The FTSE 100 fell on Wednesday, with commodity shares weighing on the index as oil prices continued to fall back.
Brent Crude is now trading at $79 after hitting highs above $110 in the depths of the Middle East conflict.
UK inflation provided a reason to be optimistic on Wednesday as May’s CPI reading came in cooler than expected at 2.8% versus expectations of 3%.
The pound fell against the dollar in the immediate reaction to the news, but this failed to translate into any meaningful support for the FTSE 100.
Lale Akoner, Global Market Strategist at eToro, says: “The inflation scare markets were worried about didn’t really pan out. Today’s numbers give the Bank of England a bit more flexibility, but don’t expect any rush to cut rates.”
“Services inflation is still too high, and with energy bills heading higher over the summer, policymakers will want to see wages cool more decisively before they sound confident the job is done.”
Although prices still rose at a worrying rate in May, particularly energy prices, falling oil prices since the announcement of a deal between the US and Iran could help lower inflation in the coming months.
We’ll learn more about the trajectory of interest rates from the Bank of England later this week, when it issues its interest rate decision.
Oil prices and inflation expectations were driving the FTSE 100 trade on Wednesday, with oil majors weighing on the index and offsetting gains in interest rate-sensitive sectors.
Susannah Streeter, Chief Investment Strategist, Wealth Club, said that the “easing of oil prices weighs on energy giants, but consumer-focused stocks are rising as there’s light at the end of the tunnel for households dealing with a deluge of higher bills. Clothing retailers, housebuilders and airlines have nudged higher as the chances of rate hikes ease off and hopes are high that consumers may have a bit more to spend than expected.”
BP and Shell lost 1% each. Shell is now around 20% lower than its most recent high and has erased almost all of the gains since the Middle East conflict began.
Miners were also lower, acting as a drag on the index. Rio Tinto was 1.6% lower at the time of writing.
Rolls-Royce was the FTSE 100’s top riser as the stock rose 1.9% and flirted with all-time highs.