London close: Stocks mixed ahead of Fed, BoE decisions

London markets closed with a mixed but little-changed performance on Wednesday, as investors digested a larger-than-expected slowdown in UK inflation.

Market participants were also looking ahead to interest rate decisions from the US Federal Reserve and the Bank of England.

The FTSE 100 experienced a marginal decline of 0.01%, closing at 7,737.38 points, while the FTSE 250 saw a modest uptick of 0.27% to reach 19,484.40 points.

In currency markets, sterling was last down 0.04% on the dollar, trading at $1.2717, while it gained 0.03% on the euro to change hands at €1.1712.

“News that UK price growth continues to weaken has led to some losses for the pound versus the dollar, but any downside has been limited as investors await the Fed’s statement tonight,” said IG chief market analyst Chris Beauchamp.

“While the decision is not in much doubt, markets are on edge to see if Jerome Powell will reduce the expected number of hikes this year, a move likely to revive the US dollar.”

Beauchamp added that US stocks were calm as they awaited tonight’s news.

“A move tonight is certainly not likely to happen, but even if the Fed finds itself on pause for the rest of the year, it might not stop US markets from moving higher still.

“The keys to further gains are higher earnings and a solid economy, and both those things are still in place in the US.”

UK inflation slows more than expected, house prices stabilising

In economic news, inflation in the UK eased more than expected in February, according to fresh data from the Office for National Statistics, fostering expectations of a summer rate adjustment.

The consumer price index (CPI) declined to 3.4% from January’s 4%, surpassing forecasts for a drop to 3.5%, inching closer to the Bank of England’s 2% target.

It marked the lowest level since September 2021.

Notable decreases were seen in food, restaurants, and cafes, while housing, household services, and motor fuels saw notable increases.

Core CPI, excluding energy, food, alcohol, and tobacco, rose 4.5% in the 12 months to February, down from 5.1% in the prior month.

The figures arrived just ahead of the Bank of England’s policy announcement scheduled for Thursday.

“Food prices were the main driver of the fall, with prices almost unchanged this year compared to a large rise last year, while restaurant and cafe prices also slowed,” said ONS chief economist Grant Fitzner.

“These falls were only partially offset by price rises at the pump and a further increase in rental costs.”

Meanwhile, official data showed that UK house prices experienced a slight dip in January, signalling potential stabilisation in the market.

The latest provisional UK house price index from HM Land Registry indicated average UK house price inflation at -0.6% in the year to January, a notable improvement from December’s revised 2.2% decline.

An average house in January was priced at £282,000, slightly lower than the same period last year.

However, month-on-month prices rose 0.5% to £281,913.

Factors contributing to the trend included increased buyer demand and new instructions, as noted by the Royal Institution of Chartered Surveyors‘ UK residential market survey.

Additionally, the Bank of England’s agents summary of business conditions attributed the market’s gradual improvement to easing mortgage interest rates.

Mortgage approvals, a forward-looking indicator, surged in January.

“This data has a lag of several months or so, but is starting to show signs of life in the property market,” said Stephen Perkins, managing director at Yellow Brick Mortgages.

“After positive inflation news this morning, a first base rate cut may not be too far off, and that could inject some much-needed momentum into the market.”

In Germany, producer prices fell more than expected on an annual basis in February, according to the federal statistics office.

The 4.1% decline exceeded economists’ forecasts of a 3.8% decrease, driven by lower energy prices.

Intermediate goods were also cheaper compared to February 2023, while consumer and capital goods experienced price increases.

Energy prices saw a notable 10.1% decline year-on-year, with natural gas and electricity prices dropping by 17.7% and 16.8%, respectively.

Finally on data, Chinese banks maintained benchmark lending rates after the country’s central bank opted to keep monetary policy unchanged.

The one-year loan prime rate (LPR) remained at 3.45%, in line with expectations, while the five-year rate, used for mortgage pricing, held steady at 3.95%, according to the People’s Bank of China.

Prudential tumbles, Johnson Matthey in the green

On London’s equity markets, Prudential took a notable hit of 4.53% despite reporting strong results for 2023 and expressing increasing confidence in meeting long-term targets.

Burberry Group and Watches of Switzerland Group faced downward pressure, with Burberry affected by concerns over slowing sales at Gucci, as warned by Kering.

Trustpilot Group slumped following a placing of shares by Vitruvian Partners at a lower price than the previous closing, resulting in a drop of 9.56%.

On the upside, Johnson Matthey surged 7.76% after announcing the sale of its medical device components business to Montagu Private Equity for $700m (£550m).

The move marked the completion of JM’s divestment programme, exceeding its targeted proceeds.

Housebuilder Persimmon rose 2.41% after Berenberg highlighted its financial strength and improved product quality, despite maintaining a hold rating due to fair valuation levels.

Close Brothers Group continued its upward trajectory, gaining 8.81% after the release of its first-half results, which alleviated concerns about an upcoming regulatory probe.

Berenberg‘s upward revision of the target price further buoyed investor confidence in the merchant bank’s prospects.

Reporting by Josh White for Sharecast.com.

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