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LONDON (Alliance News) - UK stocks are pushing higher Tuesday, for the second consecutive day this week, as the geopolitical backdrop remains more supportive of risk trades.
The news late Monday that Kurdish forces re-took control from Islamic State militants of two villages located near the country's strategic Mosul Dam, combined with the fact that a cease-fire between Hamas and Israel appears to be holding, and that there has been no further escalation in tensions in eastern Ukraine, is providing a more helpful backdrop for equity markets.
By mid-morning Tuesday, the FTSE 100 is up 0.5% at 6,775.70, the FTSE 250 is up 0.7% at 15,912.74, and the AIM All-Share is up 0.2% at 760.61.
European majors also are higher, with the French CAC 40 up 0.4% and the German DAX up 1.0%.
The pound, meanwhile, dropped below its 200-day moving average to the lowest level against the dollar in more than four-months after UK inflation eased by more than expected in July. The pound hit its lowest level in more than four months against the dollar at USD1.6630. Against the euro, the pound slipped to its lowest level of the week at EUR1.2459.
UK consumer prices rose by 1.6% year-on-year in July, according to the latest data from the Office for National Statistics. That's down from the 1.9% rise in prices in June, and lower than the 1.8% CPI that had been predicted by economists. On a monthly basis, prices fell by 0.3%, reversing the 0.2% rise in June and falling faster that the 0.2% fall that had been expected.
That Bank of England is mandated to target CPI of 2.0%. The latest data represents a slip away from that goal and the seventh consecutive month of below-target inflation. The data will serve support the recent shift in market sentiment that UK interest rates are unlikely to rise until next year.
"Although some would argue that (BoE Governor) Mark Carney is starting to behave like an unreliable boyfriend again, with inflation taking a bigger fall than expected this month, we would still expect the first rate rise to come in the first quarter of 2015," said Dennis de Jong, managing director of UFX.com.
The ONS said an overall fall in the price of clothing over the last month was the main reason behind the decrease in the CPI rate, something that analysts have in part attributed to the ongoing price war between the UK supermarkets.
While the BoE targets CPI, commuters will have had a close on the RPI print this morning, as it's on the July retail index that the train companies will base next year's rail fare increase. RPI came in at 2.5%. So the agreement between the UK government and rail companies of RPI plus 1.0 percentage point, means the average rail fares will be going up by 3.5% in 2015.
On the London equity market, BHP Billiton is providing the main drag to the leading index. The Anglo-Australian mining group is down 3.7% and at the bottom of the FTSE 100, after announcing its full-year results and confirming that it will demerge its aluminium, coal, manganese, nickel and silver assets into a new company, pledging to cut costs and improve the productivity of its remaining businesses in an attempt to boost shareholder returns.
The move, which the mining giant had last week said it was considering, will leave it focused on iron ore, copper, coal, petroleum and potash. The new company will be listed in Australia and South Africa and will be wholly owned by BHP Billiton's existing shareholders initially.
Liberum Capital says BHP's full-year numbers were broadly in line with expectations, and that the share price move looks like an over-reaction to the lack of further share buy-back announcements.
The housebuilders are performing well for the second consecutive day. After Bovis Homes announced a very positive update on Monday, Persimmon followed suit Tuesday by announcing a 54% increase in legal completions in the first half of the year, while the average selling price on private legal completions came in 20% higher than a year earlier. As a result, the Kent-based housebuilder said pretax profit more than doubled to GBP49.4 million for the six months ended June 30, from GBP18.6 million a year earlier.
Persimmon is up 0.9%, while Barratt Developments leads the FTSE 100 gainers, up 3.4%.
Imperial Tobacco Group is up 2.1% after keeping unchanged its full-year guidance for "modest" growth in earnings per share and a dividend increase of at least 10%, despite a slight fall in sales and revenue in the first nine months of its financial year.
John Wood Group is a big FTSE 250 gainer, up 3.2% after lifting its interim by 25% to 8.9 cents from 7.1 cents. The oil and gas services company posted pretax profit from continuing operations of USD233.3 million for the six months ended June 30, up from USD176.3 million a year earlier.
Still to come Tuesday, US CPI data will be released at 1330 BST. Economists are expecting consumer prices in the US to have risen bang on target at 2.0% year-on-year in July, down from the 2.1% rise that was recorded in June.
The data will be a key indicator in the run-up to the releases of the minutes of the latest Federal Reserve policy meeting on Wednesday and to the Jackson Hole symposium, at which Fed Chair Janet Yellen speaks on Friday.
Building permits and housing starts data for July also are due from the US later Tuesday, at 1330 BST.
Ahead of the data, US futures indicate that another higher open can be expected on Wall Street, with the DJIA, the S&P 500, and the Nasdaq Composite all pointing up between 0.1% to 0.2%.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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