London open: FTSE little changed as inflation hits fresh 40-year high
London stocks were little changed in early trade on Wednesday after data showed that UK inflation hit a fresh 40-year high in April.
At 0830 BST, the FTSE 100 was flat at 7,521.37, while sterling was down 0.7% against the dollar at 1.2412.
Figures released earlier by the Office for National Statistics showed the headline consumer price index rose to 9% in April form 7% in March after energy prices surged. This is the highest reading since comparable readings in 1982, although the figure was also marginally below consensus expectations of 9.1%.
Including owner occupiers’ housing costs, the index rose by 7.8% in the 12 months to April, from 6.2% in March.
The largest upward contribution to annual CPIH inflation was housing and household services, which includes electricity, gas and other fuels. In April, the energy bills rose by 54% in response to surging wholesale prices.
Transport costs also weighed heavily, rising 1.47 percentage points as the cost of motor fuels continue to rise.
Paul Dales, chief UK economist at Capital Economics, said things are going to get worse before they get better.
“If the rise in CPI inflation from 7.0% to a 40-year high of 9.0% in April wasn’t bad enough, inflation will probably rise further to 10% in October and will then fall back to the 2% target only slowly,” he said. “That’s why we think the Bank of England has more work to do and will raise interest rates from 1.00% now to 3.00%.”
In equity markets, Burberry rallied as the luxury retailer posted a rise in 2022 fiscal year profits and revenues but said its full-year outlook hinged on how fast China bounced back from Covid-19 lockdowns.
Reckitt Benckiser was boosted by an upgrade to ‘outperform’ from ‘sector perform’ at RBC Capital Markets, while WH Smith gained after an upgrade to ‘overweight’ from ‘neutral’ at JPMorgan.
Molten metal flow engineer Vesuvius pushed higher after saying that its sales performance in the first four months of the year was stronger than expected.
Media publisher Future and Mr Kipling and Oxo owner Premier Foods were both up after well-received results, while housebuilder Vistry advanced after saying 2022 profits were set to be at the top end of market forecasts.
On the downside, Experian fell even as the credit-checking firm posted a jump in full-year profit and revenue and highlighted significant progress in consumer services.
Tui was under the cosh after the travel company placed 162.3m shares at €2.62 each.
Top 10 FTSE 100 Risers
Top 10 FTSE 100 Fallers
US close: Stocks close higher following retail sales data
Wall Street stocks closed sharply higher on Tuesday as market participants digested last month’s retail sales data.
At the close, the Dow Jones Industrial Average was up 1.34% at 32,654.49, while the S&P 500 was 2.02% firmer at 4,088.85 and the Nasdaq Composite saw out the session 2.76% stronger at 11,984.52.
The Dow closed 431.17 points higher on Tuesday, extending modest gains recorded in the previous session.
Tuesday’s primary focus was news that Americans continued splashing out much more than expected last month. According to the Department of Commerce, retail sales volumes jumped at a month-on-month pace of 0.9% in April to reach $677.71bn. Economists had forecast a rise of 1.0%.
In other macro news, industrial production increased 6.4% in April, according to the Federal Reserve, following a downwardly revised 5.4% increase in March. Manufacturing output was up 5.8%, utilities were up 7.5%, and mining increased 8.6%.
Elsewhere, business inventories rose 2% month-on-month in March, quickening from an upwardly revised 1.8% increase in February, according to the Census Bureau, beating market expectations for a 1.9% advance.
Finally, the National Association of Housebuilder‘s housing market index fell for a fifth straight month in May, dropping to 69 from 77 in April, below market forecasts of 75 for the lowest level since June 2020, as rising mortgage rates and building material costs weighed on sentiment.
Also drawing an amount of investor attention was news that Shanghai had outlined plans to return to more normal life from 1 June by ending over six weeks of Covid-19 lockdowns that have brought about a sharp slowdown in the nation’s economic activity. Deputy mayor Zong Ming said Shanghai’s reopening would be carried out in stages, with movement curbs largely to remain in place until 21 May in order to prevent a rebound in infections, before a gradual easing.
“From June 1 to mid-and late June, as long as risks of a rebound in infections are controlled, we will fully implement epidemic prevention and control, normalise management and fully restore normal production and life in the city,” Ming said.
On the corporate front, Elon Musk has warned that his $44.0bn takeover approach for Twitter could fail if the social media platform is unable to prove how many accounts are fake. The Tesla CEO first announced on Friday that the deal was “on hold” until he gets the proof that fake accounts total “well under 5%” rather than the “20% fake/spam accounts” he now believes it to be.
In terms of earnings, home improvement retailer Home Depot raised its full-year guidance early on Tuesday after posting solid quarterly earnings, driven by the company’s strongest first-quarter sales in its history, while shares in department store giant Walmart slumped after reporting a Q1 earnings miss and guiding for flat Q2 earnings per share after previously pointing to a mid-single-digit increase.
Wednesday newspaper round-up: Covid support schemes, Brexit, BoE
The business department’s handling of Covid support schemes left an “open goal” to fraudsters and embezzlers that has added “billions to taxpayer woes”, parliament’s spending watchdog has found. In its review of the annual report of the Department for Business, Energy and Industrial Strategy (BEIS), the Public Accounts Committee (PAC) said it recognised that the government offered crucial support to businesses at the height of the pandemic. – Guardian
The European Commission has raised the spectre of an economically damaging trade war with the UK, pledging to respond with “all measures at its disposal” if Liz Truss presses ahead with a plan to rewrite the Northern Ireland protocol. The foreign secretary set out plans on Tuesday to table a bill that would make key changes to the protocol, including waiving all checks on goods flowing from Great Britain to Northern Ireland where they are not destined for the Republic of Ireland. – Guardian
The Bank of England has made “serious mistakes” in the fight against inflation and is facing a prolonged bout of painful price rises unless it acts immediately, its former Governor Lord King has warned. Officials at Threadneedle Street fuelled a surge in prices with a money printing spree during the Covid pandemic, the crossbench peer said. – Telegraph
A senior executive at the cybersecurity company Darktrace has been named as “part of a clique” behind Britain’s biggest ever fraud in a ruling at the High Court. Nicole Eagan, chief strategy officer at Darktrace, was also investigated by the US Department of Justice for her role in the toxic $11bn (£8.9bn) sale of software business Autonomy a decade ago, Mr Justice Hildyard revealed in a judgment handed down on Tuesday. – Telegraph
The proceeds of the £14.4 million fine imposed on KPMG last week for forging documents in connection with its audit of the collapsed construction group Carillion is to go to the trade body for accountants, with none of the money going to taxpayers or other creditors. The Institute of Chartered Accountants in England and Wales (ICAEW) is set to receive the entire proceeds of the fine in another example, critics say, of it profiting from the misconduct of members while victims receive nothing. – The Times
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