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London open: Stocks nudge lower after inflation data
London stocks nudged down in early trade on Wednesday as investors mulled the latest UK inflation figures, with sticky services inflation dampening hopes of a rate cut in August.
At 0835 BST, the FTSE 100 was down 0.1% at 8,155.59.
Data released earlier by the Office for National Statistics showed that inflation was unchanged in June, in line with the Bank of England’s target and consensus expectations.
The consumer price index grew by 2% in the year to June.
The ONS said that restaurant and hotel prices, which rose “strongly”, were the largest upward contributor. Second-hand car costs fell, but by less than this time last year. However, that was offset by widespread sales pushing down clothing and footwear prices.
Core CPI, which excludes the more volatile elements of energy, food, alcohol and tobacco, rose by 3.5% in the 12 months to June, also unchanged on May.
The consumer prices index including occupiers’ housing costs (CPIPH) also held steady compared to May, rising by 2.8%. Core CPIH was 4.2%.
The Bank of England is widely expected to cut rates, which currently stand at a 16-year high of 5.25%, later this summer.
However, while CPI remains at 2%, the BoE’s long-term inflation target, the Monetary Policy Committee has flagged concerns about the level of core CPI.
Services sector CPI also remains high, unchanged at 5.7% in June, although further falls in food prices helped offset that partially.
Paul Dales, chief UK economist at Capital Economics, said: “By staying at 5.7% in June, services inflation remained well above the 5.1% rate in June that the BoE forecast back in May.
“Admittedly, a lot of that overshoot happened in April and May. And that didn’t stop the BoE from sounding a bit dovish at the subsequent June policy meeting. Even so, the BoE expected services inflation to fall 0.2ppts in June, which didn’t happen.
“And only some of the stickiness of services inflation in June may be due to the influence of Taylor Swift’s concerts. They may have been behind some of the large rise in hotels inflation from 7.0% to 9.8%. But cultural services inflation, which would capture any influence from the ticket prices, dipped from 7.4% to 7.3%. As a result, it’s not obvious that the BoE can ignore a chunk of the stickiness of services inflation.
“Tomorrow’s release of the wage growth figures for May will shed a bit more light. But at the moment, we’re becoming even less confident in our existing forecast that the BoE will cut interest rates from 5.25% to 5.00% at the next policy meeting in August.”
In equity markets, HSBC was in focus as it promoted finance chief George Elhedery to the role of chief executive with effect from September, replacing outgoing boss Noel Quinn.
Antofagasta slumped as it warned that full-year production would be at the lower end of its guidance of 670-710,000 tonnes. Others miners were also weaker, with Glencore, Anglo American and Rio Tinto all down.
Legal & General was hit by a downgrade to ‘sector perform’ from ‘outperform’ at RBC Capital Markets.
Animal genetics firm Genus was under the cosh despite saying FY24 adjusted pre-tax profit was set to be in line with market expectations of between £58m and £61m.
Defence and aerospace group Babcock fell even as it reported a 34% surge in underlying profits in the year ended 31 March despite a £90m hit on a ship-building contract with the Royal Navy.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Barclays Plc | +2.07% | +4.70 | 232.05 |
| 2 |  |
Bt Group Plc | +1.56% | +2.15 | 139.80 |
| 3 |  |
Standard Chartered Plc | +1.40% | +10.20 | 736.40 |
| 4 |  |
Severn Trent Plc | +1.37% | +34.00 | 2,507.00 |
| 5 |  |
Ashtead Group Plc | +1.07% | +58.00 | 5,496.00 |
| 6 |  |
Croda International Plc | +0.93% | +37.00 | 4,026.00 |
| 7 |  |
Coca-cola Hbc Ag | +0.74% | +20.00 | 2,710.00 |
| 8 |  |
Bhp Group Limited | +0.73% | +16.00 | 2,207.00 |
| 9 |  |
Fresnillo Plc | +0.72% | +4.50 | 629.50 |
| 10 |  |
Lloyds Banking Group Plc | +0.72% | +0.42 | 58.92 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Antofagasta Plc | -4.04% | -86.00 | 2,042.00 |
| 2 |  |
Legal & General Group Plc | -1.87% | -4.30 | 226.10 |
| 3 |  |
Flutter Entertainment Plc | -1.82% | -290.00 | 15,660.00 |
| 4 |  |
Intertek Group Plc | -1.81% | -86.00 | 4,678.00 |
| 5 |  |
Experian Plc | -1.77% | -63.00 | 3,504.00 |
| 6 |  |
Sage Group Plc | -1.75% | -18.50 | 1,040.50 |
| 7 |  |
Burberry Group Plc | -1.62% | -11.40 | 693.20 |
| 8 |  |
Scottish Mortgage Investment Trust Plc | -1.46% | -13.00 | 880.20 |
| 9 |  |
Rentokil Initial Plc | -1.44% | -6.60 | 451.00 |
| 10 |  |
Melrose Industries Plc | -1.43% | -8.40 | 578.00 |
US close: Dow and S&P 500 hit new record highs
Both the Dow and S&P 500 hit new all-time highs on Tuesday, with the Dow in particular notching for its best daily performance in more than a year, as bellwether stocks put in an impressive performance.
With just four of the 30 Dow constituents finishing in the red, the index rose 1.85% to a new closing high of 40,954.48. This 742.76-point gain was its biggest one-day surge since June 2023. Blue chip names such as Caterpillar, Boeing, Home Depot, Amex and McDonalds were among the index’s best performers.
The S&P 500 also finished at a fresh peak, rising 0.64% to 5,667.20 – its 38th record close of the year – while the Nasdaq gained 0.2% to 18,509.34.
“The S&P 500 and Dow hit fresh record highs despite slowing retail sales as the core metric rose the most since April of last year, pointing to robust consumer spending. An around 95% probability of a September Fed rate cut also contributed to the buoyant mood,” said Axel Rudolph, senior market analyst at IG.
Small-cap stocks were outperforming again on Tuesday, with the Russell 2000 index up 3.5%.
Economic data flurry
US retail sales were unchanged in June, according to the Census Bureau, in line with economists’ expectations. The advance estimate of total monthly sales was $704.3bn last month, more or less flat on May’s revised total of $704.5bn, which was 0.3% higher than April. However, underlying sales came in much better than expected.
US import prices remained unchanged at 141.60 in June, according the Bureau of Labor Statistics, while export prices decreased to 148 last month, down from 148.70 in May.
US business inventories, a key component of GDP, rose by 0.5% month-on-month in May, according to the Census Bureau, following a 0.3% increase in April and beating Wall Street expectations for a reading of 0.3%.
Finally, July’s housing market index from the National Association of Housebuilders eased by one point to a reading of 41, the lowest reading so far in 2024 and short of the 44 expected by analysts amid expectations that interest rates will now remain higher for longer.
Banks in the spotlight
Morgan Stanley reported better-than-expected quarterly earnings on the back of a strong trading and investment banking performance. Second-quarter revenues rose 12% to $15.02bn, while profits surged 41% to $3.08bn. Earnings per share were $1.82, well ahead of Wall Street estimates of $1.65.
Bank of America jumped 5% after beating analysts’ forecasts with its second-quarter profits. The bank announced earnings per share of 83 cents, down from 88 cents a year earlier but ahead of the 80 cents consensus estimate, helped by stronger-than-expected results in investment banking and trading.
Elsewhere in the financial sector, Charles Schwab met analysts’ estimates with its second-quarter revenues and profits while total client assets hit an all-time high, but shares dropped 10% as the number of new brokerage accounts came up short.
UnitedHealth was the high riser on the Dow, jumping 6.5% after the health insurer reiterated full-year profit targets despite a bigger-than-anticipated negative impact from a cyber hack in February.
Wednesday newspaper round-up: Harland & Wolff, Octopus Energy, Microsoft
Local councils will have to adopt mandatory housing targets within months under planning reforms to be unveiled on Wednesday as part of Keir Starmer’s first king’s speech, which the prime minister says will be focused on economic growth. Starmer will introduce a package of more than 35 bills on Wednesday, the first Labour prime minister to do so in 15 years, as he looks to put the economy at the centre of his first year in office. – Guardian
Harland & Wolff, the owner of the Belfast shipyard that built the Titanic, has insisted that it is still awaiting a government decision on a £200m intervention despite signs that Labour is due to reject the financial lifeline. The company is presenting an early test of the Labour government’s industrial policy, with 1,500 workers fearful the company is running out of time to secure funding needed to make it ready to build three warships for the Royal Navy. – Guardian
Rachel Reeves is under pressure to launch a £2bn inheritance tax (IHT) raid on pension pots to help fund public spending pledges. Economists are calling on the Chancellor to introduce a death tax on unspent defined contribution (DC) pension funds, which are currently exempt from IHT. It came as Jeremy Hunt’s chief of staff revealed that Ms Reeves’ predecessor had considered the policy himself in order to fund cuts to the headline rate of IHT, while Sir Steve Webb, a former pensions minister, said the Treasury was “likely” to revisit the policy. – Telegraph
Octopus Energy is poised to build hundreds of onshore wind turbines across the countryside as Labour pushes ahead with its manifesto promise to double production. The company is preparing to submit planning applications this autumn for “multiple” onshore wind projects after Rachel Reeves, the Chancellor, scrapped a de facto ban on new sites. – Telegraph
An Australian computer scientist who was found by a High Court judge in London to have falsely claimed to have invented bitcoin could face a criminal investigation for alleged perjury. Craig Wright, 53, had publicly claimed to be the true figure behind Satoshi Nakamoto, the author of the 2008 academic paper that serves as the foundational text for the cryptocurrency. – The Times
The UK competition regulator has launched a formal investigation into Microsoft’s hiring of some former staff of Inflection AI and its partnership with the start-up. The Competition and Markets Authority is looking into Microsoft’s recruitment strategy as it seeks to ensure that the development of AI technologies remains an open market. – The Times
