FTSE 100 extends gains after US CPI comes in hotter than expected, financials gain

The FTSE 100 made healthy gains on Tuesday despite US CPI inflation coming in hotter than expected as financial helped propel London’s leading index to the best intraday levels since January.

The FTSE 100 touched highs of 7,764 on Tuesday, a similar level the index had retreated from on several occasions in January. Should the index break above this level, it will attack levels not seen since April 2023.

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“The blue-chip UK index was led by a rally in financials including a 3.1% gain from Prudential and a 2% rise from Standard Chartered. Interestingly, nearly all sectors were in positive territory, implying that investors were feeling upbeat across the board which is a healthy situation to have in markets,” said Russ Mould, investment director at AJ Bell.

“Investor sentiment was boosted by slowing UK wage growth which raises the chances of the Bank of England cutting interest rates sooner rather than later.”

The UK unemployment rate has increased to 3.9%, and wage growth slowed to 6.1%. Job vacancies also fell as the recession cooled the UK jobs market. While this isn’t great news for the underlying economy, it is excellent news for traders longing for easier monetary policy.

The FTSE 100 was 1% higher at the time of writing.

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US CPI

It was a different story in the US. CPI inflation came in hotter than expected – but not to the extent that it would prevent the Federal Reserve from rates in the summer, and this buoyed equity bulls.

US equities jumped on the open as US CPI rose 0.4% month-on-month and 3.2% in the year to February.

“The recent data series came in slightly above expectations, particularly regarding core inflation. While this doesn’t derail the progress the Fed is making, it highlights the challenge of addressing inflation and getting it back to the 2% target,” said Ryan Brandham, Head of Global Capital Markets, North America at Validus Risk Management.

“US yields have been gradually declining throughout March, but this data might cause them to increase in the coming days as traders debate what it means for potential cuts in the US later this year.”

The merry-go-round of ‘will they, won’t they’ expectations of when the Federal Reserve will cut rates will continue, but, for today at least, the data suggests rate cuts are very much on the table for June/July.

Persimmon

Persimmon was the FTSE 100’s biggest faller, with a 2.2% loss, after the housebuilder said completions would increase only marginally in 2024 compared to 2023. Revenue sank 28%, and operating profits more than halved in 2023.

“Persimmon’s latest set of results will make for tough reading for shareholders after the UK housebuilder reported a 52% drop in profits in 2023, citing build cost inflation and weaker demand hampering performance. Also, the company’s cash position, while still relatively healthy, has fallen considerably,” said Adam Vettese, analyst at investment platform eToro.

“Persimmon shares looked to be mounting a recovery in the last six months, rallying over 40%, and after what has been a torrid few years for the housebuilder, investors would have been eager to see this continue at pace. However, as these results indicate, so much depends on factors outside of Persimmon’s control.”

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