LONDON MARKET MIDDAY: Stocks rediscover poise after UK inflation data

Wed, 17th Apr 2024 12:05

(Alliance News) - Stock prices in London were higher on Wednesday, shaking off a hotter-than-expected UK consumer price index reading, and a warning from Federal Reserve Chair Jerome Powell on the fight to contain inflation in the US.

The FTSE 100 index rose 46.18 points, 0.6%, at 7,866.54. The FTSE 250 climbed 107.23 points, 0.6%, at 19,451.77, and the AIM All-Share was up 4.00 points, 0.5%, at 742.28.

The Cboe UK 100 was up 0.7% at 785.76, the Cboe UK 250 added 0.6% to 16,861.28, and the Cboe Small Companies edged up 0.1% to 14,705.54.

In European equities on Wednesday, the CAC 40 in Paris shot up 1.4% and the DAX 40 in Frankfurt added 0.7%.

Scope Markets analyst Joshua Mahony commented: "European markets have enjoyed a welcome reprieve from the selling pressure that has dominated much of the week, with mainland indices leading the way. A decline across both headline and core inflation in the UK has helped highlight the continued downward trajectory that many hope will soon bring a return to target to facilitate a dovish shift from the Bank of England. Yesterday's comments from BoE governor Andrew Bailey signalled as much, highlighting the confidence that the UK is on the path to lower rates.

"Nonetheless today's 0.6% monthly metric across both core and headline inflation should be cause for concern, replicating the 0.6% gain seen for UK CPI last month. If 2% is the target, a two-month gain of 1.2% does little to encourage the idea that the inflation issue has been largely resolved. In response we have seen markets reprice the first rate cut, with the elevated wage and inflation metrics driving expectations of a June cut down to a mere 29%. Instead, we may have to wait until August (50%) or September (67%) for that first pivot from Bailey & co."

The UK consumer price inflation rate was a touch loftier than expected last month, numbers on Wednesday showed, though it cooled to its tamest level since September 2021.

According to the Office for National Statistics, the year-on-year rate of consumer price inflation ebbed to 3.2% in March, from 3.4% in February.

A slowdown to 3.1% was expected, according to FXStreet cited consensus, however. Nonetheless, it was still the tamest rate of inflation since it sat at 3.1% in September 2021.

The next Bank of England decision is on May 9. Wednesday's inflation reading following data on Tuesday showing wage growth was loftier than expected.

Stocks in New York are called to open higher. The Dow Jones Industrial Average and S&P 500 are called up 0.5%, and the Nasdaq Composite 0.3% higher.

The US Federal Reserve's ongoing fight against inflation could take "longer than expected," the head of the US central bank said Tuesday, further paring back the chances of early rate cuts.

But three months of higher inflation data since the start of 2024 have threatened to undermine the expectation of interest rate cuts this year, with one senior Fed policymaker recently suggesting that rates could remain at their current levels until 2025.

"The recent data have clearly not given us greater confidence, and instead indicate that it's likely to take longer than expected to achieve that confidence," Chair Powell said.

Swissquote analyst Ipek Ozkardeskaya added: "The three straight month of rising inflation in the US convinced the Fed Chair - as many other Fed members - that cutting the interest rates in summer may be a bad idea."

Against the dollar, sterling rose to USD1.2460 early Wednesday afternoon, from USD1.2435 at the time of the London equities close on Tuesday. The euro was up USD1.0643 from USD1.0629. Against the yen, the buck bought JPY154.62, rising from JPY154.51.

A barrel of Brent oil slumped to USD89.18 midday Wednesday, from USD90.21 at the European equities close Tuesday. Gold traded at USD2,386.28 an ounce, climbing from USD2,379.66.

In London, mining shares were "doing their very best to recharge the market" AJ Bell analyst Russ Mould commented.

Anglo American rose 3.6%, Rio Tinto added 3.0% and Antofagasta rose 2.9%.

Rio Tinto rose despite it reporting lower quarterly iron ore shipments and production at its key Pilbara operation. Antofagasta said copper output was weaker in its first-quarter, though it maintained guidance. Anglo American said the latest rough diamond sales by its De Beers arm were up against the previous sales round of 2024, but they remained below a year before.

Mining shares had fallen on Tuesday following mixed Chinese data. China is a major buyer of minerals. The nation's gross domestic product grew in the first-quarter, though industrial production and retail sales readings were weaker than expected.

Shares in Royal Mail owner International Distribution Services jumped 17%. IDS rejected a takeover proposal from billionaire Daniel Kretinsky's EP Corporate Group, the latter said.

EP Corporate, is a 100% direct shareholder of Vesa Equity which holds an around 28% stake in IDS.

EP Corporate said it submitted a non-binding indicative proposal to IDS, seeking its recommendation for a possible cash offer for the shares it does not already own.

Although this was rejected, EP Corporate said it looked forward to continuing to engage constructively with IDS and would consider "all options".

EP Group said it viewed the UK as an attractive and dynamic market for investment.

It recognises that Royal Mail is in a "challenging situation".

"Weak financial performance, poor service delivery and a slow transformation, in the face of a market going through structural change, have put the business under unsustainable pressure. With the increasing competition from multinational companies in the UK postal market, private investment in Royal Mail becomes crucial," it added.

EP Group described Royal Mail as an important "national asset" that would benefit from being able to take a longer-term view. It pledged to support "this iconic business" as it transforms and rebuilds into a modern postal operator.

Kretinsky's Vesa holds roughly a 10% stake in grocer Sainsbury's. It also has an interest in Premier League football club West Ham United.

Just Eat Takeaway.com shed 5.3%. It said it started the year with an acceleration in gross transaction value growth in the UK and Ireland, though the food ordering platform still struggled in the US, where it continues to explore a sale of Grubhub.

The weakness in the North America division, comprised of 2021 acquisition Grubhub, meant that total group GTV was down 1.8% in the first quarter of 2024 to EUR6.55 billion from EUR6.67 billion a year before. Excluding North America, GTV was up 4%, or 3% at constant currency, which Just Eat noted is within its guidance range for 2024 of 2% to 6% growth.

In Northern Europe, Amsterdam-based Just Eat's largest division, GTV was up 4.6% to EUR2.00 billion from EUR1.91 billion. It was up 4% at constant currency, the company said.

The UK and Ireland was the standout region for the company, which was formed from the merger of the UK's Just Eat and Takeaway.com of the Netherlands. GTV was up 11% to EUR1.71 billion in the first quarter from EUR1.54 billion a year before.

Looking ahead, Just Eat said it continues to expect to record adjusted earnings before interest, tax, depreciation and amortisation of EUR450 million in 2024. Adjusted Ebitda in 2023 was EUR324 million.

Panmure Gordon analyst Sean Kealy commented: "Just Eat Takeaway's Q1 update illustrates the two speeds of the business, with its valuable operations in UKI and Northern Europe performing well but remaining shackled to underperforming businesses in North America, Southern Europe and Australia."

By Eric Cunha, Alliance News news editor

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