FTSE 100 gives up gains as US inflation increases

London’s FTSE 100 perked up on Tuesday morning after tentative signs the Bank of England may cut rates in early 2024 after UK wage growth slowed.

However, these gains had evaporated by mid-afternoon as markets digested news US CPI increased 0.1% month-on-month in November. The year-on-year CPI reading came in at 3.1%.

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US bond yields spiked immediately higher, and US futures sank. The FTSE 100 was trading at 7,552 after breaching 7,600 briefly earlier in the session.

US inflation 

Early gains in London were dashed after markets learned today’s US inflation would not support the dovish argument for rate cuts early next year.

Today’s inflation data leaves markets finely poised for this week’s slate of central bank action, kicking off with the Federal Reserve tomorrow evening.

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Investors will watch keenly for any hints of rate cuts in early 202e and central bankers’ tone when discussing inflation. 

The Bank of England will decide on rates this Thursday and is widely considered to keep the base rate at 5.25%.

UK wage growth

Falling UK wage growth provided welcome support for UK-centric sectors on Tuesday.

The BoE has previously highlighted wage growth as an inflationary cause for concern. Should wage growth cool further, the case for rate cuts becomes more compelling.

“An easing in wage growth and a decline in job vacancies in the UK is something that will be closely watched by the Bank of England, particularly as the 7.2% growth in average earnings in the three months to October was considerably lower than the 7.7% consensus forecast,” said Danni Hewson, head of financial analysis at AJ Bell.

“Prior to this announcement, the Bank of England had been expected to hold rates at 5.25% when it next reports this Thursday. If we see a continuation of the wage growth trend then investors are likely to become more confident that the Bank of England will start to cut rates sooner rather than later in 2024.”

The FTSE 100’s rate-sensitive sectors made promising gains, with Rightmove rising 2.4% and house builders ticking gently higher. These gains were reduced after the US CPI reading.

Housebuilders desperately need mortgage rates to fall to reinvigorate the UK’s property market after an extended period of slowing activity. 

A rebound in miners helped the FTSE 100’s cause as Rio Tinto and Glencore bounced back from yesterday’s sell-off.

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