FTSE 100 climbs despite US inflation, Bank of England hints at fewer rate hikes
London's blue-chip index closed higher as the Bank of England's chief economist tempered expectations for further interest rate increases.
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The FTSE 100 Index concluded Wednesday trading up by 74.53 points, settling at 10,724.86. This upward movement occurred despite the release of strong inflation data from the United States, as the Bank of England's chief economist indicated a more cautious approach to interest rate increases in the UK. The FTSE 250 Index experienced a more modest gain of 21.58 points, closing at 24,360.77, while the AIM all-share index saw a decrease of 3.25 points, ending at 767.91.
Bank of England's Stance on Interest Rates
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Huw Pill, the Bank of England's chief economist, voiced scepticism on Wednesday regarding market expectations for four interest rate increases, totalling 100 basis points. Speaking at an event in Bangkok, Mr Pill questioned the necessity of following market pricing for such a series of hikes. He stated that "To get 100 basis points [of rate rises], we need a concrete manifestation of these risks [to wages and prices]." Mr Pill added that more evidence on "second-round effects" would be available in the next six to nine months. His comments, as reported by Bloomberg, suggested a less aggressive path for monetary tightening than some market participants had anticipated.
US Inflation Data and Market Reaction
In the United States, the Bureau of Labour Statistics reported that the consumer price index increased by 3.7% year-on-year in September. This figure represented an acceleration from the 3.4% rise recorded in August and surpassed the consensus forecast of 3.6%. Energy prices saw a significant annual increase of 20%, with gasoline prices surging by 34%. Core inflation, which excludes volatile food and energy costs, accelerated to 2.6% year-on-year from 2.4% in August, also exceeding expectations. Barclays analyst Pooja Sriram noted that the data was unlikely to offer comfort to policymakers, citing risks such as energy price pass-through into core prices and resilient consumer spending. TD Economics economist Ad Kolar suggested that the Federal Reserve might soon need to act, with market odds for an October hike increasing sharply.
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The US inflation report influenced currency markets, leading to gains for the dollar and an advance in bond yields. The yield on the US 10-year Treasury rose to 5.26%, and the US 30-year Treasury yield increased to 5.57%. The pound weakened against the dollar, trading at 1.3152 dollars, down from 1.3249 dollars. Sterling also saw a slight decline against the euro, moving to 1.1826 euros from 1.1834 euros. The euro itself fell against the dollar, trading at 1.1121 dollars compared to 1.1194 dollars previously. The dollar strengthened against the yen, trading at 158.86 yen, up from 158.42 yen.
European and US Market Performance
European equity markets showed mixed performance. The CAC 40 in Paris closed up 0.6%, and the DAX 40 in Frankfurt added 0.2%. ASML, Europe's most valuable listed company, saw its shares rise 1.2% following well-received third-quarter results. The Dutch chipmaker reported a net income of 4.96 billion euros for the quarter, a 70% increase from the previous quarter and more than double the figure from the same period last year. In contrast, US markets were lower at the close of London trading on Tuesday. The Dow Jones Industrial Average was down 0.1%, the S&P 500 fell 0.8%, and the Nasdaq Composite declined 1.2%.
Bank of America experienced a significant drop of 7.7% in its share price after the US Treasury Department announced penalties exceeding 1.2 billion dollars due to "violations of anti-money laundering and sanctions laws." The bank reportedly failed to properly report more than five billion dollars in suspicious transactions. This charge impacted the bank's third-quarter earnings, which fell below market expectations, and also contributed to a decline in sales and trading revenue and investment banking fees.
Sector Performance and Corporate News
In London, expectations of fewer interest rate hikes provided a boost to housebuilders, with Barratt Redrow shares rising 4.0% and Persimmon shares up 2.8%. Conversely, the stronger dollar exerted pressure on gold prices, leading to declines for miners Fresnillo and Endeavour Mining, down 4.6% and 3.4% respectively. Gold was quoted at 4,089.77 dollars an ounce. On the FTSE 250, Big Yellow shares surged 5.4% after Ancora Holdings Group called for a strategic review, including a potential sale process. Robert Walters shares also rose by 3.9%, with the recruitment firm reporting a 1% increase in net fees at constant currency for the third quarter.
Brent oil was trading at 105.67 dollars a barrel, a slight decrease from 105.83 dollars. Among the top risers on the FTSE 100 were Barratt Redrow, up 11.8p at 304.1p; GSK, up 63p at 1,816p; Burberry Group, up 36.5p at 1,074p; AstraZeneca, up 404p at 12,300p; and Babcock International Group, up 26.2p at 913.4p. The biggest fallers included Fresnillo, down 126p at 2,590p; Computacenter, down 230p at 5,465p; Endeavour Mining, down 141p at 3,991p; Airtel Africa, down 8.6p at 278.6p; and Standard Chartered, down 56p at 2,109p.
Upcoming Economic Data and Corporate Announcements
Looking ahead, Thursday's corporate calendar includes trading statements from miner Antofagasta, home furnishings retailer Dunelm, and building materials company Travis Perkins. Globally, economic data expected includes jobs figures from Australia, inflation data from France, a UK economic growth report, and wholesale inflation numbers in the US.
Questions this report answers
+What was the performance of the FTSE 100 on Wednesday?
The FTSE 100 Index closed at 10,724.86 on Wednesday, marking an increase of 74.53 points, which represents a 0.7% rise. This gain occurred despite the release of higher-than-expected inflation data from the United States.
+What did the Bank of England's chief economist say about interest rates?
Huw Pill, the Bank of England's chief economist, expressed scepticism about market expectations for four 25-basis-point interest rate hikes. He indicated that more evidence on 'second-round effects' would be needed before such a series of increases could be justified.
+How did US inflation data affect markets?
US consumer prices rose 3.7% year-on-year in September, exceeding forecasts. This data led to gains for the dollar and an advance in US bond yields, while the pound weakened against the dollar and euro.
+What significant corporate news was reported?
Bank of America faced penalties exceeding $1.2 billion from the US Treasury Department for anti-money laundering and sanctions violations. In London, housebuilder shares rose on hopes of fewer rate hikes, while gold miners declined due to a stronger dollar.
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