LONDON MARKET CLOSE: Stocks fall as UK inflation stays above target

(Alliance News) - Stocks in London ended lower on Wednesday as comments from US Federal Reserve Chair Jerome Powell did little to soothe investor fears about rising inflation, following a spike in UK consumer prices.

In testimony released ahead of his appearance before the House Financial Services Committee, Powell said the US economy has "a long way to go" to return to full employment following the Covid-19 pandemic, and predicted inflation will remain "elevated" inflation in the coming months before declining.

Powell's semi-annual testimony to Congress contained no hints that the Fed was backing down from the ultra-loose monetary policies that have allowed equity markets to prosper despite the wider malaise caused by the pandemic.

The Fed "will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete," the Fed chief said.

The FTSE 100 index closed down 33.53 points, or 0.5%, at 7,091.19. The mid-cap FTSE 250 index ended down 176.77 points, or 0.8%, at 22,750.04. The AIM All-Share index finished down 6.31 points, or 0.5% at 1,242.81.

The Cboe UK 100 index closed down 0.3% at 706.60. The Cboe 250 closed down 0.8% at 20,430.20, and the Cboe Small Companies ended down 0.5% at 15,241.30.

In Paris the CAC 40 and the DAX 30 in Frankfurt ended flat.

"It's been another mixed session for markets in Europe today, with the FTSE 100 underperforming once again, as a fresh set of inflation figures generates further concern about the 'transitory' narrative, so beloved of central bankers," said CMC Markets analyst Michael Hewson.

"Concerns about inflation, transitory or otherwise have continued to dominate sentiment today, as worries over the pace and persistence of rising prices, temper optimism over the wider global recovery story. Markets in Europe have undergone a broadly underwhelming session in contrast to US markets which continue to set new records," Hewson added.

In the FTSE 100, Barratt Developments ended the best performer, up 2.0%, after the housebuilder reported strong demand across the country in the financial year that ended June 30.

Net private reservations per active outlet per week were 0.78, up from 0.60 in financial 2020 and 0.70 in financial 2019. Completion volumes also ticked up, with 17,243 total homes completed in the recent financial year versus 12,604 homes in financial 2020 and 17,856 homes in financial 2019.

Barratt said it expects pretax profit, after adjusted items of GBP107 million, to be at the top end of the range of market forecasts.

Looking ahead, the company said it is well positioned for its new financial year, with total forward sales - including joint ventures - as at June 30 of 14,334 homes, up from 14,326 homes the year before and up from 11,419 homes year-on-two-years.

Peers Taylor Wimpey, Persimmon and Berkeley Group finished up 0.7%, 1.1% and 0.3% respectively.

The pound was quoted at USD1.3870 at the London equities close, appreciating from USD1.3838 late Tuesday, after UK consumer price inflation remained above the Bank of England's 2.0% target for the second straight month.

The Office for National Statistics said the UK consumer price index jumped 2.5% on an annual basis in June, accelerating from 2.1% growth in May. The largest upward contribution to the 12-month inflation rate came from transport.

Month-on-month, UK consumer prices rose 0.5% in June, slower than May's 0.6% rate of monthly growth.

High street banks ended in the green amid hopes of higher interest rates. NatWest, Lloyds Banking and Barclays closed up 1.6%, 0.4% and 0.4% respectively.

With restrictions in England set to be lifted next week, the debate as to whether the UK central bank's view that spikes in inflation are temporary will likely gain traction.

Robert Alster, chief investment officer at Close Brothers Asset Management, noted: "Inflation is likely to oscillate in the coming months as the economy starts to see the benefit of next week's removal of social restrictions coupled with resulting labour supply shortages.

"In 'normal' times it's possible that the Bank of England might consider deploying tools to keep a lid on inflation over the summer. But these are not normal economic times. With the furlough scheme coming to an end, and the possibility - hopefully remote - of social restrictions being reintroduced towards the winter - the Bank will be keen to hold off from making any decision on interest rates unless inflation looks like it's rising too quickly."

The euro stood at USD1.1825 at the European equities close, up from USD1.1815 late Tuesday. Against the yen, the dollar was trading at JPY110.02, down from JPY110.33 late Tuesday.

"Powell's testimony has knocked back the dollar, although given the greenback's relentless rise of late this might not last. Nonetheless it has been enough to make waves in the commodity space, lifting gold and oil as well as other raw materials, and helping miners on the FTSE 100 to make gains. However the index remains in the red along with parts of Europe, with most of the index falling back even as banks and mining stocks make headway," said IG Group's Chris Beauchamp.

Blue-chip miners Glencore, Anglo American, and Antofagasta closed up 1.8%, 1.4% and 0.4% respectively.

Brent oil was quoted at USD76.16 a barrel at the equities close, rising from USD75.50 at the close Tuesday.

Gold was quoted at USD1,822.70 an ounce at the London equities close, advancing against USD1,811.70 late Tuesday.

Stocks in New York were higher at the London equities close on day two of US bank earnings season. The DJIA was up 0.2%, the S&P 500 index up 0.5% and the Nasdaq Composite up 0.6%.

Bank of America Corp reported surging income in the second quarter, boosted by a sharp reversal of credit provisions.

In the three months to June 30, the Charlotte, North Carolina-headquartered retail and investment bank recorded net income of USD9.22 billion, up sharply from USD3.53 billion a year before.

Diluted earnings per share climbed to USD1.03 from USD0.37.

Net interest income fell by 5.0% to USD10.23 billion from USD10.85 billion - blamed on lower interest rates - while non-interest income slipped by 2.0% to USD11.23 billion from USD11.48 billion, due to lower sales and trading revenue.

As a result, total revenue decreased 3.0% to USD21.47 billion from USD22.33 billion.

The stock was 4.5% lower in New York.

Wells Fargo & Co's second quarter benefited from a substantial credit release, the bank reported, but saw revenue growth from a strong performance from its consumer banking operations.

In the three months to June 30, the San Francisco-headquartered financial services firm recorded net income of USD6.04 billion, a sharp reversal in fortunes compared to its USD3.85 billion loss a year ago.

Diluted earnings per share improved to USD1.38 versus the USD1.01 loss per share reported a year before.

The stock was down 1.2% on Wall Street.

Citigroup posted improved second quarter earnings, easily topping consensus, as the bank's bottom line benefited from its release of reserves it set aside for credit losses.

While the New York City-based company topped revenue expectations for the quarter ended June 30, posting USD17.47 billion against CNN-cited consensus of USD17.2 billion, the figure showed an annual fall. Revenue was 12% lower year-on-year from USD19.77 billion.

Pretax profit jumped to USD7.35 billion from USD1.11 billion a year earlier. Diluted earnings per share soared to USD2.84, from USD0.38 a year earlier and beating CNN-cited consensus of USD1.97.

The Jane Fraser-led bank reported a USD1.07 billion credit benefit in the quarter, on the back of an improved economic outlook, compared to a USD8.20 billion provision last year.

Citi shares were 0.8% lower.

The economic events calendar on Thursday has China economic growth and retail sales figures overnight, UK unemployment data at 0700 BST and the latest US jobless claims numbers at 1330 BST. In addition, Powell's testimony on Capitol Hill continues.

The UK corporate calendar on Thursday has trading statements from utility Severn Trent, credit checking agency Experian, online fashion retailer ASOS and from cyber security firm Darktrace.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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