The FTSE 100 closed higher on Wednesday, as investors hope that a cool-than-expected US inflation reading may indicate that rate hikes may end soon.
The FTSE 100 index closed up 39.12 points, or 0.5% at 7,824.84 on Wednesday. The FTSE 250 ended up 46.68 points, or 0.3%, at 19,002.73. The AIM All-Share closed up 2.53 points, or 0.3%, at 819.38.
The Cboe UK 100 ended up 0.5% at 782.52, the Cboe UK 250 closed up 0.1% at 16,545.60, and the Cboe Small Companies ended up 0.5% at 13,648.01.
According to the Bureau of Labor Statistics, the US yearly inflation rate faded to 5.0% in March, from 6.0% in February. It had been expected to ease to 5.2%, according to FXStreet cited consensus.
‘US inflation has cooled to 5%, which suggests the cure of higher interest rates is working. But core inflation remains stubbornly elevated, and that will continue to cause concern at the Federal Reserve, even if they choose to pause their rate-hiking activities,’ said Laith Khalaf, head of investment analysis at AJ Bell.
Core inflation, which excludes food and energy, picked up, however, to 5.6% from 5.5%. The figure was in line with consensus.
For many, core price pressure remaining strong sets the stage for another 25 basis point rate hike by the Federal Reserve next month. However, James Knight, chief international economist at ING, thinks that will mark the peak for the Fed funds rate.
‘The Fed’s dual mandate of price stability and maximizing employment gives them greater flexibility than most other central banks. Assuming we are correct that inflation slows rapidly through the second half of the year and the unemployment rate starts to rise, we see the potential for the Fed to cut rates by 100bp before the end of the year,’ Knight said.
The Federal Open Market Committee next meets between May 2 and 3. Minutes from its March meeting, when it lifted rates by 25 basis points to a range of 4.75% to 5.00%, are released at 1900 BST on Wednesday.
The dollar was on the back foot following the fresh data and ahead of the March meeting minutes.
The pound was quoted at $1.2460 at the London equities close on Wednesday, up from $1.2427 at the close on Tuesday. The euro stood at $1.0978, higher against $1.0914. Against the yen, the dollar was trading at JP¥133.14, lower compared to JP¥133.61 late Tuesday.
Matthew Ryan, head of market strategy at financial services firm Ebury, said the dollar sell-off has been a ‘knee-jerk move’, calling it a ‘slight overreaction’.
‘It’s worth noting that the drop in the headline number was almost entirely driven by the decline in energy prices, and that core inflationary pressures, which we assign far greater importance, remain strong,’ he said.
Stocks in New York were largely lower at the London equities close, with the Dow Jones Industrial Average up 0.1%, the S&P 500 index down 0.1%, and the Nasdaq Composite down 0.4%.
In London, Ashtead, DCC and Glencore were the best blue-chip performers at the close on Wednesday. The stocks were up 2.5%, 3.8%, and 2.7%, respectively.
Amongst the FTSE 100’s worst performers were International Consolidated Airlines, Flutter Entertainment and Ocado. The stocks were down 3.8%, 2.3%, and 2.8%, respectively.
In the FTSE 250, Tullow Oil was the worst performer in the index, closing down 6.0% after Jefferies cut the oil producer to ’underperform’ from ’hold’, with a reduced price target of 25 pence. The stock is currently trading at 30.42p.
Elsewhere in London, Treatt climbed 5.8% after it said it expects revenue to increase to £75.9 million for the six months ended on March 31. This would represent growth of 15% from £66.3 million the year before.
Chief Executive Officer Deammon Reeve said: ‘We’ve had a strong half with record sales performance, particularly driven by our largest category, citrus, where we have both strengthened our longstanding relationships with some of the biggest beverage companies whilst also winning some new customers.’
De La Rue dropped 19% as it announced it has been hurt by demand for banknotes sinking to a more than 20-year low.
The security printed products maker said it expects adjusted operating profit for the year ended March 25 to be ‘a mid-single digit percentage below market expectations’. In financial 2022, adjusted operating profit was £36.4 million.
Nonetheless, De La Rue said it is seeing signs of recovery, with a ‘significant number of new tenders actively underway’, though it added that the pace of a bounce back is uncertain.
DP Eurasia rose 8.3% despite reporting a lower profit in 2022 as the increase in the cost of sales outpaced revenue growth.
The master franchisee for Domino’s Pizza in Russia, Turkey, Azerbaijan and Georgia said pretax profit in 2022 fell 11% to ?191 million, about £8.0 million, from ?215 million in 2021.
Revenue grew 7.6% to ?2.22 billion from ?2.06 billion. Cost of sales, however, increased 10% to ?1.40 billion from ?1.27 billion, while general administrative expenses were 7.2% higher at ?282 million compared to ?263 million.
On AIM, Bezant Resources plunged 38% after it launched a fundraise to facilitate its mining operations in Namibia and Botswana.
The copper and gold explorer and developer said it will issue 1.88 billion shares at a price of 0.04 pence. The issue price is a 33% discount to its closing price of 0.06p on Tuesday.
Bezant explained the proceeds will be put towards technical studies and negotiations with contractors, and undertaking a reconnaissance exploration at an anomaly identified during its airborne survey.
In European equities on Wednesday, the CAC 40 in Paris ended up 0.1%, while the DAX 40 in Frankfurt ended up 0.3%.
Brent oil was quoted at $86.99 a barrel at the London equities close on Wednesday, up from $85.22 late Tuesday. Gold was quoted at $2,008.47 an ounce, higher against $2,002.83.
In Thursday’s UK corporate calendar, there are full-year results from UK grocer Tesco and a trading statement from consumer products firm PZ Cussons.
In the economic calendar, UK GDP data will be released at 0700 BST alongside German inflation data. The US will publish a PPI print at 1330 BST.
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