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(Alliance News) - European markets were trading higher on Wednesday, in a sign of cautious optimism ahead of US inflation data.
The FTSE 100 index opened up 26.06 points, 0.4% at 7,308.58. The FTSE 250 was up 14.30 points, 0.1% at 18,154.39, and the AIM All-Share was up 0.75 points, 0.1%, at 739.37.
The Cboe UK 100 was up 0.4% at 728.62, the Cboe UK 250 was up 0.3% at 15,912.68, and the Cboe Small Companies was flat at 13,490.01.
In European equities on Wednesday, the CAC 40 in Paris was up 0.3%, while the DAX 40 in Frankfurt was up 0.2%.
The pound continued to extend its recent highs, nearing the USD1.30 mark. This follows Tuesday's red-hot wage inflation data, which pushed up expectations for interest rate hikes from the Bank of England.
Sterling was quoted at USD1.2950 early Wednesday, firming from USD1.2890 at the London equities close on Tuesday.
The BoE deemed the UK banking sector "resilient" following its latest stress test.
UK banks would be able to withstand a "severe stress scenario" that included persistent high inflation in advanced economies, rising interest rates across the globe, recessions in the UK and global economics, higher unemployment and declines in asset prices, the bank concluded.
"We've seen significant weakness so far this year particularly from the likes of Lloyds Banking Group and NatWest Group, who are particularly exposed to domestic factors after paring back their investment banking divisions so today's results are likely to be good news for these two especially, and should offer a respite to recent weakness in their share price," said Michael Hewson, CMC Markets UK chief market analyst.
Lloyds rose 2.5%, while NatWest added 1.0% in early trade.
In the US on Tuesday, Wall Street ended higher, with the Dow Jones Industrial Average up 0.9%, the S&P 500 up 0.7% and the Nasdaq Composite up 0.6%.
Market focus for the day will be on US consumer price inflation data at 1330 BST.
According to FXStreet-cited marked consensus, on an annual basis, the headline inflation figure is expected to cool to 3.1% in June from 4.0% in May. The core figure - which excludes food and energy - is expected to ease to 5.0% from 5.3%.
The dollar softened against major currencies.
The euro traded at USD1.1025, higher than USD1.0987. Against the yen, the dollar was quoted at JPY139.64, down versus JPY140.66.
"We will soon be flirting with oversold market conditions in the US dollar hint at a rebound in the greenback, if backed with robust core inflation and strong economic data," predicted Swissquote Bank's Ipek Ozkardeskaya.
The market is still widely expecting a 25 basis point hike at the Federal Reserve's next meeting, but the inflation print could be decisive in informing expectations for any hikes beyond that.
In Asia, trading was mixed. The Nikkei index 225 in Tokyo closed down 0.8%.
Japanese price inflation eased last month, according to the Bank of Japan. In June, the producer price index rose 4.1% from the previous year, slowing from 5.1% in May. The reading was lower than FXStreet-cited market consensus of 4.3%.
Additionally, figures from the Cabinet Office revealed that machinery orders saw an unexpected decline in May. Excluding volatile orders, private-sector machinery orders shrank 7.6% month-on-month in May, after rising 5.5% in April. Market consensus had been expected 1.0% growth for May.
In China, the Shanghai Composite closed down 0.8%, while the Hang Seng index in Hong Kong was up 1.0% in late dealings. The S&P/ASX 200 in Sydney closed up 0.4%.
Gold was quoted at USD1,935.02 an ounce early Wednesday, higher than USD1,931.42 on Tuesday. Brent oil was trading at USD79.35 a barrel, rising from USD79.28.
It was a largely quiet day for corporate news in London, with broker ratings moving the needle in the FTSE 100.
AstraZeneca rose 1.5%, as UBS raised the stock to 'buy'. International Consolidated Airlines fell 1.4% as Deutsche Bank cut the stock to 'hold'.
Bunzl shed 1.5% as RBC cut the stock to 'underperform', citing concern about the sharp declines in raw material pricing which underpin the distributor and outsourcer's product portfolio.
In the mid-caps, JD Wetherspoon rose 4.4%.
The pub chain said it expects profit for its soon-to-conclude financial year to be in line with market expectations.
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. On the previous year, like-for-like sales were up 12% in the final quarter.
Looking ahead to the next financial year, it expects an "improved outcome", due to lower expectations for cost increases.
"Despite the clear damage wrought by the pandemic, Wetherspoons has weathered the storm and is now returning to a more robust financial position," commented interactive investor's Richard Hunter.
On AIM, Shoe Zone rose 13%, reporting an "exceptional" month of sales since its early June update.
The shoe retailer said trading "significantly exceeded" management's expectations, with volumes seeing a double digit rise on the previous year. Margins also improved thanks to lower container rates and favourable foreign exchange rates, which management expects to continue.
It now expects adjusted pretax profit for the financial year ending October 2 to be no less than GBP13.5 million. In June, it had guided for GBP10.5 million. It brought in GBP11.2 million in adjusted pretax profit in financial 2022.
In addition to the US inflation data, there will be an interest rate announcement from Canada at 1500 BST. The Canadian central bank is expected to hike rates by a final 25 basis points to 5.00%.
New Zealand's central bank left its key interest rate unchanged Wednesday, saying it expected inflation to ease further in coming months.
By Elizabeth Winter, Alliance News senior markets reporter
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