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(Alliance News) - Stocks in London ended mixed on Tuesday as investors digested a spike in US consumer price inflation, while shares in UK banks surrendered earlier gains after the Bank of England freed lenders from the shackles of the pandemic.
The FTSE 100 index closed down 0.70 of a point, or 0.1%, at 7,124.72. The mid-cap FTSE 250 index ended up 30.95 points, or 0.1%, at 22,926.81. The AIM All-Share index ended up 0.1% at 1,249.12.
The Cboe UK 100 index closed down 0.2% at 708.90. The Cboe 250 closed down 0.1% at 20,594.40, and the Cboe Small Companies ended down 0.2% at 15,317.70.
In Paris the CAC 40 and the DAX 30 in Frankfurt both ended flat.
"Markets in Europe have seen a fairly subdued session despite a lot of important macro news which has centred largely around the banking sector, as well as CPI inflation, with the FTSE 100 managing to edge back towards last week's highs before giving up its gains, while European markets have slipped slowly lower as the day has progressed," said CMC Markets analyst Michael Hewson.
In the FTSE 100, Mexican gold miner Fresnillo ended the best performer, up 3.1%, tracking spot gold prices higher.
Gold was quoted at USD1,811.70 an ounce at the London equities close, higher against USD1,803.57 late Monday.
At the other end of the large-caps, high street banks gave back earlier gains despite the Bank of England lifting curbs on shareholder returns.
The BoE moved restrictions on UK commercial banks paying dividends, saying they are "well capitalised and able to withstand headwinds to capital".
The decision was unveiled in the central bank's Financial Stability Report, which sets out the view of the BoE Financial Policy Committee on the stability of the UK financial system.
"The economic outlook has improved, but risks to the recovery remain, especially those related to the spread of Covid," the report said.
"Households and businesses will need continued support from the UK financial system as the economy recovers and the government's exceptional support measures unwind over the coming months," it said. "Banks have the capital and liquidity to be able to support the economy."
The BoE added: "Major UK banks and building societies have been resilient to the challenges posed by Covid and their capital and liquidity positions remain strong."
NatWest ended the worst performer, down 2.6%, Lloyds down 0.9%, Barclays down 1.6% and HSBC down 0.2%.
IG Group's Josh Mahony said: "We have seen precious little upside for the UK banks despite the Bank of England's decision to remove restrictions on dividend payouts. Following on from a similar ruling in the US, this shift highlights the growing feeling that the economic implications have been largely overcome.
"With the government support falling away, banks in the UK do continue to play a role in enabling economic stability in the move back towards 'normality'. With covid hospitalisations on the rise, there is a risk that the health system becomes overwhelmed and another bout of restrictions imposed."
Phoenix Group ended 0.3% lower. The insurer agreed to sell Ark Life Assurance Company DAC to Irish Life Group for EUR230 million in cash. The proceeds from the sale would be used for investment into "higher return growth opportunities to drive incremental future cash generation."
Stocks in New York were mixed at the London equities close despite the biggest jump in US inflation in decades, as earnings season got underway.
The DJIA was down 0.2%, the S&P 500 index flat and the Nasdaq Composite up 0.3%.
US inflation spiked again in June, jumping by 5.4% over the past 12 months for its biggest gain since August 2008.
Even when the more volatile food and energy prices were excluded, "core" inflation jumped by and unadjusted 4.5%, the biggest increase since November 1991, the Labor Department said.
The rise in inflation comes as US Federal Reserve Chair Jerome Powell prepares to give his two-day semi-annual testimony on the state of monetary policy, starting on Wednesday. Investors will be looking to see whether the Fed chief sticks to the script over the prospects of the US economy and if he still feels the outlook for inflation is "transitory".
The dollar was mostly higher after the data release. The pound was quoted at USD1.3838 at the London equities close, down from USD1.3881 at the close Monday.
The euro stood at USD1.1815 at the European equities close, down from USD1.1861 late Monday. Against the yen, the dollar was trading at JPY110.33, unchanged from late Monday.
Analysts at ING noted: "Yet another blowout inflation reading makes it increasingly difficult for the Fed to stick to its position that elevated inflation readings are merely 'transitory'. Pipeline cost pressures continue to build and corporates are looking to pass them onto customers in an environment of such robust demand. The case for a 2022 rate hike is strong."
On Wall Street, JPMorgan Chase & Co reported surging net income in the second quarter, as the investment bank unleashed billions in credit releases on expectations of an improving economy.
In the three months to June 30, the New York-headquartered retail and investment bank recorded net income of USD11.95 billion, multiplied from USD4.69 billion the year before.
Diluted earnings per share improved to USD3.78 from USD1.38.
The surge in income was attributed to a USD2.29 billion net credit benefit, a stark contrast to the USD10.47 billion provision set aside in the second quarter of last year, as the bank prepared for a hit to its loan book at the height of the Covid pandemic.
The stock was down 2.7% in New York.
Goldman Sachs Group was able to shake off a disappointing quarter from its Global Markets unit to post a sharp rise in earnings, with the bank releasing credit reserves due to the US "economic recovery".
In the three months to June 30, the New York-headquartered investment bank and financial services firm recorded net interest income of USD1.63 billion, up from USD944 million a year before.
Net earnings surged to USD5.49 billion from USD373 million, as the bank's operating expenses dropped to USD8.64 billion from USD10.41 billion, and it booked a net credit benefit of USD92 million, compared to the steep USD1.59 billion provision put aside last year.
Diluted earnings per share jumped to USD15.02 from USD0.53.
The stock was 1.6% lower on Wall Street.
Brent oil was trading at USD75.50 a barrel at the equities close, up from USD75.00 at the close Monday.
The economic events calendar on Wednesday has UK inflation readings at 0700 BST, eurozone industrial production numbers at 1000 BST and US producer prices at 1330 BST. In addition, financial markets on Wednesday will be closed in France for the Bastille Day holiday.
The UK corporate calendar on Wednesday has trading statements from housebuilder Barratt Developments, asset manager Ashmore Group and from homewares retailer Dunelm Group.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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