1.5% in April, coming in above expectations for a reading of 1.8% as more businesses reopened after Covid restrictions were eased. It marked the highest consumer price inflation reading since July 2019.

Meanwhile, core inflation – which strips out volatile elements such as food and energy – increased to 2% in May from 1.3% the month before, coming in above consensus expectations of 1.5%.

The ONS said the largest upward contribution to the inflation rate came from transport. Rising prices for clothing, motor fuel, recreational goods, and meals and drinks consumed out also contributed.

ONS chief economist Grant Fitzner said: “The rate of inflation rose again in May and is now above 2% for the first time since the summer of 2019.

“This month’s rise was led by fuel prices which fell this time last year, but have jumped this year thanks to rising crude prices. Clothing prices also added upward pressure as the amount of discounting fell in May.”

After the European close, all eyes will be on the latest policy announcement from the US Federal Reserve.

Richard Hunter, head of markets at Interactive Investor, said investors are on high alert for any changes in outlook.

“The accompanying comments from the Fed meeting will be closely scrutinised, with further evidence of a strengthening recovery and inflationary pressures guiding the next steps. At some point, there will need to be a signal that the currently easy monetary conditions will be scaled back. The expectation is that the subject of tapering some of the relief has at least made its way to the table for discussion, if not immediate action.

“This will follow on from the latest set of data, showing another spike in wholesale inflation and a drop in retail sales which was more than anticipated. The increasing success of the vaccination programme and therefore the mobility of the population is being reflected in a move towards spending on services and away from goods, as consumers look to spend in public rather than in private.”

In equity marketsTullow Oil gushed higher after saying its production to the end of May was in line with expectations and that it is increasing the volume of oil it protects with hedging to 75% of the group’s output for the next two years.

On the downside, telecommunications company Helios Towers slumped after a share placing.

Hipgnosis lost ground after the music rights buyer said it planned to raise £150m in a share placing to fund what it called a “substantial” pipeline of songs.

 

Top 10 FTSE 100 Risers

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# Name Change Pct Change Cur Price
1 Mondi Plc +1.78% +34.50 1,973.00
2 Sainsbury (j) Plc +1.62% +4.10 257.90
3 Johnson Matthey Plc +1.43% +45.00 3,184.00
4 Kingfisher Plc +1.38% +4.80 351.90
5 Prudential Plc +1.33% +20.00 1,521.50
6 Ferguson Plc +1.32% +130.00 9,948.00
7 Smiths Group Plc +1.31% +21.50 1,656.50
8 Bunzl Plc +1.30% +30.00 2,334.00
9 Bt Group Plc +1.24% +2.45 199.80
10 St. James’s Place Plc +1.21% +17.50 1,468.00

 

Top 10 FTSE 100 Fallers

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# Name Change Pct Change Cur Price
1 Glencore Plc -2.09% -6.70 314.30
2 Anglo American Plc -1.95% -58.50 2,940.50
3 Associated British Foods Plc -1.10% -26.00 2,341.00
4 Evraz Plc -0.86% -5.40 623.20
5 Bhp Group Plc -0.80% -17.00 2,114.00
6 Vodafone Group Plc -0.77% -1.02 130.98
7 Carnival Plc -0.74% -13.00 1,735.60
8 Antofagasta Plc -0.61% -9.00 1,459.50
9 Imperial Brands Plc -0.59% -9.50 1,605.50
10 Marks And Spencer Group Plc -0.58% -0.90 155.05

 

Europe open: Shares up as investors eye Fed for view on inflation

European shares were just below record highs at the opening on Wednesday, as investors were still waiting to see if the US Federal Reserve was starting to think about tapering asset purchases.

The pan-European STOXX 600 was up 0.18% with most regional bourses higher.

Britain’s FTSE 100 was up 0.26% despite an unexpected spike in inflation above the Bank of England’s 2% target in May. The standard CPI reading leapt from 1.5% to 2.1%, while the core figure surged from 1.3% to 2%.

Gains on the commodity-heavy index were boosted by a rise in in Brent crude to its highest since April 2019. Shares in BP and Shell were higher as a result.

In company news, shares in French retailer Colruyt fell to the bottom of the Stoxx, down 8.6% as the company pulled forward guidance as full year comparable revenue rose 1.7%.

 

US close: Retail sales, producer prices push equities lower

A weaker-than-expected reading on the key monthly retail sales report alongside faster growth in producer prices knocked stocks lower by the close on Wall Street on Tuesday.

The Dow Jones Industrial Average closed down 0.27% at 34,299.33, while the S&P 500 lost 0.2% to 4,246.59 and the Nasdaq Composite was off 0.71% at 14,072.86.

Fresh data released earlier showed industrial production in the United States rose 0.8% in May, just above the consensus for 0.7%.

Pantheon Macroeconomics chief economist Ian Shepherdson noted that headline production was lifted by a rebound in mining extraction, up 1.1%, while manufacturing output rose a “solid” 0.8%.

“Within the manufacturing sector, a hefty 6.7% rebound in vehicle production more than reversed the 5.6% April drop, suggesting that production has settled at a level consistent with the availability of chips.

“Production is down about 5% from the pre-Covid level, but sales have fully recovered, so inventory remains under pressure. In manufacturing ex-autos, output rose 0.5%, after a 0.3% increase in April.

“The numbers are noisy, but it appears that the trend rate of increase has slowed markedly from the fall and early winter pace.”

Still, Shepherdson said survey evidence suggested output was rising at a decent clip, leading to hope for solid June numbers.

“Manufacturing production is now back to the pre-Covid level, though the cumulative losses are yet to be recovered.

“Employment in the sector is still more than 500,000 down on its pre-Covid level, so productivity has jumped sharply, but it’s not clear how much of this can be sustained.

“The chart shows that manufacturing output ex-autos is back to its pre-Covid level, but the rate of growth has slowed in recent months.”

Beyond economic data, investors were waiting on the results of the Federal Reserve’s policy meeting on Wednesday, making the latest inflation readings all the more important.

According to Bank of America, 72% of fund managers surveyed described the current inflation pressures as “transitory”.

JPMorgan‘s Jamie Dimon said he was unconvinced that inflation was transitory, however.

Dimon told a conference that the lender was “hoarding” cash in anticipation of higher interest rates because there was a “very good chance” that inflation was here to stay.

Elsewhere on the corporate front, Boeing stock ascended 0.57% following reports that Brussels and Washington had agreed a five-year truce in their long-running dispute about each others’ subsidies to their respective aircraft makers.

ExxonMobil was also in the spotlight, rising 3.64%, after analysts at Bank of America told clients the oil major was likely to hike its dividend before the end of 2021.

 

Wednesday newspaper round-up: Morgan Stanley, rail chiefs, pension triple lock

Less than half of the 260 smaller companies listed on the London Stock Exchange’s main index have met the target of having a third of their board roles occupied by women, and more than half still have all-male executive leadership teams. The campaign group Women on Boards UK has analysed all firms below the FTSE 350 All-Share index, and identified what it calls a “permafrost” of smaller businesses below the top layer that have been slow in taking steps to diversify. – Guardian

The chief executive of Morgan Stanley has become the latest US banking boss to call for an end to remote working, telling his New York staff that anyone who feels safe going out to a restaurant should return to the office. James Gorman admitted that the bank would take a different approach in countries such as India or the UK – where fewer than 25% of its 5,000 London staff have been going to work in person – due to stricter Covid restrictions. – Guardian

Rail chiefs have warned steep cuts to services will be required to balance the books with passenger demand set to take years to recover to pre-pandemic levels. Bosses formally fired the starting gun on a slew of cuts across the industry to reduce the £800m-a-month subsidy from taxpayers. – Telegraph

Savers pulled £806 million out of a property fund that had been closed for almost 17 months when it reopened for business. Outflows from the M&G Property Portfolio Fund last month equated to 40 per cent of its assets, according to Morningstar, the data provider. It means that the fund has shrunk from £2 billion to £1.2 billion. – The Times

Rishi Sunak could be forced to spend up to £4 billion more on pensioners from next year if he sticks to the Conservative Party’s “triple lock” pledge. The potential for extra pension funding was part of the latest jobs data from the Office for National Statistics, which said that average weekly pay, excluding bonuses, had risen by 5.6 per cent year-on-year in the three months from February to April 2021. – The Times

 

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