LONDON MARKET OPEN: Slowing UK inflation to ease pressure on BoE

(Alliance News) - Stock prices in London were mixed on Wednesday morning, with the UK's consumer inflation print coming in below expectations, easing to 2.0%, allowing the Bank of England additional time to consider a shift in monetary policy.

The FTSE 100 index was down 12.46 points, or 0.2%, at 7,168.63 on Wednesday. The mid-cap FTSE 250 index was up 80.88 points, or 0.3%, at 23,774.41. The AIM All-Share index was up 0.4% at 1,263.37.

The Cboe UK 100 index was down 0.1% at 713.64. The Cboe 250 was up 0.5% at 21,589.17, and the Cboe Small Companies was 0.1% higher at 15,421.09.

UK consumer price inflation slowed in July, data from the Office of National Statistics showed Wednesday.

The consumer prices index was unchanged in July versus the previous month, following June's 0.5% rise from May. Market consensus, according to FXStreet, had predicted consumer prices to rise 0.3% in July from June.

"In 2021, price rises in transport were largely offset by price falls for clothing and footwear, and a variety of recreational good," the ONS explained.

Annually, the CPI rose by 2.0% in July, slowing from 2.5% to June, and behind the 2.2% rise predicted by the market according to FXStreet.

Dutch bank ING commented: "These are temporary setbacks, and there's little doubt that headline CPI will go well above 3% later this year, and in fact, the next set of data may confirm we got close in August. It's not difficult to see inflation coming fairly near to the Bank of England’s forecast of 4% in around November."

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: "Inflation stepped off the accelerator in July, but this doesn't mean we're set for a gentle ride, because it owes an enormous amount to an artificial bump in prices a year earlier. The underlying pressure on prices, particularly from soaring petrol and second-hand car prices, mean it's set to pick up speed again soon, and may well hit 4% by the end of the year."

Ben Carter, analyst at Validus Risk Management, added: "This will ease pressure on the BoE to offer forward guidance at the September policy meeting, and another print at or below 2% in September could see market expectations of a rate hike in the middle of 2022 be pushed back. However, today's reading is not likely not help sterling against the dollar as GBPUSD has struggled for ground over the last few days slipping below 1.3750 on the back of the dollar strength we are seeing with rising Covid-19 concerns."

The pound was quoted at USD1.3744 early Wednesday, steady on USD1.3742 at the London equities close Tuesday.

In mainland Europe, the CAC 40 stock index in Paris was slightly lower, while the DAX 30 in Frankfurt was slightly higher.

Later Wednesday, there is an inflation print for the eurozone at 1000 BST.

In Europe headline CPI for July is expected to rise to 2.2%, slightly up from 1.9%, although core prices are much more subdued at 0.7%.

In London, Persimmon was down 1.1%, despite the UK housebuilder reporting a "robust" first half.

In the six months to June 30, pretax profit surged to GBP480.1 million from GBP292.4 million a year before, as revenue grew to GBP1.84 billion from GBP1.19 billion.

This came as Persimmon's new home completions almost doubled to 7,406 from 4,900 and its new home average selling price increased to GBP236,199 from GBP225.066.

"We anticipate successfully delivering about 10% growth in sales completions this year. The group has a great platform and good momentum to deliver further disciplined growth into the medium term, creating value for all," Chief Executive Dean Finch said.

The housebuilder's current forward sales position, at June 30, was GBP2.23 billion, down from GBP2.48 billion at the same point a year before.

Richard Hunter, head of Markets at interactive investor, said: "Persimmon continues to build on its strengths, with a healthy order book, robust balance sheet and careful management of the factors within its control all underpinning progress."

Hunter, however, noted there are some "red flags" in the results. This includes current cost inflation rate of building is running between 4.5% and 5%, propelled by labour shortages and blockages in the supply chain in terms of raw materials.

"More broadly, the results run to the end of June, so do not encompass any effect which the end of the stamp duty holiday may have had. At the same time, the imminent removal of the government's furlough scheme could put pressure on both unemployment levels and consumer confidence, neither of which would be positive for the housing sector generally," Hunter added.

BHP was at the bottom of the benchmark, down 1.7%, giving back some of Tuesday's 3.4% gain.

Following the miner's announcement on Tuesday of a merger of oil assets with Australia's Woodside Petroleum and the transfer of its primary listing to Sydney, the miner's share closed down 7.1% on the ASX on Wednesday, while Woodside closed down 2.1%.

Woodside on Wednesday declared a 15% dividend increase, as post-tax profit doubled in the first half.

Just Eat Takeaway was up 1.6%, sitting near the top of the FTSE 100, extending Tuesday's 2.9% gain, after the food delivery platform said profitability will start to improve from the second half on Tuesday.

Revenue in the first half of 2021 more than doubled year-on-year to EUR1.77 billion from EUR675 million. The company's pretax loss widened to EUR395 million from EUR26 million. On a combined basis - including the acquired Just Eat and Grubhub businesses for both periods - revenue was up 47% to EUR2.61 billion from EUR1.78 billion.

In the midcaps, Balfour Beatty was 7.3% lower, at the bottom of the FTSE 250. The construction firm reiterated its 2021 outlook as it returned to profit.

In the half-year ended July 2, pretax profit was GBP35 million, compared to a GBP26 million loss a year before. Revenue increased slightly to GBP4.15 billion from GBP4.12 billion

Balfour declared an interim dividend of 3.0 pence, after withholding its shareholder payout last amid amid its loss-making, but noted the dividend is up 43% from the 2019 level.

Looking ahead, the company reiterated its 2021 profit from operations outlook for earnings-based businesses to be in line with 2019.

Balfour ended the first half with an order book of GBP16.1 billion, down from GBP17.5 billion 12 months earlier and lower than the GBP16.4 billion seen six months prior.

In Tokyo, the Nikkei 225 index closed up 0.6% on Wednesday. In China, the Shanghai Composite was up 1.1%, while the Hang Seng index in Hong Kong was up 0.3%. The S&P/ASX 200 in Sydney closed 0.1% lower.

The euro was priced at USD1.1726, up from USD1.1715 at the European equities close on Tuesday. Against the Japanese yen, the dollar was trading at JPY109.58, soft on JPY109.60.

Brent oil was quoted at USD69.54 a barrel Wednesday morning, down from USD69.75 late Tuesday.

Oanda's Jeffrey Halley said: "The weaker than expected US retail sales data and ensuing US dollar strength weighed further on oil prices overnight. Confidence is being weakened anyway by softer China data earlier in the week and ratcheting fears that the Covid-19 delta-variant will erode the pace of the global recovery, and thus, future oil demand. US API crude inventories dropped by 1.163 million barrels overnight, but that seemed only to stem the negative tide, not turn it."

Gold was trading at USD1,792.80 an ounce, down against USD1,783.45.

By Paul McGowan; paulmcgowan@alliancenews.com

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