LONDON MARKET CLOSE: Stocks brush off 30-year high rise in inflation

(Alliance News) - Stocks in London ended mostly higher on Wednesday following upbeat company trading updates, highlighted by luxury fashion house Burberry, shrugging off a sharp rise in UK inflation.

The FTSE 100 index ended up 26.11 points, or 0.4%, at 7,589.66. The mid-cap FTSE 250 index closed up 2.31 points at 22,655.02. The AIM All-Share index fell 4.71 points, 0.4%, at 1,149.49.

The Cboe UK 100 index ended up 0.2% at 753.28. The Cboe 250 closed up 0.3% at 20,324.13, and the Cboe Small Companies lost 0.3% to 15,786.72.

The CAC 40 in Paris stock index ended up 0.6%, while the DAX 40 in Frankfurt closed 0.2% higher.

"European markets initially started the day on the back foot, however as the day progressed all the early losses have dissipated helped by a slew of decent trading updates, and a rebound in the basic resources sector, helped by rising metals prices. This has seen the FTSE 100 recover back towards the 7,600 level, and back towards where it finished on Monday, despite UK inflation hitting its highest level since 1992," said CMC Markets analyst Michael Hewson.

In the FTSE 100, gold miner Polymetal International ended the best performer, up 7.6%, while peer Fresnillo gained 5.1%, tracking spot gold prices higher. Midcap Hochschild Mining rose 5.5%.

Gold stood at USD1,840.20 an ounce at the London equities close, higher against USD1,812.88 at the close Tuesday.

Burberry Group closed up 6.3% after the fashion house reported third-quarter sales growth and said it sees a softer-than-anticipated currency headwind for the full year.

Retail revenue amounted to GBP723 million in the 13 weeks to December 25, up 5% from GBP688 million a year prior. Full-price comparable store sales rose 15% year-on-year, with all comparable store sales up 7%. On two years prior, being before the impact of the pandemic, full-price comparable store sales were up 26% but all comparable store sales down 3%.

Looking ahead, Burberry expects full-year adjusted operating profit to grow in the region of 35% at constant exchange rates. In addition, the currency headwind is now expected to be GBP79 million on revenue, down from around GBP100 million, and GBP27 million on adjusted operating profit, down from GBP40 million.

Pearson closed up 4.4% after the education publisher said it made "great progress" in the fourth quarter, leading to a better-than-expected full-year outturn.

Full-year sales were up 8% and the UK-based education publisher expects adjusted operating profit of GBP385 million, up 33% on the year before and ahead of consensus at GBP375 million.

"Led by a strong management team, we are repositioning the business, driving digital innovation and an increased focus on the consumer through the launch of Pearson+. We are well placed to build on this momentum in the year ahead and look to the future with confidence," said Chief Executive Andy Bird.

At the other end of the large-caps, International Consolidated Airlines ended down 3.4% after British Airways was among the airlines cancelling US flights due to 5G safety concerns.

The action is in response to fears that the activation of the C-band strand of the mobile phone service near US airports on Wednesday could disrupt planes' navigation systems. Boeing 777s are thought to be particularly at risk of being affected.

The introduction of the technology has been halted in some parts of the US but is going ahead elsewhere. British Airways cancelled a handful of flights from Heathrow to Boston, Chicago, Los Angeles, New York, and San Francisco on Wednesday.

Unilever closed down 0.6%. The consumer goods firm late Wednesday said it will not lift its bid for GlaxoSmithKline's consumer unit above the current GBP50 billion offer.

The FTSE 100-listed consumer goods firm said it has seen a set of financial assumptions on the unit, outlined by current owners GSK.

Unilever said the numbers do not "change our view on fundamental value". "Accordingly, we will not increase our offer above GBP50 billion," Unilever added.

Unilever on Monday confirmed that it has an interest in acquiring the Consumer Healthcare business of GSK, believing that the unit would a be a "strong strategic fit" for the consumer goods maker's objectives.

On Saturday, GSK said that it had received three bids from Unilever, the latest being for GBP50 billion in cash and shares. The business was formed in August 2019 as a joint venture with Pfizer Inc, which holds a 32% interest, while GSK holds the remaining 68%.

GSK shed 2.1% on Wednesday.

Sterling was on the front foot amid bets the Bank of England will hike interest rates for the second consecutive time after UK inflation soared to a near 30-year high in December.

The pound was quoted at USD1.3630 at the London equities close, up from USD1.3583 at the close Tuesday.

The UK consumer price index rose 5.4% year-on-year in December, accelerating from 5.1% in November. This topped market forecasts of 5.2%.

"This is the highest CPI 12-month inflation rate in the National Statistic data series, which began in January 1997, and it was last higher in the historical modelled data series in March 1992, when it stood at 7.1%," the Office for National Statistics said.

Capital Economics highlighted that UK CPI is now further above the Bank of England's 2.0% target than at any point since the UK first adopted an inflation target in October 1992. It forecasts UK CPI rate of inflation will surge to just above 7.0% in April.

Further, ING believes the hot inflation print increases the chances of February rate rise from the BoE.

"Inflation has surprised higher (again) and that's only likely to increase the temptation for Bank of England policymakers to hike rates for a second consecutive meeting this February. But with inflation rates set to plunge in 2023, and the prospects of a severe wage-price spiral looking less likely, subsequent moves are likely to be more gradual," analysts at ING said.

The euro stood at USD1.1345 at the European equities close, up from USD1.1335 late Tuesday. Against the yen, the dollar was trading at JPY114.25, down from JPY114.61.

Stocks in New York were lower at the London equities close following on from a sell-off on Tuesday. The DJIA was down 0.1%, the S&P 500 index down 0.1% and the Nasdaq Composite down 0.2%.

On the corporate front, Procter & Gamble was up 4.2% in New York after the consumer goods firm lifted its annual outlook, after a second quarter earnings improvement.

In the three months to December 31, the Gillette and Febreeze owner's sales rose 6.1% annually to USD20.95 billion from USD19.75 billion. Pretax profit increased 7.4% to USD5.24 billion from USD4.88 billion.

Looking ahead, P&G expects all-in sales growth between 3% and 4%, the lower end of the range lifted from 2% previously.

Brent oil was quoted at USD88.68 a barrel at the equities close, up sharply from USD87.22 at the close Tuesday. The North Sea benchmark touched a high of USD89.05 overnight - its highest level since 2014.

The economic events calendar on Thursday has eurozone inflation readings at 1000 GMT and the latest US jobless claims numbers at 1330 GMT.

The UK corporate calendar on Thursday has trading statements from Primark owner Associated British Foods, gambling firm Entain and stockbroker AJ Bell.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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