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LONDON MARKET MIDDAY: Cooler UK inflation reading turbocharges stocks

19th Jul 2023 12:05

(Alliance News) - Stock prices in London surged on Wednesday, with a cooler UK inflation reading lifting investor sentiment and taking pressure off the Bank of England.

Annually, consumer prices rose by 7.9% in June, cooling from an 8.7% jump in May. June's reading was lower than market forecasts of 8.2%, as cited by FXStreet. The reading boosted property, housebuilding, leisure and retail stocks.

"The inflation reading has dampened the outlook for interest rate hikes in the UK, much to the excitement of investors," AJ Bell analyst Danni Hewson commented.

Equity market gains in mainland Europe were less bullish, though luxury goods firm Kering shone, as it announced an overhaul at its all-important Gucci arm.

The FTSE 100 index jumped 116.56 points, 1.6%, at 7,570.25. The FTSE 250 surged 556.60 points, 3.0%, at 19,174.82 and the more domestic-focused index is on track to register its largest daily gain since November. The AIM All-Share was up 8.11 points, 1.1%, at 762.47.

The Cboe UK 100 climbed 1.5% to 754.84, the Cboe UK 250 leaped 2.9% to 16,823.05, and the Cboe Small Companies was up 0.8% at 13,585.75.

In European equities on Wednesday, the CAC 40 in Paris was 0.4% higher, though the DAX 40 in Frankfurt was up only marginally.

Sterling was quoted at USD1.2936 early Wednesday afternoon, lower than USD1.3083 at the London equities close on Tuesday. Cable had hit a one-week low of USD1.2923 on Wednesday morning, following the UK inflation reading.

Berenberg analyst Kallum Pickering commented: "The data suit our call that the BoE will probably hike by 25bp in August followed by a final hike of 25bp in September to take the peak bank rate to 5.5%. We continue to highlight the risk that the BoE may hike by 50bp again in August followed by a final 25bp in September to a peak rate of 5.75%. However, we no longer see much justification for another big hike."

The data also sent UK bond yields lower. The yield on the two-year gilt narrowed markedly to 4.81% heading into Wednesday afternoon, from 5.08% late Tuesday.

Ebury analyst Matthew Ryan said no one at the Bank of England will be "popping the champagne corks" just yet, however.

"There remains a long, long way to go before the 2% target is even remotely in sight," Ryan cautioned.

"We expect the Bank of England to maintain its hawkish policy stance for a little while yet, though a return to a 25 basis point rate hike at the August meeting now appears increasingly likely. We suspect that the MPC will keep its options open to continue hiking rates beyond then, although for the first time in a while, markets are now eyeing a peak in rates below 6%."

Stocks sensitive to higher interest rates were among those leading the way in London on Wednesday. Housebuilders Persimmon and Crest Nicholson surged 7.1% and 7.8%. Property investors British Land and Land Securities added 8.4% and 6.3%.

Crest Nicholson and British Land were among the best performers in the FTSE 250, where no more than a couple of stocks traded in the red around midday.

The retail and leisure sectors also got a boost, with fast fashion firms Asos and boohoo rising 3.4% and 4.3%.

All Bar One owner Mitchells & Butlers surged 6.5% and Mecca bingo operator Rank Group was up 4.9%, in the hope that cooling inflation will mean consumers will have deeper coffers.

Elsewhere in London, Hargreaves Lansdown added 7.4%.

The investment manager said net new business increased 6.3% quarter-on-quarter to GBP1.7 billion in the three months to the end of June, from GBP1.6 billion.

Closing assets under administration climbed 1.5% to GBP134.0 billion at June 30 from GBP132.0 billion at the end of May. Aside from the GBP1.7 billion net new business boost, assets under administration were lifted by GBP300 million in positive market movements.

Hargreaves Lansdown flagged a weaker quarter for share dealing, however. Fourth-quarter share dealing averaged 685,000 per month in the quarter, 11% lower than the previous quarter and 12% lower than prior year average.

Ilika added 12%, as new plans in Somerset put battery technology companies in focus.

The Indian owner of Jaguar Land Rover said it plans to build a GBP4 billion battery factory in the UK – a move the UK government says will bring around 4,000 jobs.

The plant – widely reported to be set for Somerset – will become one of Europe's largest battery cell manufacturing sites when it starts producing in 2026, Tata Sons said on Wednesday.

It will produce about 40 gigawatt hours of battery cells every year. The UK government said that is enough to provide about half the battery production the UK will need by 2030 according to the Faraday Institution.

The government said it stepped in with subsidies to entice Tata Sons, which owns Tata Group, to build the plant in the UK. It did not say how much money it promised.

Antofagasta was one of the few blue-chip stocks in London to trade lower, giving back 2.8%.

The Chile-focused mining group said copper production increased 2.5% to 149,600 tonnes for the second quarter of 2023 from 145,900 in the first quarter. Total production for the first half year increased 10% to 295,500 tonnes from 268,600 for the same period in 2022.

However, it lowered annual guidance. Antofagasta said the Los Pelambres desalination plant was near the end of its commission phase, while the concentration expansion project there is aimed for completion in the second half year, following delays due to sea swells.

Antofagasta said these delays are likely to impact full-year 2023 copper production. It has consequently lowered guidance to between 640,000 and 670,000 tonnes from 670,000 to 710,000 tonnes, although it expects output to increase quarter on quarter in the second half.

In Paris, shares in Kering added 5.6%. It announced Tuesday the departure of the long-time chief executive of Gucci, the luxury group's main brand, which has struggled as the industry has flourished.

Kering said that Marco Bizzarri, who has led Gucci since 2015, will step down in September.

The deputy CEO of Kering, Jean-Francois Palus, a confidant of the company's chief executive and owner Francois-Henri Pinault, will take the reins on a temporary basis.

Kering last year saw sales rise 9% on a comparable basis, with Gucci's sales edging up only 1%.

Meanwhile, the fashion and leather goods division of rival luxury group LVMH posted 20% growth last year.

The euro traded at USD1.1222 around midday Wednesday London time, lower than USD1.1237 at the European equities close on Tuesday. Against the yen, the dollar was quoted at JPY139.78, up versus JPY138.76.

Gold was quoted at USD1,976.03 an ounce early Wednesday afternoon, down from USD1,982.17 on Tuesday. Brent oil fetched USD79.84 a barrel, up from USD79.67.

Stocks in New York are called to open slightly higher. Both the Dow Jones Industrial Average and the Nasdaq Composite are each called up 0.1%. The S&P 500 is called marginally higher.

Still to come on Wednesday is US housing starts and building permits data at 1330 BST.

By Eric Cunha, Alliance News news editor

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