LONDON MARKET CLOSE: FTSE 100 in 18-month high as US CPI pace steadies

(Alliance News) - Stock prices in Europe ended higher on Wednesday, in an upbeat session which turned even stronger after an eagerly-anticipated US consumer price index print indicated that inflationary pressures may be slowing.

The US consumer price index rose 5.4% in July from a year before, the same pace as June's 13-year high.

"A couple of years ago, that would have sounded like a pretty far-out number, but today it might ease some fears by suggesting inflation hasn't moved much higher than where it was a month ago," TD Ameritrade analyst JJ Kinahan commented.

The FTSE 100 index closed up 59.10 points, or 0.8%, at 7,220.14. It was the large-cap benchmark's highest close since late-February 2020, so roughly an 18-month closing high.

The blue-chip index was already heading for a strong session before the US CPI print, sitting pretty at 0.4% higher just before the data was released.

Not to be outdone, the mid-cap FTSE 250 index closed up 184.78 points, or 0.8%, at 23,756.83, a new closing high. The AIM All-Share index ended up 2.64 points, or 0.2%, at 1,268.02.

The Cboe UK 100 index ended up 0.8% at 718.79. The Cboe 250 rose 0.6% at 21,489.62, and the Cboe Small Companies closed 0.3% higher at 15,496.01.

In mainland Europe, the CAC 40 in Paris ended up 0.6% and the DAX 30 in Frankfurt rose 0.4%, setting a new closing record in the process.

On a monthly basis, US consumer prices rose 0.5% in July, slower than the 0.9% increase in June. The July print was in line with market forecasts.

The pound was quoted at USD1.3863 at the London equities close on Wednesday, up from USD1.3847 on Tuesday. The euro was priced at USD1.1737, up from USD1.1724. Against the Japanese yen, the dollar was trading at JPY110.47, down from JPY110.52.

Saxo Markets analyst Mike Owens commented: "With US CPI having beaten expectations for most of 2021, it's almost a surprise to see the numbers come out in line with expectations. It certainly appears that the market was set up for a beat as we're seeing USD on the backfoot and bond yields fall back since the figures came out."

In addition, equity markets were getting a boost after the US paved the way for its massive infrastructure project.

The US Senate approved Joe Biden's historic USD1.2 trillion infrastructure plan on Tuesday, paving the way for a major victory to the president if it wins final passage in the lower chamber of Congress.

The measure now faces a make-or-break vote in the House of Representatives in the coming weeks, where its future is less certain as divisions have sprung up in the Democratic majority.

AJ Bell analyst Danni Hewson said: "Progress on a huge US stimulus package helped stocks close in positive territory on Wall Street [on Tuesday], providing a positive cue for European equities – while the carving up of the UK market by overseas buyers continues apace as Avast agrees to a merger with NortonLifeLock."

Avast's stock rose 3.5%, giving a market capitalisation of GBP6.08 billion. The cybersecurity firm posted positive results, as it nears a takeover by larger US peer NortonLifeLock.

For the six months to June 30, revenue was up 8.8% at USD471.3 million from USD433.1 million the year before, and pretax profit was USD269.3 million, more than double from USD115.3 million.

Late Tuesday, NortonLifeLock said it agreed with Avast on the terms of a merger. The deal is in the form of a cash and share takeover offer by Norton for Avast. Under the terms of the acquisition, Avast shareholders will be entitled to receive a combination of cash and newly issued shares in Norton.

Based on Norton's closing share price of USD27.20 on July 13, being the last trading day for NortonLifeLock shares before combination talks were revealed on July 14, the merger values Avast between USD8.1 billion and USD8.6 billion.

There was also M&A action among the FTSE 250. Meggitt, which earlier this month accepted a GBP6.3 billion acquisition from Parker-Hannifin, said it received a new takeover tilt from Ohio-based aerospace manufacturing firm TransDigm Group.

Meggitt shares rose 16% to 830.00p, valuing it at GBP6.49 billion.

TransDigm made a non-binding proposal to buy Meggitt for 900 pence per share, valuing the company at GBP7.03 billion. Parker-Hannifin had offered 800p per Meggitt share.

"Meggitt is providing TransDigm with due diligence access equal to that which was provided to Parker," the company said.

"The board of Meggitt is currently reviewing the proposal as well as TransDigm's associated information request and will continue to consider carefully not only the financial terms of any offer but also TransDigm's plans for the company and the potential impact across all its stakeholders."

The company added it will "continue to recommend unanimously" Parker's offer.

Elsewhere in London, pandemic recovery plays were higher on Wednesday. High street retailers JD Sports and Next rose 3.5% and 1.8%, while among the mid-caps, food outlets operator SSP Group rose 0.9%. Conversely, AIM-listed fast fashion firms boohoo and ASOS fell 1.0% and 1.1%.

Deliveroo, another pandemic winner, fell 6.5%, though the losses came on the back of two strong sessions in-a-row. The stock is still up 4.5% so far this week.

The food delivery business flagged first-half growth which was "materially ahead of expectations". Promisingly, it noted that encouraging consumer demand, despite an easing of Covid-19 restrictions, demonstrated a "continuation of the change in consumer habits that has been accelerated during the pandemic".

Orders for the six months ended June 30 totalled 148.8 million, double the 74.5 million made a year before. Revenue saw a similarly strong improvement, up 82% to GBP922.5 million from GBP507.4 million a year prior.

Deliveroo's pretax loss for the period narrowed to GBP104.8 million compared to GBP128.4 million a year previously.

US stocks were mixed on Wednesday, though the Dow Jones Industrial Average and S&P 500 were primed for another record-setting day. The DJIA was up 0.5% at the time of the London equity market close, with the S&P 500 up 0.1%. The Nasdaq Composite was 0.4% lower, however.

"US markets opened higher, setting new records in the process, after the latest US CPI numbers for July showed that prices appear to be starting to level off," CMC Markets analyst Michael Hewson commented.

"It helps to lend support to the transitory narrative and saw US bond yields, which had been edging up heading into the numbers, reverse course and slip back."

Among notably strong performers in New York on Wednesday were NortonLifeLock, up 8.0%, rail transportation firm CSX, rising 2.6% and steel producer Nucor, up 2.2%. The latter duo were boosted by the US infrastructure package which received Senate backing.

Brent oil was quoted at USD70.14 a barrel at the London equities close on Wednesday, down from USD70.92 late Tuesday. Gold was trading at USD1,748.19 an ounce, higher against USD1,726.99.

Thursday's economic events calendar has UK gross domestic product estimates at 0700 BST, EU industrial output numbers at 1000, BST before US producer prices and latest jobless claims data at 1330 BST.

The local corporate calendar as interim results from soft drink bottler Coca-Cola HBC, insurer Aviva and retirement products firm Just Group.

By Eric Cunha; ericcunha@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.