London Markets: FTSE 100 overcomes U.S. inflation ‘shock’ and ends higher

U.K. stocks closed higher following volatile trade Wednesday, with the blue-chip FTSE 100 escaping from losses that came after the release of U.S. inflation data.

How markets are performing

The FTSE 100 UKX, +0.64% finished up by 0.6% at 7,213.97, reclaiming higher ground after falling in the wake of U.S. inflation and retail sales figures. On Tuesday, the benchmark lost 0.1% after a choppy session.

The pound GBPUSD, +0.5614%  recovered from intraday lows and traded at $1.3955 compared with $1.3894 late Tuesday in New York.

What’s moving markets

The FTSE 100 and broader European stock markets SXXP, +1.07%  briefly swung lower after the U.S. consumer-price index leapt 0.5% in January, the biggest increase in five months. Economists surveyed by MarketWatch had forecast a 0.4% increase. The CPI over the past 12 months was unchanged at 2.1%, but was above the 1.9% FactSet consensus estimate.

Separately, U.S. retail sales dropped 0.3% in January, the biggest drop in nearly a year.

The pound fell to an intraday low of $1.3800 as the dollar advanced on the prospect that the Federal Reserve may have to hike interest rates at a faster-than-expected pace as inflation heats up. Such concerns have contributed to the recent spike in volatility and the rout in global equities. The pound eventually climbed back above $1.39 and even neared $1.40, but the FTSE 100 stuck with gains.

A lower pound value can help bolster shares of London-listed multinational companies, which make the bulk of their earnings overseas. Among such companies, luxury goods maker Burberry Group PLC BRBY, +2.22% popped up 2.2% and tobacco maker Imperial Brands PLC IMB, +0.90% was up 0.9%.

U.S. stocks SPX, +0.51% DJIA, +0.11% were trudging higher after opening Wednesday’s session in the red.

What strategists are saying

“Recovering from the shock of the U.S. inflation data, the FTSE managed to climb,” said Connor Campbell, financial analyst at Spreadex, in a note.

“This erratic showing was echoed on the forex markets. Understandably the faster-than-forecast jump in inflation was catnip for the dollar, which soon found itself up half a percent against the pound and the euro. However, that growth proved to be short-lived, with investors seemingly deciding that today’s data didn’t change much, with the greenback slipping into the red against its currency rivals,” he said.

Check out: Why this investment pro thinks Wall Street’s inflation fears are overblown

Stocks in focus

Sky PLC shares SKY, +1.98%  tacked on 2% after the broadcaster extended its rights to show Premier League soccer matches through 2022, at a cost of 1.19 billion pounds ($1.65 billion) a year.

Coca-Cola HBC AG shares CCH, +4.83%  surged 4.8%. The bottler said full-year net profit rose 24%, after an increase in sales and operating margins.

Shares of Galliford Try PLC GFRD, -18.99%  tumbled 19% on the mid-cap FTSE 250 index MCX, +0.66%  , as the construction firm said it’s aiming to raise £150 million ($208 million), likely through a rights issue. The move should help offset the £25 million hit to Galliford’s balance sheet stemming from the collapse of joint venture partner Carillion PLC.

IMF on U.K.

The U.K. must raise productivity and balance its public finances to brace against the impact of its exit from the European Union, or Brexit, the International Monetary Fund said Tuesday in an assessment of the British economy. Building more affordable homes and investing in research are among the IMF’s suggestions on how the U.K. could support productivity and reduce inequality.

“Since the global financial crisis, employment in the UK has been increasing steadily, but productivity growth — the increase in average output per worker — has almost stalled. With record-low unemployment and fewer EU workers coming to the U.K., future economic growth will depend on increasing the amount that each employee can produce,” the IMF said in its report.

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