LONDON MARKETS: U.K. Stocks Pull Back From Record High With Inflation Data On Deck

By Sara Sjolin, MarketWatch

M&S rallies after earnings

U.K. stocks fell from an all-time high on Wednesday, as geopolitical risks returned to the fore after U.S. President Donald Trump expressed doubts his high-level meeting with North Korea will happen.

The U.K. inflation report due Wednesday morning was also in the spotlight, as the data may weaken or strengthen the case for a Bank of England interest rate rise this summer, analysts said.

What are markets doing?

The FTSE 100 index lost 0.4% to reach 7,845.32, after logging two straight days of record closes.

The pound dropped to $1.3381 from $1.3432 late Tuesday in New York. Sterling is now trading around its lowest level since late December.

What is driving the markets?

Stocks in London declined as part of a broader global selloff prompted by worries about Trump's latest comments on North Korea and the China trade talks. The U.S. president said late Tuesday there is a "very substantial chance" the historic meeting between him and North Korea's leader Kim Jong Un won't happen in June as planned (http://www.marketwatch.com/story/trump-says-summit-with-north-koreas-kim-may-happen-later-than-scheduled-2018-05-22) unless Pyongyang meets certain conditions.

Separately, Trump said Tuesday said he was "not satisfied" with the latest round of trade talks with China (http://www.marketwatch.com/story/trump-today-president-suggests-world--class-poker-player-xi-to-blame-for-shift-in-north-koreas-attitude-about-summit-2018-05-22). Global equity markets have rallied in recent days on signs of an easing in tensions between the world's two largest economies, cooling the risk of a full-blown trade war.

U.K. inflation in focus

The inflation report for April is likely to be the highlight of the day. Economists expect consumer prices rose 2.5% last month, the same as in March.

Earlier this year, the level topped 3%, significantly above the Bank of England's 2% target and squeezing already struggling households. The high rate of inflation has added pressure on the central bank to raise interest rates, but Governor Mark Carney says the economy isn't strong enough to prompt a hike.

The inflation report is due at 9:30 a.m. London time, or 4:30 a.m. Eastern Time.

What are strategists saying?

"Should we see another undershoot by inflation this month, optimism of a late summer rate hike would be dented, pulling the pound lower towards $1.33. Given the pound's inverse relationship with the FTSE, a weaker pound could help the FTSE on its way to fresh uncharted territory on target to 8,000," said Jasper Lawler, head of research at London Capital Group, in a note.

"On the contrary, a surprise to the upside could be enough to boost the pound back towards $1.36, which would bring the FTSE back from its current lofty levels and record highs," he added.

Check out:One reason the Bank of England might not be in a hurry to raise rates (http://www.marketwatch.com/story/heres-a-reason-why-the-bank-of-england-might-not-be-in-a-hurry-to-raise-rates-2018-05-22)

Stock movers

Shares of Marks & Spencer Group PLC (MKS.LN) (MKS.LN) jumped 4.2% after the retailer posted profit ahead of expectations (http://www.marketwatch.com/story/marks-spencer-2018-pretax-profit-plummets-62-2018-05-23).

Standard Chartered PLC (STAN.LN) rose 2.4% after a report in the Financial Times that Barclays PLC (BCS) (BCS) is exploring merger options (http://www.marketwatch.com/story/barclays-explores-merge-options-ft-2018-05-23), including a tie-up with Standard Chartered. Barclays sources, however, dismissed the report (https://www.reuters.com/article/us-barclays-m-a/barclays-has-no-plans-for-tie-up-with-rival-banks-sources-idUSKCN1IO0OK?utm_campaign=trueAnthem:+Trending+Content&utm_content=5b05162404d301382da1be81&utm_medium=trueAnthem&utm_source=twitter), according to Reuters.

(END) Dow Jones Newswires

May 23, 2018 04:09 ET (08:09 GMT)

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