The FTSE 100 soared on Wednesday as UK investors cheered a material drop in inflation, which may mark the end of the cost-of-living crisis and the interest rate tightening cycle.

UK CPI plunged to 4.6% in October from 6.7% in September. UK inflation is now less than half the 11% peak recorded last year. 

The FTSE 100 was up 0.9% in a broad risk-on rally shortly after midday on Wednesday. Gains in London followed a bumper rally in US stocks overnight after US inflation fell to 3.3%.

It is now widely accepted the Bank of England and Federal Reserve are done with their respective rate hiking cycles.

In addition, lower inflation opens the doors to rate cuts, and markets were pricing in 80bps of UK rate cuts next year on Wednesday. 

“The FTSE 100 maintained the head of steam it had built up on Tuesday afternoon as UK inflation followed yesterday’s US reading and came in below expectations,” said AJ Bell investment director Russ Mould.

“With confidence there will be no rate increases before the end of the year the market is now looking ahead to the prospect of rate cuts. Whether falls in inflation will stall and whether the Bank of England is as keen as Rishi Sunak to declare mission accomplished in the fight against rising prices remains to seen.

“What will encourage observers in Threadneedle Street is the fall in services inflation – further falls in this area could be the precursor to a pivot towards bringing rates down.

“For now, investors are in the mood to celebrate, and the prospects of a big Santa Rally are building as we head towards December.”

Equity bulls have been out in force over the past 24 hours, but investors should remain cautious about upticks in the inflation rate in the coming months, potentially souring sentiment. 

Banks and housebuilders rally

As one would expect, interest rate-sensitive sectors, including housebuilders and banks, rose on Wednesday as gilt yields fell.

Although the two UK-centric sectors displayed signs of optimism on Wednesday, the gains weren’t exuberant, suggesting the drop in inflation had already been priced into stocks.

Taylor Wimpey gained 1.5%, while Barratt Developments added 1%. Banks continued their recovery from a disappointing round of earnings, with Lloyds perking up by 1.5% and Natwest shares 3% to the good.

While interest rates may not rise again in the current hiking cycle, there are still nagging doubts about the economy and the ‘long and variable lags’ of the sharp increase in rates over the past two years. This may cap UK-focused equity gains. 

There was strength across the mining sector after China released a relatively upbeat set of industrial and consumer economic indicators.

Glencore and Anglo American were up over 4%.

Experian was the top gainer, rising 6%, after profit before tax on an actual currency basis rose 48%.

Siemens Energy is set to shake up its struggling wind business Siemens Gamesa, which has contributed to the group’s €4.6bn annual net loss, with the goal of making the division profitable.

Frankfurt-listed shares in Siemens Energy were up 5.50% and are trading at €10.73 at the time of writing.

Revenue for the fourth quarter declined 2.5% to €8.5bn due to problems at Siemens Gamesa.

The group has a €112bn backlog in orders, although new orders declined in the fourth quarter.

“In a year of unprecedented challenges for Siemens Energy, two-thirds of our businesses are on a profitable growth trajectory, meeting or exceeding their full-year targets. For our underperforming wind business all eyes must be on cost-out, selectivity and acceleration of productivity while continuously working on the remediation,” says Christian Bruch, President and CEO of Siemens Energy AG.

“The current high demand for our products also brings challenges. We are therefore very glad that after very constructive discussions, we have now found a good solution with all parties to secure our energy transition-accelerated growth.”

Wind power businesses have come under increased scrutiny in recent times after Orsted scrapped major plans for offshore US wind facilities.

Siemens Energy had to set aside €1.6bn in provisions for faulty wind plants earlier this year but made no further provisions in today’s release.

SSE shares rose on Wednesday as earnings beat expectations in the recent half year as strong operational performance and a lower effective tax rate offset lower revenue due to better weather.

SSE saw a 14.9% decrease in half-year revenue, falling to £4.8 billion.

Despite this decline, the company managed to outperform group guidance in terms of underlying earnings per share, reporting 37.0p, which was higher than anticipated.

In response to its financial performance, SSE declared an interim dividend of 20p. However, the full-year payment forecast has been adjusted down to 60p as the company invests in improving its network.

The company said the decision to rebase the full-year dividend reflects SSE’s strategic approach in light of its overall financial position and market conditions.

This includes building additional renewable energy sources; the company currently owns nearly 2GW of operational onshore wind capacity and has over 1GW in development.

These financial moves by SSE indicate a nuanced performance, with revenue challenges balanced by a better-than-expected showing in underlying earnings per share and a strategic adjustment in dividend payments to align with the company’s broader financial strategy.

Weather hits revenue

Power utility SSE had anticipated a return to typical weather conditions in the second quarter to boost its renewable energy assets, following a slow start to the year.

However, this expectation did not materialise, as adverse weather conditions resulted in renewable output being 19% lower than expected.

According to equity analyst at Hargreaves Lansdown, Aarin Chierkie, “That means other parts of the business are having to pick up the slack, leaving little room for further slippage if full-year guidance is to be hit.”

Aarin Chierkie further added that “looking ahead, SSE’s staying the course with its pivot towards renewable energy. The five-year investment budget’s been increased to a mammoth £20.5bn, with 90% of that set to be invested in electricity networks and renewables. Turbo-charging efforts towards renewables are a bold and admirable move. But the shift comes with a hefty dose of risk—they’re not always reliable. Fortunately, the thermal division’s flexible gas-fired plants helped to plug the energy shortfall, and profits here more than tripled. “

Currently, SSE’s energy portfolio includes about 4GW of onshore wind, offshore wind, and hydro projects.

The company has announced plans to increase its renewable energy output, aiming to triple it from 2019 levels to 30TWh by 2030.

Atlantic Lithium shares jumped on Wednesday as the Ghana-focused miner said they had rejected two takeover approaches by their largest shareholder.

Atlantic Lithium Limited has rejected a conditional and non-binding offer from its major shareholder Assore International Holdings Limited to acquire all shares in the company not already owned by Assore, the African-focused lithium exploration and development company announced Wednesday.

Atlantic Lithium shares were 23% higher in early trade.

Assore proposed acquiring the shares at an offer price of £0.33 per share (A$0.63), but an independent board committee established by Atlantic Lithium to review the approach determined the offer undervalued the company and was not in the best interests of shareholders.

The rejected offer follows a prior approach from Assore in October at an identical £0.33 per share price that was also turned down by Atlantic Lithium.

Atlantic Lithium said the rejected offers did not properly value the company’s status as a near-term lithium producer in Ghana, its pending investment from the Minerals Income Investment Fund, and the positive outlook for lithium project developers.

Premier African Minerals shares were sharply lower on Tuesday after the lithium miner issued a disastrous update on operations at the Zulu project.

The Premier African Minerals share price had plunged 20% to 0.24p at the time of writing. Shares are down 47% over the past month.

Last week, the UK Investor Magazine published an article entitled ‘Premier African Minerals shares: proceed with caution’ detailing discrepancies in the company’s official regulatory news releases and social media posts made by the CEO of the Stark – the company contracted to construct Zulu’s lithium processing facilities.

In an RNS issued 3rd November, Premier African Minerals alluded to ‘ongoing commissioning and optimisation issues’ at Zulu resulting in ‘material flow challenges’.

These assertions were countered by a contradictory social media post on X by Stark CEO Geoffrey Madderson, who said, “Guys, relax. There is no issue on the plant.”

Geoffrey Madderson’s account now appears to have been deleted. It’s easy to see why.

There was an issue with the plant. Today, Premier African Minerals said that they would miss not only November’s 1,000 tonne production deadline but December’s as well.

This will mean $3m in penalty payments to offtake partner Canmax. Compounding the problem for Premier’s shareholders, the company does not seem to have the cash lying around after it was forced to dilute investors by paying Stark in newly issued shares for a plant that is not yet functional.

Under the terms of the renegotiated offtake deal agreed earlier this year, Canmax has the right to take penalty payments in the form of newly issued Premier African Minerals shares, promising further dilution for investors.

Investors will understandably be frustrated with RNS releases outlining issues at Zulu and contradictory media appearances by Premier African Minerals and Stark suggesting the situation was under control.

Premier African Minerals is now considering ceasing the operation of current plant facilities in order to build a fresh mill, imposing substantial delays to increasing production to the required levels. In addition, achieving the required production by the end of January is far from certain.

Premier African Minerals is also yet to confirm the grade of any lithium produced at Zulu.