LONDON MARKETS: U.K. Stocks Pull Back From Record High As Inflation Misses Mark

By Sara Sjolin, MarketWatch

Trump comments on China, North Korea in focus; 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 pound slumped to a 2018 low after data showed U.K. inflation unexpectedly fell in April.

What are markets doing?

The FTSE 100 index lost 1.1% to close at 7,788.44, after logging two straight days of record closes.

The pound dropped to an intraday low of $1.3305, from $1.3432 late Tuesday in New York, after inflation data missed forecasts. 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

Consumer prices rose 2.4% in April, down from 2.5% in March and missing forecasts of a 2.5% reading.

Earlier this year, the inflation 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 Gov. Mark Carney says the economy isn't strong enough to prompt a hike.

The faster-than-expected fall in inflation could ease pressure on the BOE to hike rates this summer, analysts said.

What are strategists saying?

"U.K. consumers and the Bank of England will both welcome today's drop in inflation to 2.4%," said Kevin Doran, chief investment officer at AJ Bell, in a note.

"U.K. consumers will be glad to see average wage increases starting to outstrip inflation and for the spending power of the pound in their pocket pick up further. Mark Carney and his team on the Monetary Policy Committee will be happy to see inflation continue to fall back toward the 2% target and will reinforce their decision not to increase interest rates in May," he added.

The BOE kept rates on hold at its May meeting, citing weaker-than-expected economic growth. Up until a few weeks before the decision, markets were pricing in an around 90% chance of a rate rise.

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

Energy companies weighed on the London benchmark as oil prices moved sharply lower (http://www.marketwatch.com/story/oil-loses-ground-as-opec-reportedly-weighs-output-rise-2018-05-23)after data showed a surprise jump in weekly U.S. crude supplies. Royal Dutch Shell PLC (RDSA.LN) (RDSA.LN) lost 3.1%, its biggest one-day percentage loss since Feb. 6, and BP PLC BP PLC (BP.LN) (BP.LN) gave up 1.9%.

Shares of Marks & Spencer Group PLC (MKS.LN) (MKS.LN) jumped 5.2% 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 0.4% 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 shares closed 1.1% lower. Barclays sources 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.

Babcock International Group PLC (BAB.LN) climbed 2.6% after the support-services provider said profit before tax increased by 8% in fiscal 2018 (https://www.google.dk/search?q=babcock&rlz=1C1GGRV_enGB752GB752&oq=babcock&aqs=chrome..69i57j69i60l2j0l3.935j0j9&sourceid=chrome&ie=UTF-8).

(END) Dow Jones Newswires

May 23, 2018 12:16 ET (16:16 GMT)

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