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FTSE 100 close: US inflation boost runs out of steam as De La Rue tumbles a third

The ECB and the Fed are more concerned about a premature easing in monetary policy than potentially squashing the economy.
The ECB and the Fed are more concerned about a premature easing in monetary policy than potentially squashing the economy.

A sudden boost to London’s FTSE 100 from better than expected US inflation numbers ran out of steam toward the end of today’s trading session, although the premier index still notched gains.

The FTSE 100 jumped 0.5 per cent to close at 7,824.83 points, while its mid-cap counterpart, the FTSE 250, which is more responsive to the health of the UK economy, added 0.25 per cent to finish just beneath the 19,000 point mark.

Traders kept their powder dry during opening exchanges in the City today until afternoon inflation numbers which would have signalled whether the US Federal Reserve’s series of aggressive interest rate hikes is taming inflation in the world’s largest economy.

The rate of price increases has been gradually falling across the pond since last summer and fell quickly to five per cent from six per cent last month, a bigger drop than Wall Street’s expected 5.2 per cent rate.

That undershoot sent shares in London’s top companies soaring, but those advances lost momentum toward the end of the day, mainly because traders seemingly wised up to the fact that core inflation is still running very high in the world’s largest economy.

FTSE 100 squeezed out gains today

It climbed to 5.6 per cent from 5.5 per cent, still in line with analysts’ forecasts. That number runs the risk of staying too high for Fed chair Jerome Powell’s comfort, potentially luring him and the rest of the federal open market committee into another rate hike next month.

“The lower-than-expected number, while welcome, is unlikely to change the likelihood of another 25 basis point rate hike from the Fed in May, given that core prices edged higher,” Michael Hewson, chief market analyst at CMC Markets UK, said.

But traders also reckon there’s a chance the Fed will hold fire on heaping more pressure on the US economy for fear of sparking further turmoil in the banking sector that has taken down Credit Suisse and Silicon Valley Bank.

The International Monetary Fund yesterday warned more stress could spring up in the global financial network if inflation stays high and central banks have to keep hiking borrowing costs.

Interest rate sensitive stocks led the FTSE 100 higher today, with housebuilders Barratt and Persimmon adding around 1.9 per cent and 1.3 per cent respectively.

UK bank note maker and former passport manufacturer De La Rue plunged as much as a third today after it issued a profit due to sharp reduction in demand for physical cash.

The pound gained around 0.2 per cent against the US dollar, while oil prices surged over 1.5 per cent.