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FTSE 100 Close: London finishes in red on fears of stubborn inflation

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"Market sentiment is being buoyed by better-than-expected retail sales," Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.
"Market sentiment is being buoyed by better-than-expected retail sales," Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

London’s FTSE 100 was subdued today on fears of stubborn inflation keeping investors quiet, finishing in the red after being on one of its longest winning streaks in months.

The capital’s premier blue-chip index finished 7,452.87, 0.28 per cent down, after spending all day in the green. By 2.30 it was at 7,488.29, about 0.2 per cent up, having opened 0.05 per cent up.

FTSE 250, which is more aligned with the UK domestic market, was up by 0.23 per cent.

Following news of Marks and Spencer joining the FTSE 100 list, Ocado soared in the afternoon up more than nine per cent, while Rolls-Royce also enjoyed a surge by around three per cent.

The biggest faller throughout the day was Glencore, which is under pressure from big investors seeking damages over claimed ‘untrue statements’ in prospectuses, according to the Financial Times. It was pipped at the close by Prudential however, which ended the biggest faller.

Boohoo’s shares rose by around nine per cent in the afternoon, after being up slightly at the open after news of Mike Ashley’s Frasers Group upping its stake in the fast fashion firm to 9.1 per cent.

The Eurozone released new inflation figures today, while in the US, the Fed’s US personal consumption data and CPI was also published. This comes after inflation in Germany and Spain is reportedly cooling.

Inflation as measured by the personal consumption expenditures (PCE) price index rose 0.2 per cent last month in the US, matching June’s gain.

Food prices climbed 0.2 per cent and energy edged up 0.1 per cent. In the 12 months through July, the PCE price index increased 3.3 per cent after advancing 3.0 per cent in June.

Investors kept a a close eye on these figures, amid hopes UK inflation will also continue to fall amid 14 straight interest rate hikes by the Bank of England.

This morning, its top economic Hugh Pill said there was “no room for complacency” on the issue, suggesting another hike may be coming later in September.

This comes as consumer confidence was given a boost this week following the cooling for core inflation, with all eyes on fresh inflation figures that are set to be released on 20 September.

At 10am, it was reported that Eurozone inflation held steady this month but underlying price growth fell as expected. It was a mixed picture that complicates life for the European Central Bank however, as it weighs the merits of a pause in rate hikes.

“The FTSE 100 was holding on by its fingertips to its latest move higher as investors awaited the latest reading of core inflation from the US,” saidAJ Bell investment director Russ Mould.

“The markets are so data driven right now, aping the stance adopted by central bankers, and it feels like a worse than expected reading could extinguish the recently improved sentiment.

“If what has been an up and down – or, more accurately, down and up August for the markets – is to have a positive conclusion then the Core PCE index, often seen as the Federal Reserve’s preferred measure of inflation, needs to come in at, or below, expectations.

“If it comes in higher than anticipated then we could see renewed nervousness ahead of the Fed’s meeting next month.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “Any signs of more stubborn inflation are still very much guiding market sentiment, so key data from the US and the eurozone will be pored over today.

“In the States the Fed’s preferred measure – the US personal consumption data – is out later and the preliminary eurozone CPI data will also be closely watched given that a snapshot out yesterday showed inflation in Germany and Spain not cooling as fast as hoped.

“Inflationary pressures are still staying stubborn even though the downturn is intensifying especially in Germany. That’s posing a big headache for the European Central Bank and if the eurozone wide inflation reading comes in hotter than expected, it is set to increase the chances of a rate hike in September, despite the risks of recession.”

Meanwhile in China, investors were also mulling the latest data released by its National Bureau of Statistics, showing factory activity contracted in August for the fifth month in a row.

Sheana Yue, China economist at Capital Economics, said: “The PMI surveys suggest a slight improvement in economic activity in August. Downward pressure on manufacturing appears to have eased, while construction activity accelerated. These have more than offset a further softening in services activity.

“But overall economic momentum remains weak and more policy support is needed to avoid a renewed slowdown later this year.”