The FTSE 100 remained in a holding pattern on Wednesday as investors digested the UK’s latest inflation reading and concerns about wider bond volatility eased.
London’s leading index was down 0.1% at the time of writing.
“Investors will be relieved that European stocks stabilised after bond market wobbles earlier this week,” said Dan Coatsworth, head of markets at AJ Bell.
“Bond yields had jumped on fears of new inflationary pressures and what that could mean for interest rates, triggering a shift in investor risk appetite.”
There was a welcome decline in UK 10-year gilt yields on Wednesday after the UK’s latest inflation reading helped ease tensions.
UK inflation rose to 2.9% in July, up from 2.6% in June. But this was in line with economists’ expectations, avoiding a hotter number that would likely have ratcheted up fears of an interest rate hike.
“Today’s data release showed UK inflation heading higher, not a surprise,” explained Matthew Amis, Investment Director, at Aberdeen.
“The increase solely reflects the uptick in the energy price cap driven by the Iranian conflict. The data doesn’t show any new sign of second-round inflationary effects from the Middle Eastern conflict.
“Although inflation heading higher is undoubtedly uncomfortable, no new news means this shouldn’t change the dovish tilt within the Bank of England. Whether the BoE feel compelled to hike later this year will be driven by events in the Middle East.”
And those events in the Middle East shouldn’t be overlooked, with talks between Iran and the US appearing to be grinding to a halt.
Middle East developments, however, weren’t driving trade on Wednesday as investors seemed to sit on their hands. There were few big FTSE 100 movers on Wednesday.
Smith & Nephew was the FTSE 100’s faller, losing 3.8%, after its CFO stepped down. Entain was another top faller, giving up 2.8%.
Melrose was the top riser, adding 1.2%, amid a minor bid in industrials. Weir Group rose 1%. There were no other FTSE 100 stocks higher by more than 1% at the time of writing.