Stocks rise as US inflation fall hints at rate easing
The FTSE 100 index closed strongly higher at 7,416.11, up 133.59 (1.83%) and just off the day’s high after US consumer price inflation weakened by more than expected in June.
Annual US inflation fell a full 100 bps to 3% compared to 4% in May.
Sterling was quoted at $1.2994 at the London equities close, markedly higher than $1.2890 at the close on Tuesday. It rose as high as $1.30 for the first time since April 2022.
Oliver Rust, head of product at independent inflation data aggregator truflation, described the data as “great news for the US economy and markets”.
Wall Street opened higher. The Dow Jones Industrial Average and S&P 500 were 0.8% firmer, while the Nasdaq Composite rose 1.1%.
AJ Bell analyst Danni Hewson commented: “Exactly what will June’s cooling inflation mean for US interest rates? There’s no denying that at 3% June’s CPI number is the smallest year-on-year increase since March 2021 and that all important core number also fell back significantly.
“But despite the cautious optimism evident from market reaction, it seems unlikely the Fed will be swayed enough to change course just yet.”
Wetherspoon up on sales growth
Pubs chain JD Wetherspoon reported strong sales growth in the final quarter of its financial year and was rewarded with a 10.3% or 68.5p surge in its shares to 731p, adding to a rally of 63% for the year so far.
Like-for-like sales in the 10 weeks of the fourth quarter were up 11% from the same period pre-pandemic in 2019.
Tim Martin, chairman, said: “The company expects profits in the current financial year to be in line with market expectations.”
He forecast an improved outcome in the new financial year with the first-half performance expected to be in line with the second half of the current year.
The company said waivers in respect of its banking covenants granted during Covid will no longer be required from the end of the current quarter.
In the year to date, the company has opened three pubs and sold, closed or surrendered to the landlord 28 pubs which has seen a cash inflow of £6.5m.
Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, commented: “This is a solid performance from Wetherspoons set against an exceptionally challenging trading backdrop. Like-for-like sales have proved robust and, despite cost of living pressures on consumers; and there are signs that cost inflation may have peaked, which should help underpin profits in the coming year.
“Wetherspoon’s commitment to low prices is keeping customers loyal, as evidenced by the robust like-for-like sales growth. These value credentials are critical, and should mean the group is better placed than many of its peers to weather a downturn in consumer spending.
“Profitability, however, remains well below pre-pandemic levels. Wetherspoon’s business model is heavily exposed to the rise in labour, energy and food costs and this has put pressure on profit margins.
“While labour costs show no sign of reducing yet, there is better news for energy prices, with increases here less than expected. This may help to ease the pressure on Wetherspoon’s profit margins in the year ahead.”
Banks pass stress tests
The Bank of England said the UK’s eight largest lenders passed its latest stress test, which examined their resilience to a severe economic downturn.
The banks would have enough capital to continue lending through a shock to the economy including a housing market crash, surging unemployment and interest rates as high as 6%, according to the results published today.
Barclays, HSBC, Lloyds Banking Group, Nationwide Building Society, NatWest (RBS), Santander UK, Standard Chartered and Virgin Money were tested. Together they account for around 75% of lending to the UK economy.
Springfield appoints CFO
Springfield Properties has confirmed Iain Logan as chief financial officer after serving in an interim role since March, and he will join the board.