The FTSE 100 was in a buoyant mood on Wednesday after US CPI cooled faster than expected in May, confirming a downward trend in US inflation, albeit minimal.
US CPI came in at 3.4% while Core CPI – widely considered to be the indicator watched by the Federal Reserve – fell to 3.4%, lower than expectations of 3.5%.
Although the moves are marginal and the beat minimal, they do signify one thing—US inflation is falling. This provides the Federal Reserve with the evidence it needs to cut interest rates. That said, today’s data is unlikely to spur the Federal Reserve into action in the near term.
However, a slightly cooler inflation read is materially better than a slightly hotter one for equity markets.
The FTSE 100 was trading firmly higher before the release of US CPI at 1.30pm and the reading propelled UK stocks higher to trade at 8,225, up 0.95%, at the time of writing.
US CPI data was released before the Federal Reserve’s interest rate decision later today. No change is expected this month but the accompanying commentary will be poured over for hints of the timing of potential rate cuts.
“The May US CPI report is one that should provide the FOMC with some degree of further confidence in the disinflationary process back towards the 2% target, with headline CPI remaining unchanged on an MoM basis, for the first time since last June,” said Michael Brown Senior Research Strategist at Pepperstone.
“While such data will support the view that April’s cooler price data was not a one-off, it is unlikely, on its own, to provide the FOMC with enough confidence to deliver a rate cut just yet, with the next FOMC decision due later today.
“Nevertheless, the data does lessen the chances of a hawkish shift in Chair Powell’s rhetoric at the post meeting press conference, even if the dot plot is likely to show a median expectation of 50bp, from 75bp, of cuts this year.”
Movers
Rentokil Initial was the top riser on Wednesday after Bloomberg reported activist investor Nelson Peltz’s has built a stake in the company through Trian Fund Management. Rentokil Initial shares were 14% higher at the time of writing.
Legal & General was the top faller as investors reacted to a lacklustre strategy update that revealed a slowing rates of dividend increases in the coming years. L&G shares were down 5% at the time of writing.
“The new chief executive of Legal & General will likely be stung by the market reaction to his new strategic plan,” said AJ Bell investment director Russ Mould.