Benjamin Franklin on $100 bill
Investors brace for US CPI reading / Image source: Adobe

Stock prices were mixed on Thursday midday in London, while water companies rose after Ofwat decided to raise tap water price caps for customers in England and Wales.

The FTSE 100 index was up 20.09 points, 0.3%, at 8,213.60. The FTSE 250 was down 5.06 points at 20,922.70, and the AIM All-Share was up 3.69 points, 0.5%, at 776.54.

The Cboe UK 100 was up 0.3% at 818.70, the Cboe UK 250 was flat at 18,174.40, and the Cboe Small Companies was up 0.6% at 17220.98.

In European equities on Thursday, the CAC 40 in Paris was up 0.5%, while the DAX 40 in Frankfurt was up 0.3%.

‘Risk sentiment has improved into today’s US June CPI report, perhaps as markets expect the figures to keep the Federal Reserve on track for a September rate cut, which is 20bp priced in,’ said ING’s Francesco Pesole.

Thursday’s data is expected to show the US annual inflation rate cooled to 3.1% in June, from 3.3% in May.

A hotter-than-expected reading could support the argument for higher interest rates for longer, while an in-line or cooler one could solidify expectations for a rate cut in September.

But, on Wednesday, Jerome Powell said the central bank will not want to wait for inflation to cool to its 2% target before considering a rate cut. He was speaking on the second day of a testimony to lawmakers in Washington.

‘We’ve said that you don’t want to wait until inflation gets all the way down to two percent, because inflation has a certain momentum,’ Powell told the US House Financial Services Committee.

‘If you waited that long, you’ve probably waited too long,’ he added. In such a scenario, inflation would go well below the target level – which is also an undesirable outcome.‘

Stocks in New York were called lower, ahead of the CPI data. The Dow Jones Industrial Average, the S&P 500 index, and the Nasdaq Composite are all called down 0.1%.

Already on Thursday, markets have been digesting some economic data from the UK, which show that the economy returned to growth in June.

Data from the Office for National Statistics showed that UK gross domestic product rose by 0.4% in May from April, having been flat on-month a month earlier. This was hotter-than-expected, with FXStreet pencilling in a 0.2% increase.

Davy’s Kevin Timoney commented: ’At face value, there is no urgency arising from recent UK macroeconomic data to encourage the Bank of England to ease monetary policy. Elevated wage growth and services inflation also suggest there could be a further delay to long-anticipated rate cuts this calendar year. However, the bigger picture is that UK growth has been weak for some time; despite a pick-up in activity this year, the economy remains well below its pre-pandemic trend, in part due to Brexit.‘

The pound was quoted at $1.2880 at midday on Thursday in London, higher compared to $1.2846 at the equities close on Wednesday. The euro stood at $1.0851, up against $1.0827. Against the yen, the dollar was trading at JP¥161.55, lower compared to JP¥161.74.

In the FTSE 100, Severn Trent and United Utilities added 2.8% and 2.6%, respectively. The FTSE 250’s Pennon Group added 8.0%.

The UK water watchdog Ofwat said that average water bills in England and Wales are expected to rise by £94 over next five years. This means that prices will increase by around £19 a year.

‘Any negotiation requires give and take and, while the increase in bills announced by regulator Ofwat is less than most names in the sector were looking for, the market reaction suggests this isn’t a bad outcome from the perspective of its listed constituents,’ AJ Bell’s Russ Mould explained.

‘Note, this is a draft decision and there is scope for firms to push for a bit more generosity before the final verdict in December.’

Severn Trent also said its financial performance for the year remains on track and it continues to expect to perform in line with guidance.

Meanwhile, Pennon Group said that Steve Buck has stepped down as chief financial officer.

Buck will be succeeded by Laura Flowerdew, as the board enacts its internal succession plan. Flowerdew is chief customer and digital officer of Pennon Group and previously CFO at Bristol Water.

On the other end of the FTSE 100 index, DCC lost 2.4%, after it said its DCC Energy arm sold a majority stake in its liquid gas distribution business in Hong Kong and Macau at an enterprise value of $150 million.

The Dublin-based sales, marketing and support services provider didn’t say the exact size of the stake that was sold to Citadel Pacific Ltd. But DCC said it will receive $105 million out of a total enterprise value, on a debt- and cash-free basis, of $150 million, suggesting it sold a 70% stake.

Elsewhere, Shares in Rosebank Industries blossomed on in their first day of trading on AIM in London on Thursday.

The stock was up 74% from its initial public offer price to 434.00p.

Rosebank is run by founders and former senior managers of Melrose Industries PLC and will follow a similar strategy of buying and improving industrial companies.

Brent oil was quoted at $85.45 a barrel at midday in London on Thursday, up from $85.40 late Wednesday. Gold was quoted at $2,382.90 an ounce, higher against $2,379.50.

Still to come on Thursday’s economic calendar, there is the US initial jobless claims data out at 1330 BST.

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Issue Date: 11 Jul 2024