New York Wall Street
Stocks jump after cooler than expected US inflation / Image source: Adobe

The FTSE 100 ended higher on Wednesday, while peers in Europe received much-needed respite after a tricky start to the week, as a cooler US inflation reading gave stocks a shot in the arm before the Federal Reserve decision later.

Results from European elections hurt equities on the continent, the CAC 40 in Paris in particular, though Wednesday’s US data offered stocks some relief.

All eyes will be on whether there is a hawkish or dovish tilt to the Fed’s decision, projections and subsequent press conference with Chair Jerome Powell later.

The FTSE 100 index ended up 67.67 points, 0.8%, at 8,215.48. The FTSE 250 closed up 230.55 points, 1.1%, at 20,497.40, and the AIM All-Share rose 5.85 points, 0.8%, at 787.36.

The Cboe UK 100 surged 1.0% to 819.42, the Cboe UK 250 jumped 1.2% to 17,970.81, and the Cboe Small Companies rose 0.1% at 16,780.99.

In European equities on Wednesday, the CAC 40 in Paris ended up 1.0%, while the DAX 40 in Frankfurt rose 1.4%.

In New York, the Dow Jones Industrial Average was 0.3% higher, the S&P 500 surged 1.2% and the Nasdaq Composite jumped 1.9%.

The pound was quoted at $1.2836 at the time of the London equities close on Wednesday, up from $1.2722 at the same time on Tuesday. The euro stood at $1.0848, higher against $1.0727. Against the yen, the dollar was trading at JP¥155.77, markedly lower compared to JP¥157.26.

‘Lighter than expected US inflation figures have fired up the market and got investors rubbing their hands, predicting the rate cut gravy train will start its journey soon,’ AJ Bell analyst Dan Coatsworth commented.

‘Equities bounced on the news, but we’ve been here plenty of times before. While inflation is slowing, it remains well above the 2% target and so one shouldn’t expect a rate cut at the Fed’s meeting later today.’

The Bureau of Labor Statistics reported that the year-on-year US consumer price inflation rate cooled to 3.3% in May from 3.4% in April. According to FXStreet, markets were expecting the rate of inflation to be steady, however.

On a monthly basis, consumer prices were flat, easing from a 0.3% rise in April from March. Prices had been expected to register a 0.1% increase.

The yearly core inflation rate, which strips out food and energy, eased to 3.4% from 3.6%. Markets had been expecting prices to cool to just 3.5%.

ING analysts commented: ‘This needs to become the trend after a series of far too hot readings at the start of the year. We think it will be and with unemployment on the rise we expect the Fed to cut rates in September.

‘Today’s outcome following on from the April core PCE deflator and the Beige Book summary should give the Fed the confidence to amend the sentence in the FOMC statement that previously said ’in recent months, there has been a lack of further progress toward the committee’s 2% inflation objective’. It should also allow a dovish spin from the Fed’s Powell this afternoon even if the Fed themselves surprise and switch to projecting just one rate cut from the three cuts they projected at their March forecast update.’

In London, Rentokil jumped 14%.

The activist investment firm of billionaire investor Nelson Peltz has become a major stakeholder in Rentokil, Bloomberg reported on Tuesday.

Trian Fund Management is now a top 10 shareholder in the Crawley, England-based pest control and hygiene firm, Bloomberg said, adding it isn’t clear the exact size of the stake.

Analysts at Citi said although Trian has not yet set out any plans for its investment, ‘we think it is possible that they ask for a relisting of Rentokil in the US given the valuation gap with its rival pest operator Rollins Inc.’

On the other hand, Legal & General lost 5.5%, making it the worst performing FTSE 100 stock at midday.

L&G announced plans for a ‘simpler and better-connected business’, focused on three core divisions, alongside a share buyback, as new Chief Executive Antonio Simoes attempts to make his mark on the London-based insurer.

‘Over the last five months we have rigorously reviewed our business, listening to investors, customers, partners and employees. This work has deepened my belief in our strong foundations and excellent potential,’ Simoes commented.

Tool and equipment hire firm HSS Hire Group slumped 14% after it said it has lost Amey as a client.

HSS said it has been notified by Amey of its decision to move to another supplier for the provision of its equipment-rental managed service contract.

The supplier agreement will end early December.

The agreement, which began in December 2015, accounted for approximately 7% of HSS revenue and 10% of adjusted earnings before interest, tax, depreciation and amortisation in 2023.

Amey is a London-based provider of engineering services for transport infrastructure.

FirstGroup fell 4.4% as its Avanti West Coast joint-venture received some scrutiny from the UK opposition Labour party.

Labour has said it will urgently consider stripping Avanti West Coast of its train operating contract if it wins the UK general election, PA reported.

Shadow Transport Secretary Louise Haigh claimed the company has provided ‘woeful service’ on the West Coast Main Line.

Office of Rail & Road figures show Avanti West Coast had the third worst reliability of all operators in Britain in the year to the end of March, with the equivalent of one in 15 trains, or 6.9%, cancelled.

The Conservative government awarded Avanti West Coast – owned by FirstGroup and Trenitalia – a new long-term contract starting in October last year.

The agreement is for up to nine years but can be terminated with three months’ notice at any point from October 2026.

Brent oil was quoted at $82.07 a barrel at late on Wednesday afternoon in London, up from $81.74 late Tuesday. Gold was quoted at $2,326.83 an ounce, higher against $2,312.47.

Thursday’s economic calendar has eurozone industrial production data at 1000 BST, before a US producer price index reading at 1330 BST.

The UK corporate diary has annual results from money transfer services provider Wise.

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Issue Date: 12 Jun 2024