A positive session for equity markets turned even more bullish on Wednesday afternoon when data showed US inflation cooled at a faster pace than had been expected last month.
The data lifted hope that the Federal Reserve, which is expected to lift rates by 25 basis points later this month, will pause hikes thereafter.
In London, banking shares maintained gains, on the back of passing the Bank of England’s stress test.
Elsewhere among central banks, a hike by the Bank of Canada, as well as a warning on ‘persistent’ price pressure, may suggest the path back down to 2% inflation will be bumpy and prolonged for major economies.
The FTSE 100 index surged 133.59 points, 1.8%, at 7,416.11. The FTSE 250 ended up 439.45 points, 2.4%, at 18,579.54, and the AIM All-Share closed up 1.1%, or 7.77 points, at 746.39.
The Cboe UK 100 ended up 2.0% at 740.11, the Cboe UK 250 closed up 2.7% at 16,307.35, and the Cboe Small Companies ended up 0.7% at 13,586.12.
The pound was quoted at $1.2994 at the London equities close Wednesday, markedly higher compared to $1.2890 at the close on Tuesday. It rose as high as $1.30, for the first time since April 2022.
US inflation eased slightly more than anticipated in June, according to the latest figures from the Bureau of Labor Statistics.
The consumer price index rose 3.0% on an annual basis in June, cooling from a 4.0% rise in May. According to FXStreet-cited marked consensus, the headline inflation figure was expected to cool to 3.1%.
The noted this was the smallest 12-month increase since March 2021.
‘Exactly what will June’s cooling inflation mean for US interest rates? There’s no denying that at 3% June’s CPI number is the smallest year-on-year increase since March 2021 and that all important core number also fell back significantly,’ AJ Bell analyst Danni Hewson commented.
‘But despite the cautious optimism evident from market reaction, it seems unlikely the Fed will be swayed enough to change course just yet.’
The euro stood at $1.1119 at the time of the European equities close Wednesday, up sharply against $1.0987 at the same time on Tuesday. Against the yen, the dollar was trading at JP¥138.38, down compared to JP¥140.66 late Tuesday.
Interest rates in Canada were raised. The Bank of Canada lifted its benchmark interest rate by 25 basis points as expected, believing underlying inflation pressure to be ‘more persistent than anticipated’.
The hike took the BoC’s overnight rate to 5.00% from 4.50%. While the BoC said inflation is easing, it noted the slowdown has largely come in the form of falling energy prices. Eventually, such a tailwind will unwind, the BoC said.
Stocks in New York were higher at the London equities close, with the Dow Jones Industrial Average up 0.8%, the S&P 500 index up 1.0%, and the Nasdaq Composite up 1.2%.
Gold miners were among the best-performing FTSE 100 listings, tracking bullion prices higher. Fresnillo added 3.2% and Endeavour Mining closed up 1.4%.
Gold was quoted at $1,954.01 an ounce at the London equities close Wednesday, higher against $1,931.42 at the close on Tuesday.
Brent oil was quoted at $79.93 a barrel at the London equities close Wednesday, up from $79.28 late Tuesday.
It has also been a good day for banking stocks. Barclays ended up 1.6% and NatWest rose 3.2%. On the FTSE 250, Virgin Money closed up 11%.
The Bank of England said major UK banks were ‘resilient to a severe stress scenario’ in its latest cyclical stress test results, with all eight surveyed lenders passing.
The UK central bank said the test was of a macroeconomic scenario of rising global interest rates, ‘deep simultaneous recessions with materially higher unemployment in the UK and global economies’, and sharp falls in asset prices.
In the FTSE 250, JD Wetherspoon was a top performer, jumping 10%.
The Watford, Hertfordshire-based pub and hotel chain said like-for-like sales in the first 10 weeks of its final quarter were up 11% on the same period of pre-pandemic financial 2019. Year-to-date sales were 7.4% ahead of the pre-pandemic comparators.
AJ Bell’s Hewson commented: ‘Sales are showing good momentum and this implies a strong thirst, which for so long went unquenched thanks to lockdown restrictions, for socialising over a drink. Wetherspoons’ mix of decent quality beers, food and keen prices is likely to stand it in good stead.’
On AIM, Deltic Energy surged 30%.
The natural resources investor said the estimate of oil and gas resources at the Pensacola discovery on licence P2252 in the southern North Sea is ‘nearly double’ initial expectations.
It estimates that the Pensacola structure contains approximately 342 million barrels of oil equivalent, and a total gross P50 estimated ultimate recovery of around 99 million barrels of oil equivalent.
In European equities on Wednesday, the CAC 40 in Paris jumped 1.7%, while the DAX 40 in Frankfurt soared 1.5%.
In Thursday’s UK corporate calendar, housebuilder Barratt Developments and credit checking firm Experian will publish trading statements.
The economic calendar for Thursday has a UK GDP reading at 0700 BST, before US PPI data and the latest jobless claims reading at 1330 BST. Minutes from the European Central Bank’s latest meeting are released at 1230 BST.
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