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London close: Stocks mixed ahead of Fed, inflation surprise confounds

By Josh White

Date: Wednesday 22 Mar 2023

London close: Stocks mixed ahead of Fed, inflation surprise confounds

(Sharecast News) - Equity markets in London saw a mixed performance on Wednesday, with some banks holding onto their gains through to the close.
The top-flight FTSE 100 closed up 0.41% at 7,566.84, while the FTSE 250 was down 0.11% at 18,757.79.

London's mixed performance came after an unexpected jump in consumer price inflation, adding pressure on the Bank of England to increase rates further.

Sterling was also mixed, last rising 0.19% on the dollar to trade at $1.2240, while it weakened 0.05% against the euro to change hands at €1.1338.

"The surge in stocks from Monday's lows has slowed to a crawl today, as attention turns to the Fed decision," said IG chief market analyst Chris Beauchamp.

"No one wants to be too energetic in their trading ahead of such an important moment. It promises to be a bravura performance for Powell, who will need to stress the Fed's commitment to fighting inflation while avoiding provoking another crisis in US regional banks.

"Most of the market reaction will hinge on how well he accomplishes this task."

Beauchamp added that hopes the Bank of England would be able to stick to a dovish line on Thursday were confounded earlier, with the rise in CPI growth piling on the pressure.

"Sterling hasn't been able to hold its morning gains however, succumbing to the same pre-Fed nerves that have hit stocks."

Surging food prices lead surprise rise in inflation

In economic news, official data released earlier showed inflation unexpectedly rising last month, primarily driven by the soaring cost of food.

Analysts and the Bank of England had predicted the consumer price index (CPI) to fall to 9.9% from 10.1% in January.

However, the Office for National Statistics (ONS) reported that the CPI in the 12 months to February rose to 10.4%, with a monthly rise of 1.1%, exceeding expectations of a 0.6% increase.

The ONS said the largest contributors to the rise were restaurants and cafes due to increases in the cost of alcohol, food, and clothing.

Food prices rose 18.2% over the year - the highest rate in 45 years - while core inflation, which excludes the more volatile elements of food, energy, alcohol, and tobacco, also rose sharply to 6.2% from 5.8% in January.

"Just when you think inflation can't get any worse, it does," said Michael Hewson, chief market analyst at CMC Markets UK.

"Not only that, but core prices also rose sharply, dealing a blow to the BoE's claims that CPI had turned the corner and was starting to come down.

"The data seal the deal on a 25-basis point rate rise [on Thursday], but also increases the pressure for the central bank to go further and consider a 50-basis point move."

Elsewhere, the CBI industrial trends survey showed that UK manufacturers experienced a fall in output volumes in March, with a weighted balance of -6 compared to -16 in the three months to February.

Output decreased in nine of the 17 sub-sectors, including food, drink, and tobacco, mechanical engineering, and paper, printing, and media.

Total order books were below normal for the time of year, with a balance of -20, down from February's -16, and the weakest position since February 2021.

However, output was forecast to increase in the next three months, with a balance of 12, while average selling price inflation expectations decreased notably.

"Falling output and softer order books highlight the challenging demand environment for UK manufacturing," said Anna Leach, deputy chief economist at the CBI.

"Together with some easing of input costs, this seems to be feeding through to a marked weakening in selling price expectations for the next quarter."

Finally on data, average UK house prices increased 6.3% in the year to January, down from December's rate of 9.3% and below expectations of around 6.5%.

In seasonally-adjusted terms, prices fell by 0.6% month-on-month according to the ONS, the largest since October 2021.

The average house price in the UK was £290,000, around £17,000 higher than January 2022.

Northern Ireland saw the most significant increases in house prices, rising 10.2% to £175,000, while England was up by 6.9% at £310,000.

Scotland saw an increase of 1% to £185,000, and Wales saw a rise of 5.8% to £217,000.

In separate research from the ONS, private rental prices paid by tenants in the UK jumped 4.7% in the 12 months to February, up from 4.4% in January, and the largest percentage change since January 2016.

"The downturn in the house market gathered momentum at the turn of the year, as still-elevated mortgage rates continued to weigh on buyer demand," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

"Timely measures point to a further decline in prices over the coming months.

"Mortgage rates likely will not fall further in the near term, given that risk-free rates have stabilised and banks might seek to reduce their loan books to keep more liquid assets on their balance sheets, just in case a large proportion of depositors wish to withdraw their funds."

The focus now turned to the Bank of England's response to rising inflation, with the Monetary Policy Committee set to announce its latest decision on interest rates on Thursday.

It has been steadily increasing the cost of borrowing over the last year to tackle surging inflation.

The Office for Budget Responsibility recently forecast inflation to fall to 2.9% by the end of the year, from a peak of 11.1% in October 2022.

Asia-focussed banks cling to gains

Banks including HSBC and Standard Chartered continued to hold on to earlier gains, after showing signs of recovering from the sector's recent battering earlier in the session.

At the close, HSBC rose by 1.91%, and Standard Chartered gained 1.31%.

Housebuilder Vistry saw its shares rise 0.14% after it reported better-than-expected full-year profits and improved market conditions.

The company's adjusted pre-tax profit for the year ended 31 December increased 21% to £418.4m, beating the average estimate of £411.1m.

Bytes Technology, a software, security, and cloud services specialist, rallied after announcing that annual gross profit and adjusted operating earnings would rise by 20%.

Marks & Spencer shares surged by 4.46% after receiving rating upgrades from Exane, Goldman Sachs, and Citi.

On the downside, British Land suffered a decline of 5.99% after Goldman Sachs downgraded it to "sell."

Sector peers Segro and Land Securities Group also saw their shares fall by 2.42% and 3.75%, respectively.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 7,566.84 0.41%
FTSE 250 (MCX) 18,757.79 -0.11%
techMARK (TASX) 4,535.50 0.17%

FTSE 100 - Risers

Ocado Group (OCDO) 435.10p 1.94%
HSBC Holdings (HSBA) 564.60p 1.91%
B&M European Value Retail S.A. (DI) (BME) 481.60p 1.90%
Endeavour Mining (EDV) 1,791.00p 1.76%
Reckitt Benckiser Group (RKT) 6,022.00p 1.76%
Unilever (ULVR) 4,202.50p 1.76%
Fresnillo (FRES) 727.00p 1.71%
Haleon (HLN) 329.00p 1.62%
Coca-Cola HBC AG (CDI) (CCH) 2,194.00p 1.62%
Diageo (DGE) 3,604.00p 1.56%

FTSE 100 - Fallers

British Land Company (BLND) 375.00p -5.99%
Land Securities Group (LAND) 590.40p -3.75%
Unite Group (UTG) 886.00p -3.17%
Airtel Africa (AAF) 106.90p -2.55%
SEGRO (SGRO) 726.00p -2.42%
Convatec Group (CTEC) 223.60p -1.93%
Entain (ENT) 1,215.00p -1.86%
Flutter Entertainment (CDI) (FLTR) 14,120.00p -1.40%
Vodafone Group (VOD) 91.38p -1.39%
Scottish Mortgage Inv Trust (SMT) 655.80p -1.35%

FTSE 250 - Risers

Marks & Spencer Group (MKS) 154.65p 4.46%
BH Macro Ltd. GBP Shares (BHMG) 427.00p 4.15%
Capricorn Energy (CNE) 236.00p 3.24%
Wood Group (John) (WG.) 204.50p 2.76%
PZ Cussons (PZC) 178.40p 2.53%
TI Fluid Systems (TIFS) 101.40p 2.53%
Balfour Beatty (BBY) 364.80p 2.30%
ASOS (ASC) 777.00p 2.24%
Harbour Energy (HBR) 259.80p 2.20%
Bytes Technology Group (BYIT) 383.80p 2.18%

FTSE 250 - Fallers

Petershill Partners (PHLL) 146.60p -6.03%
Hammerson (HMSO) 23.04p -4.48%
Molten Ventures (GROW) 299.80p -3.73%
Currys (CURY) 58.95p -3.30%
Workspace Group (WKP) 452.40p -3.29%
4Imprint Group (FOUR) 4,930.00p -3.14%
Target Healthcare Reit Ltd (THRL) 67.80p -3.00%
Supermarket Income Reit (SUPR) 86.60p -2.91%
Sirius Real Estate Ltd. (SRE) 70.30p -2.77%
Ferrexpo (FXPO) 116.50p -2.75%

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