LONDON (Alliance News) - UK markets made strong gains for the second consecutive day, as investors took heart that geopolitical tensions seemed to be contained for the time being.
However, the pound dropped to its lowest level against the dollar for four months following the release of a lower-than-expected UK inflation reading.
The FTSE 100 ended the day up 0.6% at 6,779.31, and the FTSE 250 added 0.6% to 15,895.26, while the AIM All-Share gained 0.5% to 763.29.
In Europe markets performed even better, with the CAC 40 in Paris ending up 0.6%. while the German DAX finished 1.0% higher.
At the close of European markets, Wall Street also was trading higher. The DJIA was up 0.4%, the S&P 500 up 0.4% and the NASDAQ Composite up 0.2%.
UK consumer prices rose by 1.6% year-on-year in July, according to the latest data from the Office for National Statistics. That's down from the 1.9% rise in prices in June, and lower than the 1.8% CPI that had been predicted by economists. On a monthly basis, prices fell by 0.3%, reversing the 0.2% rise in June and falling faster that the 0.2% fall that had been expected.
The Bank of England is mandated to target CPI of 2.0%. The latest data represents a slip away from that goal and the seventh consecutive month of below-target inflation. The data will support the recent shift in market sentiment toward believing that UK interest rates are unlikely to rise until next year.
"Lower levels of inflation take the heat off the Bank of England to hike rates. This latest report won’t have been factored into the decision-making at the latest BOE meeting, but with core inflation below 2% anyway it seems entirely possible no members of the Monetary Policy Committee dissented the decision to keep interest rates unchanged," says Jasper Lawler, analyst at CMC Markets.
Wednesday's economic calendar is dominated by central banks, as minutes from the most recent Bank of England and Federal Reserve meetings will be released at 0930 BST and 1900 BST, respectively.
The pound was hit by the UK inflation news and was trading at USD1.6621 at the close of play in London.
In individual stock news, BHP Billiton was by some distance the biggest faller in the FTSE 100 after it confirmed that it will demerge its aluminium, coal, manganese, nickel and silver assets into a new company, pledging to cut costs and improve the productivity of its remaining businesses in an attempt to boost shareholder returns. The new Perth-based entity will be listed in Sydney and Johannesburg, rather than London.
The stock was further pushed down, according to Liberum, by BHP's failure to announce a "much anticipated" USD3 billion to USD5 billion share buyback. BHP ended the day down 4.5%.
Imperial Tobacco Group closed up 2.1% after it reported a slight fall in sales volume and revenue for the first nine months of its financial year, but left unchanged its full-year guidance for "modest" growth in earnings per share and a dividend increase of at least 10%.
Imperial Tobacco said its stock optimisation programme - by which it is reducing stock levels to improve supply and cost efficiencies - reduced trade inventories in a number of markets, especially Iraq and Russia, which has hit volume, revenue and profit. However, the company still expects "modest growth" in earnings per share at constant currency rates for the full financial year, accompanied by at least a 10% increase in dividend. It also said its cost-optimisation programme remains on track to deliver incremental savings of GBP60 million for the full year.
In the corporate calendar Wednesday, interim results will be reported from Glencore, Hikma Pharmaceuticals, Harvey Nash and UK Commercial Property Trust.
By Neil Thakrar; neilthakrar@alliancenews.com
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Hikma Pharmaceuticals (HIK)
Glencore (GLEN)
UK Commercial Property Trust (UKCM)