LONDON MARKET MIDDAY: FTSE 100 falls after stubborn UK inflation data

(Alliance News) - Stock prices in London were lower heading into Wednesday afternoon, with events in Gaza and a hotter-than-expected UK inflation reading weighing on stocks.

The inflation picture in the eurozone is somewhat brighter. Numbers confirmed the single currency area's inflation rate cooled to a near two-year-low last month. The European Central Bank announces an interest rate decision next week.

Among individual shares in London, housebuilders and airline stocks struggled. Whitbread and Just Eat Takeaway.com shares were supported by buyback announcements.

The FTSE 100 index traded down 50.75 points, 0.7%, at 7,624.46. The FTSE 250 slumped 201.77 points, 1.1%, at 17,487.69, and the AIM All-Share was down 3.79 points, 0.6%, at 686.79.

The Cboe UK 100 was down 0.7% at 761.40, the Cboe UK 250 was 1.2% lower at 15,154.30, and the Cboe Small Companies rose 1.4% to 12,992.71.

In European equities, the CAC 40 in Paris and the DAX 40 in Frankfurt were both 0.6% lower.

Stocks in New York are called to open in the red. The Dow Jones Industrial Average is called down 0.4%, the S&P 500 down 0.5%, and the Nasdaq Composite 0.6% lower.

Sterling was quoted at USD1.2182 early Wednesday afternoon, down from USD1.2191 at the London equities close on Tuesday. It had traded as high as USD1.2211 following the UK inflation reading, however.

The Office for National Statistics said consumer prices rose 6.7% annually in September, matching the rate seen in August. Market forecasts, as cited by FXStreet, had expected the figure to cool to 6.5% last month.

"Large downward effects from food and non-alcoholic beverages and furniture and household goods were largely offset by upward contributions from transport, and restaurants and hotels," the ONS explained.

On a monthly basis, prices ticked up 0.5% in September, which was ahead of forecasts of 0.4%. It was also higher than the 0.3% monthly rise seen in August.

Core consumer prices, which exclude energy, food, alcohol and tobacco, rose by 6.1% annually in September. This was cooler than the 6.2% rise in August, but higher than forecasts of 6.0%.

"However, despite today's higher than expected outturn, inflation has moderated faster than the Bank of England forecasted for both August and September," analysts at Lloyds Banking Group commented.

"While a broadening out of slowing price growth momentum will provide some comfort to the Bank of England that their current hiking cycle is having its desired effect, inflation remains too high for comfort and therefore monetary policy is likely to stay 'tight' for some time."

Shares in housebuilders, a sector sensitive to robust interest rates, were lower. Berkeley Group fell 1.9%, Taylor Wimpey lost 3.2% and Barratt Developments gave back 3.3%. A gloomy trading update from Barratt did not help its stock either. It warned it expects the difficult backdrop for the housing sector to continue for the coming months.

Data from the ONS, meanwhile, showed year-on-year UK house price growth slowed to 0.2% in August, from 0.7% in July.

The euro fell to USD1.0557 early Wednesday afternoon, from USD1.0581 at the time of the European equities close on Tuesday. Against the yen, the dollar was quoted at JPY149.70, down slightly versus JPY149.74.

Inflation in the eurozone abated last month, numbers on Wednesday confirmed, fading to its tamest level since October 2021.

The single currency area's annual inflation rate cooled to 4.3% in September from 5.2% in August, Eurostat confirmed. The rate of inflation is markedly tamer than the 9.9% seen in September 2022.

Inflation hit a recent peak of 10.6% in October 2022, but has gradually declined since. It is now at its tamest level since October 2021, which was prior to energy prices shooting up following Russia's invasion of Ukraine.

The annual core inflation rate, which excludes items such as food and energy, eased to 4.5% in September, from 5.3% in August. It is the weakest core inflation rate since August 2022.

Capital Economics analyst Andrew Kenningham commented: "The breakdown of eurozone [harmonised index of consumer prices] inflation data for September, published today, reveals that there was a significant fall in inflation for tourism-related services as the summer season ended. This helped to bring core and headline inflation down a little more rapidly than anticipated, but it does not change the big picture for the ECB which will stick to a hawkish script next week."

The ECB's next interest rate decision is due a week on Thursday.

Gold and Brent prices were on the up, with bullion boosted amid a flock to safety on rising geopolitical tensions and the North Sea benchmark climbing as investors considers what prolonged conflict in the Middle East could mean for oil supply.

Brent oil was trading at USD92.61 a barrel early Wednesday afternoon, rising markedly from USD89.41 late Tuesday. Gold was quoted at USD1,944.35 an ounce, higher than USD1,924.08.

SPI Asset Management analyst Stephen Innes commented: "The explosion at a hospital in Gaza has quietly influenced the financial markets' reaction to the Israel-Hamas conflict. Initially, markets appeared to downplay the risk of a broader conflict. However, following the explosion, several key political leaders, including the Palestinian, Egyptian, and Jordanian leaders, cancelled meetings with US President Biden. While safe-haven flows still appear to be relatively subdued, the price of gold has tested the top of the recent range and oil prices initially inched higher. But for stock investors the optics are not great."

Hamas blamed Israeli strikes for the hospital explosion. Israel said it was caused by a rocket misfired by militants in Gaza.

Meanwhile, six airports across France were evacuated on Wednesday after emailed "threats of attack", a police source told AFP. The evacuations at Lille, Lyon, Nantes, Nice, Toulouse and Beauvais airport near Paris would allow authorities to "clear up any doubts" that the threats might be real, the source said.

The news compounded an already difficult day for airline shares. British Airways parent IAG fell 2.6%. Wizz Air lost 3.4%, with a cut to 'sell' by Citi also hurting the stock. In Paris, Air France KLM shed 4.7%.

Back in London, Whitbread rose 3.3%. In its half-year which ended August 31, the Premier Inn hotel chain owner said revenue climbed 17% annually to GBP1.57 billion from GBP1.35 billion, citing strong UK hotel demand and an expected slow recovery in supply following the pandemic. Pretax profit jumped 29% to GBP395 million from GBP307 million.

Whitbread raised its interim dividend by 40% to 34.1 pence, and announced a new GBP300 million share buyback programme.

Also announcing a share buyback, Just Eat Takeaway rose 0.8%. It launched a new share buyback programme, as it raised earnings guidance for 2023 but lowered top-line expectations.

The Amsterdam-based only food delivery marketplace said it expects to achieve positive adjusted earnings before interest, tax, depreciation and amortisation of EUR310 million for the full year, raised from previous guidance of EUR275 million.

Adjusted Ebitda amounted to just EUR19 million in 2022, but this was swung from a loss of EUR350 million in 2021. In the first half of 2023, adjusted Ebitda was positive EUR143 million.

For all of 2023, Just Eat Takeaway said it expects gross transaction value to be down by 4% at constant exchange rates. Previously, its guidance was for GTV movement at reported exchange rates to be between negative 4% and positive 2%.

The company also announced the launch of a new share buyback worth EUR150 million. The repurchased shares will be used either for share-based compensation or will be cancelled to reduce capital, it said.

Still to come on Wednesday afternoon is US housing starts and building permits data at 1330 BST.

By Eric Cunha, Alliance News news editor

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