City of London skyline
Investors look to Bank of England for possible UK interest rate cuts / Image source: Adobe

London’s FTSE 100 extended its win streak to three days on Wednesday, on the back of more favourable inflation data, this time from the UK, possibly bringing forward the tantalising prospect of interest rate cuts.

Gains for stocks in London were largely broad-based. Interest rate sensitive sectors such as housebuilding property investment shone. Banks, whose net interest margins were once the beneficiaries of rising rates, also climbed on hopes that pressure on the UK consumer is abating.

The FTSE 100 index rose 46.44 points, 0.6%, at 7,486.91. The FTSE 250 closed up 140.35 points, 0.8%, at 18,676.48, and the AIM All-Share added 5.85 points, 0.8%, at 715.57.

The Cboe UK 100 rose 0.4% at 746.38, the Cboe UK 250 added 0.6% at 16,152.06, and the Cboe Small Companies climbed 0.8% at 13,293.88.

In European equities, the CAC 40 in Paris rose 0.3%, while the DAX 40 in Frankfurt climbed 0.9%.

UK consumer price inflation cooled dramatically last month, undershooting the Bank of England’s forecasts, and sealing a victory for Prime Minister Rishi Sunak in his goal to halve inflation by the end of the year.

The Office for National Statistics said UK consumer prices rose 4.6% annually in October, easing sharply from the 6.7% pace in September.

The data helped reinforce the market’s expectation that UK interest rates have peaked.

Scope Markets analyst Joshua Mahony commented: ‘Looking under the hood, October inflation was always set to see a huge slump as we see the 2% October 2022 figure drop out of the annual calculation. As such, today’s announcement is likely to be as good as it gets in terms of a one-month decline, with the disinflation pathway likely to be very gradual until we start to see it gather momentum from February onwards. Nonetheless, today does show the world why many are confident that we will see the Bank of England cut interest rates in the second half of 2024, with headline CPI looking on course to move back below target by May.’

The UK reading came with investors still cheering a US inflation slowdown, which took some sting out of Federal Reserve interest rate expectations on Tuesday.

According to the Bureau of Labor Statistics, the consumer price index rose by 3.2% in October from a year before, slowing from a 3.7% increase in September. The inflation rate had been expected to cool only to 3.3%, according to FXStreet-cited market consensus.

Boyar Asset Management analyst Jonathan Boyar commented: ‘Clearly (at least initially) investors seem to like the report as it helps the narrative that the Fed is done hiking. The report gives credence to the argument that inflation is starting to be tamed. However, investors should remember there have been a number of false starts.

‘It is worth noting that one of the lagging indicators for inflation is how they calculate housing, and weakening housing will give more credence that rates might have peaked. There is a good chance that ’higher for longer’ will not be the buzz word in 2024. This would be positive for equities, particularly small caps. Hopefully, the Fed has learned from their mistakes in being too lax in keeping rates down for too long a period of time and they will not make the same mistake twice and refuse to lower rates as that would make a painful recession more likely.’

On Wednesday, annual US producer price growth was weaker than expected, reinforcing the disinflation narrative, while separate numbers on Wednesday showed retail sales were better-than-forecast.

According to the Census Bureau, US retail sales fell 0.1% in October from September. It was better than the 0.3% decline that was forecast, according to FXStreet cited consensus.

Wednesday’s data eased some pressure on the dollar.

Sterling was quoted at $1.2448 late Wednesday afternoon in London, lower than $1.2475 at the European equities close on Tuesday. The euro traded at $1.0864, up from $1.0855. Against the yen, the dollar was quoted at JP¥150.91, up versus JP¥150.85.

Gold, with its inverse relationship to the greenback, surrendered some strides it made in the wake of the US consumer price index data on Tuesday. The precious metal was quoted at $1,962.09 an ounce at the time of the London equities close on Wednesday, slightly off the $1,964.57 it bought on Tuesday.

Equities in New York were on the up at the time of the closing bell in London. The Dow Jones Industrial Average was 0.4% higher, the S&P 500 added 0.5%, while the Nasdaq Composite climbed 0.6%.

Interest rate sensitive stocks in London continued to rise, cheering the consumer inflation data from both sides of the pond.

Housebuilder Crest Nicholson climbed 0.7%, while property investor British Land rose 1.1%.

Also on the up were banking stocks. Although robust interest rates have boosted margins for lenders, it came at the expense of consumer confidence as pressure on the UK economy mounted.

A brighter outlook for the economy lifted shares in NatWest and Lloyds by 1.8% and 2.0%.

Brent oil was trading at $81.59 a barrel late Wednesday, down from $83.42 on Tuesday.

Chinese retail sales grew by more than expected, boosted by an extended holiday at the start of the month. Retail sales jumped 7.6% on-year in October, according to the National Bureau of Statistics, up from September’s 5.5% and the highest growth since May. It was ahead of the market consensus of 7.0%, as cited by FXStreet.

Meanwhile, industrial production growth in October crept up to 4.6%, beating forecasts that it would mean unchanged from September’s 4.5%.

‘China’s data were uninspiring, and more stimulus is in the pipeline,’ Bannockburn Global Forex analyst Marc Chandler commented.

‘China has announced a series of new fiscal measures, and added support for the property market is being considered. The IMF’s new forecast is for the Chinese economy to grow 4.2% next year, which seems on the low side.’

London-listed miners climbed nonetheless, with BHP up 0.7% and Rio Tinto rising 0.4%.

Experian surged 7.5% as its half-year earnings impressed, easing some pressure on the consumer credit checking company’s shares which suffered after numbers from US-listed peers disappointed.

For the six months that ended on September 30, pretax profit grew 48% to $763 million in the six months to September 30 from $517 million a year prior.

Revenue grew 5.2% to $3.42 billion from $3.25 billion the year before, due to ‘good’ organic revenue growth across all regions, with a 4% increase in North America, 11% in Latin America, 1% in the UK and Ireland and 8% in Europe, the Middle East and Africa and Asia Pacific.

Elsewhere in London, Fuller, Smith & Turner rallied 12% as it hailed ‘strong progress’ in its half-year, raised its dividend and announced a new share buyback.

The London-based UK pub and hotel chain said in the six months to September 30, pretax profit jumped 39% to £14.9 million from £10.7 million a year prior.

Revenue climbed 12% to £188.8 million from £168.9 million.

The company raised its interim dividend per share by 42% to 6.63 pence from 4.68p. It also announced its intention to buy back a further one million ’A’ shares, after completing its previous buyback of 1 million shares at an average price of 580 pence.

Thursday’s economic calendar has Japanese trade data overnight, before the latest US jobless claims reading and an industrial production report from the world’s largest economy at 1330 GMT and 1415 GMT.

The UK corporate calendar has half-year results from luxury retailer Burberry and pub firm Young & Co’s, as well as trading statements from insurer Aviva and aerospace company Melrose Industries.

Over in New York, focus will once again turn to the US consumer, as Walmart releases third-quarter results.

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Issue Date: 15 Nov 2023