FTSE 100 comes off highs as UK inflation jumps above Bank of England’s 2% target

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  • FTSE 100 up just 5 points
  • Dollar earners hit as pound strengthens
  • Miners fall back

9.24am: Sterling strength undermines market

One of the inflation-related factors proving a drag on the market is a strong pound.

With the prospect of rising UK interest rates if the consumer price index remains above the Bank of England‘s 2% target for any length of time, sterling has added 0.25% to $1.4116.

This has put pressure on some of the dollar earners in the FTSE 100, whose profits are hit by a stronger pound.

So Imperial Brands PLC (LON:IMB) is down 0.7% while British American Tobacco PLC (LON:BATS) has lost 0.6%.

Miners are also heading lower as copper continues to sag. Glencore PLC (LON:GLEN) is down 2.15% while Anglo American PLC (LON:AAL) is off 1.87%.

But the prospect of higher rates has helped banking shares, with NatWest Group PLC (LON:NWG) up 1.17%.

So overall the FTSE 100 is just about holding on to its gains, up 5.25 points or 0.07% at 7177.73.

9.05am: Pricing pressures grow as lockdown eases

It is not just the US Federal Reserve’s attitude to pricing pressures which is exercising investors.

The latest UK inflation figures show the consumer price index jumping above the Bank of England‘s 2% target for the first time in two years.

With the cost of fuel, clothes and eating out all on the way up as the economy recovers from the pandemic, the index hit 2.1% in May. This is up from 1.5% in April and higher than the expected 1.8%.

Sam Fuller, director of Financial Markets Online, said: “Many had feared that Britain’s economic growth would push up inflation. But few predicted it would spike so far, so fast.

“The recovery has set inflation on a rampage. 2.1% doesn’t sound much but it’s triple what it was just two months ago. Such a rapid rise suggests inflation is headed for dangerous territory.

“For CPI to smash through the Bank of England’s 2% target isn’t just symbolic either. It opens the possibility of the Bank stepping in to put a lid on inflation – and the way the Bank tends to do that is by hiking interest rates, which could quickly dampen the consumer spending on which the recovery depends.

“Some of the surge in inflation can be explained away by temporary supply issues and the one-off effect of May’s big easing of lockdown restrictions.

“But nevertheless the Bank of England will be on red alert. If inflation continues to rise, the likelihood of it weighing in will increase steadily.”

As markets digest the figures, some of the early gains have dissipated.

After hitting a high of 7217, the FTSE 100 is now up just 15.11 points or 0.21% at 7187.59.

8.30am: Leading shares open higher ahead of Fed meeting

The FTSE 100 kicked off the session in positive territory, but sentiment could turn on a pinhead ahead of key comments from the US Federal Reserve later.

Keenly sought by economists and equity market professionals after the two-day policy meeting will be any guidance on future interest rates – and, by extension, the Fed’s take on inflation.

“At some point, there will need to be a signal that the currently easy monetary conditions will be scaled back,” said Richard Hunter, head of markets at Interactive Investor.

“The expectation is that the subject of tapering some of the relief has at least made its way to the table for discussion, if not immediate action.

“This will follow on from the latest set of data, showing another spike in wholesale inflation and a drop in retail sales which was more than anticipated.

“The increasing success of the vaccination programme and therefore the mobility of the population is being reflected in a move towards spending on services and away from goods, as consumers look to spend in public rather than in private.”

On the market, the price action was muted at the upper echelons. Among the smaller caps, catalogue retailer N Brown (LON:BWNG) fell 13% after its legal spat with Allianz Insurance intensified.

It has been a good week so far for investors in the managed service specialist Westminster Group, which saw its shares rise a further 10% in early trade after landing a second major contract in two days. Since Monday, the stock has advanced more than 50%.

Proactive news headlines

NetScientific PLC (LON:NSCI) said it is participating in the latest funding round by investee company PDS Biotechnology Corporation (NASDAQ:PDSB).

Zaim Credit Systems PLC (LON:ZAIM) said it has completed an equity fundraise of £1mln through a share placing in order to provide additional capital for the expansion of its loan portfolio and the development of new products.

Teleradiology specialist Medica Group PLC (LON:MGP) said its positive start to 2021 has continued. The comment was made by chairman Roy Davis ahead of the firm’s annual meeting later Wednesday.

W Resources PLC (LON:WRES) said it successfully completed the construction of a new water dam at the La Parrilla mine in Spain to resolve the issue of the high water levels. Dewatering of the mine pit is now underway and once water levels are reduced the team will be in a position to safely regain access to high-grade ore areas.

Westminster Group PLC (LON:WSG) said it has been awarded a long-term managed service contract to provide port screening services at the Monrovia Freeport in Liberia.

Filta Group Holdings PLC (LON:FLTA) said it is continuing to experience “an increasing level of demand” for its services across all of its markets as lockdown restrictions are eased and vaccine rollouts continue.

Ceres Power Holdings PLC (LON:CWR.L) has appointed Professor Dame Julia King, Baroness Brown of Cambridge, as an independent non-executive director effective from tomorrow.

Sirius Real Estate Limited (LON:SRE) has raised €350mln through the issue of its first corporate bond.

Braveheart Investment Group PLC (LON:BRH) has appointed Dr Qu Li as a non-executive director to the board with immediate effect. Dr Li is an entrepreneur, investor and businesswoman with over 30 years of experience in corporate mergers and acquisitions, development and restructuring, and financing and investments. 

Zephyr Energy Plc (LON:ZPHR) has updated on its recently acquired interests in the Williston Basin, North Dakota, where wells are in the process of being brought online for production.

Alpha Growth PLC (LON:ALGW)(OTCQB:ALPGF) issued a clarification over its recently completed acquisitions of a Bermuda-based insurance company, which it says is not related to the similarly named Northstar Financial Services Bermuda Limited.

Inspiration Healthcare Group PLC (LON:IHC) announced that it is holding a capital markets day for investors at its factory in Croydon today and while the initial event is restricted in terms of numbers of attendees in order to comply with current Covid safety recommendations, the company hopes to hold another event later in the year for a larger number of investors and a presentation will be available on its website after the event. 

Oriole Resources PLC (LON:ORR) announced that, following the latest UK Covid-19 restrictions, its annual general meeting on 23 June will now be held as a closed meeting. All shareholders are encouraged to vote using the form of proxy and to assist with voting, the company has provided a pre-recorded online presentation including a Q&A session, available at https://6ix.com/event/oriole-resources-agm/.

6.50 am: Flat start predicted 

The FTSE 100 is expected to open slightly higher on Wednesday as traders await the latest decision on interest rates from the US Federal Reserve.

Spread-betters IG expect the blue-chip index to start up 8 points after ending Tuesday’s session 26 points higher at 7,172.

The latest meeting of the Fed will be eyed closely as it will include a new version of the committee’s economic projections and members’ updated forecasts for growth, inflation, and the much-watched ‘dot plot’ of forecasts for where interest rates will be at the end of this and the next few years.

Expectations of a higher start in London followed a slower session for Wall Street overnight which saw the Dow Jones Industrial Average close down 0.27% at 34,299 while the S&P 500 dropped 0.2% to 4,246 and the Nasdaq fell 0.71% to 14,072.

The picture was similarly negative in Asia this morning, with Japan’s Nikkei 225 down 0.5% while Hong Kong’s Hang Seng dropped 0.26%.

On currency markets, the pound was relatively unchanged against the dollar, up 0.02% at US$1.408, although UK inflation figures due later today could provide some catalysts for movement.

Around the markets:

Sterling: US$1.408, up 0.02%

Brent crude: US$74.58 a barrel, up 0.8%

Gold: US$1,859 an ounce, up 0.09%

Bitcoin: US$40,210, down 0.3%

6.50am: Early Markets – Asia / Australia

Stocks in the Asia-Pacific region were mostly lower on Wednesday as Japan’s exports in May rose 49.6% from a year earlier, lower than a 51.3% increase expected by economists in a Reuters poll.

The Shanghai Composite in China fell 0.77% and Hong Kong’s Hang Seng index dipped 0.30%

In Japan, the Nikkei 225 slipped 0.48% while South Korea’s Kospi rose 0.59%.

Shares in Australia fell, with the S&P/ASX 200 trading 0.03% lower after hitting an all-time high earlier in the day.

READ OUR ASX REPORT HERE

Proactive Australia news:

Horizon Minerals Ltd (ASX:HRZ) has intercepted significant gold mineralisation while drilling at its 100%-owned Binduli Gold Project, about 12 kilometres west of Kalgoorlie in the heart of the Western Australian goldfields.

Orthocell Ltd (ASX:OCC) has been granted New Zealand and Chinese patents for its CelGro® collagen medical device platform for soft tissue regeneration applications.

Elementos Limited (ASX:ELT) (OTCMKTS:ELTLF) (FRA:9EM) has intersected further shallow zones of tin mineralisation in a drilling campaign designed to increase confidence in the mineral resource at the flagship Oropesa Tin Project in Spain.

Tietto Minerals Ltd (ASX:TIE) has reported further high-grade gold results from infill and extensional drilling at its Abujar-Gludehi (AG) and Abujar-Pischon-Golikro (APG) deposits, part of its 3.02 million ounces Abujar Gold Project in Côte d’Ivoire, West Africa.

Oar Resources Ltd (ASX:OAR) (FRA:F1S) has received firm commitments for a share placement to raise up to $2.3 million at a price of 1.3 cents per share.

Caspin Resources Ltd (ASX:CPN) has discovered several new platinum group element (PGE)-nickel-copper soil anomalies in areas with no previous PGE-nickel-copper exploration at its Yarawindah Brook Project in Western Australia.

Poseidon Nickel Ltd (ASX:POS) (OTCMKTS:PSDNF) (FRA:NYG) has returned more strong assay results from resource definition drilling underway at the Golden Swan discovery of its Black Swan Nickel Project in Western Australia.

AuKing Mining Ltd (ASX:AKN) has had a stellar reinstatement to official quotation on the Australian Securities Exchange after completing a public share offer to raise around $7 million through the issue of 35 million shares as well as 17.5 million options exercisable at 25 cents expiring June 2023.

K2fly Ltd (ASX:K2F) has recorded three consecutive months of record sales invoicing as it prepares for FY21’s winddown.

Firefinch Ltd (ASX:FFX) has awarded a key US$360 million open pit mining contract covering expansion work at its Morila Gold Project in Mali to a joint venture (JV) vehicle.

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