FTSE 100 dives after US inflation curveball, Marks & Spencer sinks

The FTSE 100 fell on Thursday as traders digested US CPI inflation data that dampened hopes of a Federal Reserve interest rate cut in March.

The FTSE 100 had been substantially higher earlier in the session before the rally faded and gains turned to losses. London’s leading index was around 0.5% lower shortly after US cash equity trade began on Thursday.

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US CPI for December came in at 3.4% compared to expectations of 3.2% and higher than the 3.1% November reading.

“US CPI came in higher than expected on both a headline and core basis. These latest figures could give fuel to the hawks and reinforce both the USD strength and rise in US yields we’ve seen so far in 2024,” said Ryan Brandham, Head of Global Capital Markets, North America, at Validus Risk Management.

There was little movement in both UK and US equity markets after the data hit the wires, suggesting that although hotter than expected reduced the chances of a rate cut in March, it didn’t completely rule it out. However, as US trade got underway, stocks on both sides of the pond sank.

“Markets had all but declared the battle with inflation over in the final few months of 2023, but these readings add weight to the argument that the final efforts to get inflation down to target may be trickier than expected. The inflation figures are compounded by stronger than expected initial jobless claim figures, coming in at 202k for December, compared to expectations of 210k,” said Dan Boardman-Weston, Chief Executive at BRI Wealth Management.

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“It is still likely that the Federal Reserve will start cutting rates in the coming months, in the face of a slowing economy and further progress on inflation, but markets may need to readjust their assumptions as to the timing and quantum of interest rate cuts during 2024.”

FTSE 100 movers

Marks & Spencer was the FTSE 100’s top faller after the group said food sales rose 10% during the festive trading period but held off increasing profit guidance for the full year.

Marks & Spencer investors took the cautious tone as an opportunity to book profits after a strong run, and shares were down more than 4% on Thursday.

“Shares in Marks & Spencer rallied in the days before the results as investors looked at strong updates from Aldi and Lidl, plus a resilient showing from Next, and concluded that M&S could also do well,” said Russ Mould, investment director at AJ Bell.

“The shares have given back some of those gains on the trading update as investors with a ‘better to travel than arrive’ mindset bank some profits. There are also enough words of caution in the update to stall momentum in the share price.”

Tesco also released a solid set of results on Thursday and followed the ‘buy the rumour, sell the fact’ playbook with minor losses.

Whitbread was the top gainer after releasing stellar Q3 results and saying accommodation sales were now 39% ahead of pre-pandemic levels. Whitbread shares were 3% higher.

“The owner of the UK’s largest hotel chain has plenty to celebrate as it heads towards the end of its financial year. In the UK Premier Inn’s rooms on average generated 9% more in the third quarter than they did in the comparable period, some 39% ahead of pre-pandemic levels,” said Derren Nathan, head of equity research at Hargreaves Lansdown.

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