Inflation rise and US rates end FTSE’s losing streak
Tue: The FTSE100 rebounded after eight straight sessions of falls, with supermarkets, commodity stocks and better inflation news helping it to close 2.25% higher and push back through the 6,000 mark.
The index closed at 6,018 points, its biggest one-day gain in over two months, having fallen 8.5% in the previous eight days.
It was lifted as UK inflation returned in November with a 0.1% rise compared to a year ago.
Howard Archer, chief UK and European economist at IHS Global Insight, said he saw CPI reaching 1% in the third quarter of 2016 before rising to 1.5% by end of 2016 and 2% around mid-2017.
“We maintain the view that the Bank of England is more likely than not to raise interest rates by mid-2016,” he said, predicting a move in May in line with similar forecasts from UBS. “However, we doubt interest rates will end 2016 any higher than 1% – and it is far from inconceivable that the Bank of England may only raise interest rates once to 0.75% during next year.”
In the US, inflation rose 0.5% in November ahead of tomorrow’s expected rise in interest rates by the Federal Reserve. Markets are now expecting the rate to go up as a sign of a strengthening of the economy, a move that is likely to underpin investor confidence. Should the Fed not raise rates it will indicate some underlying weakness which would send markets back into freefall.
US jobs data has been robust and Janet Yellen, head of the Fed, recently commented that as the country nudges close to full employment, her confidence in a rate hike was “bolstered”.
The Fed hasn’t raised interest rates since 2006, leaving them at a historic low zero to a quarter target for the past eight years.
Figures also showed UK house prices rose 7% in the year to October, up from 6.1% in the year to September. Average house prices reached £196,000 in Scotland.
Oil also stage a recovery with Brent crude rising 1.6% to $38.56 per barrel. Shares in BG Group, Royal Dutch Shell and BP rose between 2.6% and 4%.
Supermarkets rose after the latest Kantar Worldpanel data. Sainsbury’s increased sales and grew its market share as Tesco, Asda and Morrisons all fell.
Tullow Oil climbed after saying it discovered 102 metres of net oil pay in two columns at its Etom-2 well in Northern Kenya.