The FTSE 100 was broadly flat on Wednesday as traders digested the latest set of UK inflation and a plethora of corporate updates.
UK CPI inflation jumped again in April and served as a reminder that the period of higher inflation endured in the wake of the pandemic is not yet over.
April’s reading of 3.5% was almost one full percent higher than March’s 2.6% figure and surpassed economist estimates of 3.3%.
While the jump in inflation is certainly a headline grabber, it wouldn’t have come as much of a surprise to markets. The impact of higher energy bills was well telegraphed, demonstrated by economists’ forecasts going into the release of the data of inflation rising to 3.3%.
“We should always take April’s data with a pinch of salt, but higher inflation leaves the Bank of England happy to carry on at its relatively sedate pace of cutting once per quarter. This uptick in CPI has been on the cards and well discounted already,” said Neil Wilson, Investor Strategist at Saxo UK.
The higher-than-expected reading sent the pound higher against the dollar and weighed on the FTSE 100 in early trade.
However, London’s leading index shook off the impact of higher inflation and recovered early losses as the morning progressed to trade relatively flat at the time of writing.
The FTSE 100’s resilience was on display again as it shook off a number of disappointing earnings updates, including a warning of the impact of the M&S cyber attack and JD Sports outlining plans for slower growth amid challenging trading conditions. M&S shares fell 0.8% while JD Sports was the FTSE 100’s top faller with losses of 6% on the session.
There was strength in Severn Trent and SSE, which helped offset losses elsewhere.
“Utilities did their best to prop up the UK stock market and they were helped by defence contractors once again being in vogue,” says Russ Mould, investment director at AJ Bell.
“Updates from Severn Trent and SSE were well received by the market. The utilities sector has found itself the centre of attention in recent months as investors look to avoid the drama associated with a global trade war and seek solace in defensive areas.
“Water company Severn Trent might lack the go-go growth associated with big name US tech stocks, but it is delivering the kind of performance many businesses can only dream of. Profits and dividends are going up, it is creating new jobs, and demand for its services is unaffected by any fluctuations in the economy.”
The threat of higher inflation and interest rates staying higher for a longer period was inevitably felt by the housebuilders. Barratt Redrow shares were down 2%.
There was interest in defence-related stocks amid disappointment at the progress in Russian ceasefire talks. BAE Systems added 2% and Rolls Royce rose a little over 1%.
Rising geopolitical concerns renewed interest in precious metals, helping Fresnillo 2% higher.