Small dip in high US inflation stokes FTSE & Europe rebound

Update: European stock markets rally for second day as latest US inflation reading of 8.3% takes away some of the fear of an overly hawkish policy response by the Federal Reserve.

Update: European stock markets rallied for a second day as the latest US inflation reading took away some of the fear over an overly-hawkish policy response by the Federal Reserve.

The FTSE 100 advanced 101 points, or 1.4%, to 7,345 as on Wall Street the S&P 500 index rose 0.8% on the back of a slight fall in the annual rate of growth in the US consumer price index (CPI). Although CPI rose 0.3% last month, it was the smallest gain since last August, the Labor Department said, and reduced the annual rate of inflation to 8.3%, down from a 40-year high of 8.5% in March.

The Euro Stoxx 50 index jumped 2.4%, reflecting gains of 2%-2.2% in France, Germany and Spain, after European Central Bank president Christine Lagarde told a conference in Slovenia the central bank was ready to raise the eurzone’s near-zero interest rates in the third quarter to tackle inflation that hit 7.5% last month.  

Aegon fund manager Nick Chatters said the US inflation print would not let the Fed sleep soundly as the consensus forecast had been a dip in the annual CPI rate to 8.1%.

‘It’s not just oil either, core inflation also surprised to the upside and air fares rose 18% month-on-month. So for now at least, the thesis of price pressures lasting longer and being higher than expected remains intact,’ he said.

Benjamin Jones, director of macro research at Invesco, said: ‘We think it likely March did mark the peak in US inflation, but April CPI figures suggest that the decline in inflation will not be as fast as the market hopes. The hope was that April’s CPI print would quieten the debate around a 75 basis points Fed hike in the coming months. Unfortunately, that debate will remain alive and well for another month at least.’

In London the blue-chip index started brightly, led by Compass (CPG), the world’s largest catering group, which climbed 7.6% to £16.98 after reporting a 38% increase in revenues to £11.6bn, very close to pre-pandemic levels. Operating profit more than doubled to £673m, leading the board to announce a 9.4p interim dividend and a £500m share buyback.

Matt Britzman, an analyst at Hargreaves Lansdown, said the rising cost of food had pushed more companies to outsource and the return of sporting events had boosted revenues.

‘There’s room for things to settle comfortably ahead of pre-pandemic levels should legacy volumes get closer to a full recovery,’ he said.

Financial services giant Prudential (PRU) gained 6.7% to 942p and designer brand Burberry (BRBY) 4.4% to £15.47, with both boosted by news that China may begin easing its lockdown policy. Both businesses are heavily exposed to the country.

The ‘mid-cap’ FTSE 250 also extended its gains, closing 1.4% up at 7,347.66, led by Watches of Switzerland (WOSG), which leaped 8.7% to 931.5p after Goldman Sachs analysts upgraded the watch retailer to ‘buy’.

Buyback buoys Pershing

Pershing Square Holdings (PSH ) raced 4.7% higher to £25.85 after Bill Ackman’s US-focused hedge fund committed $100m to a second share buy-back programme to narrow its 37% discount which Numis analysts said looked ‘extreme’.

In other investment trust news, Secure Income (SIR ) soared 9.5% to 450p after agreeing to a £3.9bn share and cash merger with rival long-dated property fund LXI (LXI ), which dropped 4% to 136.4p.

Civitas Social Housing (CSH ) put on 2.6% to 85.9p after revealing it was consulting with regulators and lawyers on a new draft clause for its long-term leases to alleviate the perceived financial risk to its housing association tenants. 

Bluefield Solar Income Fund (BSIF ) dropped 2.5% to 134.5p as it launched a share issue at 130p to pay for a £112.4m acquisition of an operational solar and wind portfolio.



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