FTSE 100 in the green after some positive signs for UK economy, but inflation worries limit gains

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  • FTSE 100 adds 16 points
  • Miners move higher
  • Berkeley drops after results

9.45am: UK employment rises but so do pricing pressures

Ahead of the latest Bank of England interest rate decision on Thursday, more signs of strength in the UK economy in the first snapshot for June.

And of pricing pressures, which could concern the Bank, especially since inflation moved past its 2% target in May.

According to the latest IHS/Markit survey, the manufacturing, services and composite purchasing managers indices fell back from May’s highs but only slightly.

The overall expansion in activity was still among the fastest since the series began in January 1998. Markit said marked increases in output were seen across both the manufacturing and service sectors as the economy continued to reopen following the COVID-19 lockdown earlier in the year.

The headline composite index came in at 61.7 in June compared to the record of 62.9 in May, but still showing one of the strongest monthly improvements in business activity across the private sector since 1998.

Companies responded to rising workloads by taking on extra staff at an unprecedented rate at the end of the second quarter, said the report.

But input and output prices continued to rise, partly due to supply chain disruption.

Chris Williamson, chief business economist at IHS Markit, said: “Businesses are reporting an ongoing surge in demand in June as the economy reopens, led by the hospitality sector, meaning the second quarter looks to have seen economic growth rebound very sharply from the first quarter’s decline.

“There are some signs that the rate of expansion appears to have peaked, as both output and new order growth cooled slightly from May’s record performances, but full order books and a further loosening of virus-fighting restrictions should nevertheless help ensure growth remains strong as we head through the summer.

“However, inflation worries have continued to intensify. Record levels of the survey’s price gauges and the further development of capacity constraints hint strongly that consumer price inflation has much further to rise after already breaching the Bank of England’s 2% target in May.”

But the FTSE 100 seems to be accentuating the positive and has perked up, adding 16.74 points or 0.24% to 7106.75.

9.14am: Shell and BP lead the way

Soothing comments from US Federal Reserve boss Jerome Powell about inflation and the prospect of interest rate rises seems to have calmed investors’ nerves, at least for the moment.

Powell told Congress: ““We will not raise interest rates pre-emptively because we fear the possible onset of inflation. We will wait for evidence of actual inflation or other imbalances.”

In setting policy he said the Fed would look at a broad range of jobs data, not just the headline unemployment figure.

All of which seems to have helped market sentiment, certainly on Wall Street.

In particular metal prices are moving higher, hence the early gains in mining shares on the UK market.

The moves come despite China announcing it would  auction a total of 100,000 tonnes of non-ferrous metals from its stockpiles, in an effort to curb commodity price rises.

Anglo American PLC (LON:AAL) has added 1.49% while BHP Group PLC (LON:BHP) is 1.41% better.

Oil prices are also moving higher, with Brent crude up 0.74% at $75.36 a barrel.

So Royal Dutch Shell PLC (LON:RDSB) has risen 1.9% and BP PLC (LON:BP.) is up 1.55%.

Despite the overall positive mood, the leading index has only just managed to move higher.  The FTSE 100 is ahead just 4.27 points at 7094.28.

8.50am: Flat start for UK market

The FTSE 100 made a subdued start to proceedings, largely ignoring the pull of Wall Street and Asia in the early exchanges.

Purchasing manager’s data later will be keenly eyed as a guide to the state of the UK economy as it emerges from Covid strictures, though the Bank of England’s monthly address on Thursday likely to draw greater interest.

According to the Financial Times, its rate-setters now need to show they can keep a lid on UK inflation.

On the market, all was fairly quiet. The day’s big headlines are likely to be generated by GlaxoSmithKline’s (LON:GSK) later Wednesday.

Chief executive Emma Walmsley is under pressure to show how she will jump-start the drug giant’s sluggish historic performance and has the added pressure of a dissident investor, Elliott Management, on its shareholder register.

In the early exchanges ahead of the meeting, GSK was off 1.2%.

Shares in the builder Berkeley Group (LON:BKG) fell 2.5% in the wake of its prelims.

Richard Hunter, head of markets at Interactive Investor, had this to say: “Berkeley’s heavy exposure to London has been both a blessing and a curse, although the company remains convinced of recovery in the capital.

“The effects of the pandemic on the London market put pressure on its traditional home buyers, where there is a broadly even split of owner-occupiers and (overseas) investors.

“With international travel restrictions muddying the picture, let alone the aftermath of Brexit, this core market for the group has been under pressure.”

On the up were the miners led by Anglo American (LON:AAL), up 2.2%, as they recovered from the recent mini reset.

6.50 am: Subdued start predicted 

The FTSE 100 is expected to start Wednesday’s session a touch lower as investors await the latest flash PMI readings from the UK and the US.

Spread-betters IG expect the blue-chip index to open down around 3 points after closing 28 points higher at 7,090 on Tuesday.

The prediction of a slow start followed a positive performance for US markets overnight, with the Dow Jones Industrial Average closing up 0.2% at 33,945 while the S&P 500 climbed 0.51% to 4,246 and the Nasdaq rose 0.79% to 14,253.

Things were looking more mixed in Asia this morning, with Japan’s Nikkei 225 down 0.02% while Hong Kong’s Hang Seng was 1.45% higher.

The flash PMI readings later today will also give investors some food for thought ahead of the Bank of England’s meeting on Thursday, as well as providing more insight on how the British economy is rebounding as lockdown restrictions ease.

On currency markets, the pound was down 0.16% against the dollar at US$1.392, although the PMI readings could provide some catalysts for movement going forward.

Around the markets:

Sterling: US$1.392, down 0.16%

Brent crude: US$75.26 a barrel, up 0.6%

Gold: US$1,780 an ounce, up 0.16%

Bitcoin: US$33,881, up 3.1%

6.50am: Early Markets – Asia / Australia

Stocks in the Asia-Pacific region were mostly higher on Wednesday as members at Bank of Japan’s April monetary policy meeting agreed that stimulus measures could result in a “faster than expected” pace of recovery for Japan and other countries.

The upbeat assessment on the outlook reinforces market expectations that Japan will keep monetary settings unchanged for the time being, in the hope its ultra-loose policy and pandemic-relief programs will sustain recovery.

In Japan, the Nikkei 225 gained 0.06% while South Korea’s Kospi rose 0.37%.

The Shanghai Composite in China lifted 0.26% and Hong Kong’s Hang Seng index surged 1.39%

Shares in Australia dipped, with the S&P/ASX 200 trading 0.59% lower.

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