LONDON MARKETS: FTSE 100 Swings Higher After Unexpected Decline In Inflation

By Carla Mozee, MarketWatch

Royal Mail climbs after results

U.K. stocks turned modestly higher Tuesday, finding relief as the pound pulled back on data showing British inflation unexpectedly eased.

The FTSE 100 index rose 0.2% to 7,417.71, recovering from a loss of as much as 0.6% logged earlier in the session. Utility and financial shares were showing gains, but basic material and consumer goods shares were among decliners.

The index flipped higher as the pound was drawn to an intraday low of $1.3016 after the Office for National Statistics said U.K. consumer-price inflation rose 2.6% in June (http://www.marketwatch.com/story/uk-inflation-slows-unexpectedly-in-june-2017-07-18). That's lower than a 2.8% rate expected in a FactSet poll of analysts. Inflation in May hit 2.9%, a four-year high.

The FTSE 100 moved higher as a weaker pound can help the many large multinational companies on the London index that generate revenue and earnings in overseas markets.

The inflation reading "spells a momentary setback for the pound, as softer inflation reduces expectations of an early rise in U.K. interest rates," wrote Mihir Kapadia, CEO of Sun Global Investments.

Sterling had hit an intraday high of $1.3107 as the U.S. dollar fell to lows not seen since September 2016. That was spurred after Republican leaders in the U.S. Senate late Monday ditched their bill to repeal and simultaneously replace (http://www.marketwatch.com/story/health-care-overhaul-seems-sunk-as-two-more-republicans-oppose-senate-bill-2017-07-17) much of the Affordable Care Act, or "Obamacare," after it became clear it wouldn't have enough votes to pass.

The pound later traded at $1.3026, down from $1.3054 late Monday in New York.

First Take:Could GOP health-care bill's implosion actually lead to a bipartisan solution? (http://www.marketwatch.com/story/could-gop-health-care-bills-implosion-lead-to-bipartisan-solution-2017-07-17)

"This implies that [U.S. President Donald] Trump's tax reform agenda may be now more difficult to implement and may take longer to arrive, as the cuts in health care were expected to finance some of the promised fiscal measures," said Charalambos Pissouros, senior analyst at IronFX, in a note.

U.K. equities were driven higher after Trump's election in November, on the prospect that lower corporate taxes, higher fiscal spending and a pickup in inflation in the U.S. would benefit banks, construction companies and others.

Metals in focus: But Tuesday's decline in the dollar failed to bolster prices for metals, which are denominated in the U.S. currency. In turn, shares of mining companies lost ground. Iron ore producer BHP Billiton PLC (BLT.LN) (BHP.AU) (BHP.AU) fell 1.2%, and diversified miner Anglo American PLC (AAL.LN) lost 1.3%.

Rio Tinto PLC (RIO) (RIO) (RIO) shares were down 1.7%. On Tuesday, the mining company lowered its export guidance for iron ore (http://www.marketwatch.com/story/rio-tinto-reduces-iron-ore-export-forecast-2017-07-17) on weather and maintenance disruption.

But precious metals miners Fresnillo PLC (FRES.LN) and Randgold Resources PLC (RRS.LN) picked up 0.3% and 0.6%, respectively.

Stock movers: Royal Mail PLC (RMG.LN) jumped 3.4% after the company reported a 1% rise in first-quarter revenue (http://www.marketwatch.com/story/royal-mail-revenue-rises-on-european-strength-2017-07-18) as a strong performance at its Europe-wide parcel delivery business offset weakness in the U.K.

(END) Dow Jones Newswires

July 18, 2017 06:40 ET (10:40 GMT)

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