London close: Stocks fall as US inflation pressures ease

London’s stock markets closed lower on Friday, influenced by new economic data from the United States indicating a slowdown in consumer spending, despite a reduction in inflationary pressures.

The FTSE 100 index fell by 0.19%, ending the day at 8,164.12 points, while the FTSE 250 saw a decline of 0.23% to close at 20,286.03 points.

On the currency front, sterling was last down 0.01% on the dollar, trading at $1.2638, while it decreased 0.1% against the euro to change hands at €1.1796.

“The leading stock index in Britain started the day with gains on Friday, but has not managed to maintain the momentum and is now rotating around the flatline,” said TickMill market analyst Patrick Munnelly.

“However, the FTSE is heading towards its fourth consecutive quarterly increase, as stronger-than-expected local economic growth figures outweighed investor concerns.”

Munnelly noted official data revealing that Britain’s economy expanded by 0.7% in the first quarter of the year, surpassing the prior quarter’s growth of 0.6%.

“These numbers come as the country prepares for parliamentary elections on 4 July, where polls indicate a potential leadership change with Labour Party leader Keir Starmer potentially replacing Conservative prime minister Rishi Sunak.”

US consumer spending growth slows despite lower price pressures

In economic news, consumer spending in the United States increased less than anticipated last month, even as inflationary pressures eased.

The Department of Commerce reported that personal incomes rose by 0.5% in May, slightly above the consensus forecast of 0.4%.

However, personal consumption expenditures only grew by 0.2%, falling short of the expected 0.3%.

Additionally, April’s consumption growth was revised down to 0.1%.

The year-on-year increase in the headline PCE price deflator slowed from 2.7% in April to 2.6% in May, while the core PCE price deflator decreased from 2.8% to 2.6%.

At the same time, the personal savings rate improved to 3.9% from 3.7%.

“There is a good chance that core PCE inflation will fall to 2.5% in June, although unfavourable base effects make a further decline in the second half of this year unlikely,” said Paul Ashworth, chief North America economist at Capital Economics.

“Taken together, the return to the earlier disinflationary trend and new-found weakness in real activity, are both consistent with the Fed cutting interest rates as soon as this September.”

On home shores, the UK’s economy performed better than initially estimated in the first quarter of the year.

According to the Office for National Statistics, the UK’s GDP grew by 0.7%, up from the initial estimate of 0.6%.

That growth followed contractions of 0.1% and 0.3% in the third and fourth quarters of the previous year, respectively.

The services sector expanded by 0.8%, revised up from 0.7%, while production growth was revised down to 0.6% from 0.8%.

The construction sector saw a contraction of 0.6%.

Paul Dales, chief UK economist at Capital Economics, said the upward revision to first-quarter GDP “suggests whoever is Prime Minister this time next week may benefit from the economic recovery being a bit stronger than our already above-consensus forecast”.

In the eurozone, inflation rates eased in two of its largest economies in June.

Spain’s annual consumer price inflation fell to 3.4% from May’s 3.6%, driven by lower food and fuel prices, although it slightly exceeded analyst expectations of 3.3%.

The core inflation rate remained steady at 3%, while the harmonised index of consumer prices (HICP) decreased to 3.5% from 3.8%.

France saw its inflation rate drop to 2.1% in June from 2.3% in May, with the HICP also falling to 2.5% from 2.6%.

Both declines were largely attributed to lower food and energy costs and aligned with forecasts.

In contrast, Italy’s consumer price index remained unchanged at 0.8%, contrary to expectations for a slight increase, and the HICP edged up to 0.9% from 0.8%.

Finally on data, Germany faced a rise in unemployment beyond expectations in June.

Official data indicated that the number of unemployed increased by 19,000 in seasonally adjusted terms, surpassing the forecasted rise of 15,000.

Tyman rises on higher takeover offer, JD Sports slides

On London’s equity markets, Tyman‘s shares rose by 3.4% following Quanex Building Products’ revised and final recommended cash and share offer.

The new proposal included a special interim dividend of 15p per share, adding to the previous offer of 240p and 0.05715 of a new Quanex share per Tyman share.

Moonpig Group saw a 4.74% increase after the online greeting card retailer reported a significant jump in annual sales and profits, boosting investor confidence.

On the downside, JD Sports Fashion fell by 3.85%, impacted by Nike’s significant drop on Thursday.

Nike’s announcement of a cut in full-year guidance and an expected 10% sales decline for the current quarter, citing weak sales in China and inconsistent consumer trends, weighed heavily on JD Sports.

Auction Technology Group experienced a substantial decline of 7.72% after private equity firm TA Associates sold a 5% stake in the company through a share placement with institutional investors.

WPP shares dropped 2.56% despite Citi reiterating its ‘buy’ rating.

The advertising and media giant’s rejection of a bid from KKR to take control of its corporate PR firm FGS Global contributed to the decline.

Citi said the development could reveal “considerable hidden value” at WPP as the bid increases pressure on the company to “accelerate the pathway to shareholder value including a broader review of its holdings and owned/operated assets”.

The bank said: “Fully dismantling the holding company would not likely be plan A for the management of WPP, in our view.

“This said, the magnitude of the gap between public market and private valuations of the PR business, in particular, suggests there is a potentially fairly significant opportunity for WPP to create value for shareholders without significantly undercutting the longer-term prospects for growth.”

Outside the FTSE 350, Keywords Studios jumped 5.6% after announcing it had received an improved £1.96bn takeover proposal from private equity firm EQT Group.

The company indicated it would be inclined to recommend the offer if it became firm, driving the stock’s rise.

Reporting by Josh White for Sharecast.com.

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