LONDON MARKETS: FTSE 100 Ends With A Loss, With Investors On Edge
By Carla Mozee, MarketWatch
U.K. inflation sticks at 3%
U.K. stocks ended slightly lower Tuesday as investors remained on watch for signs of another sharp selloff, and as U.S. stock markets stumbled.
Stocks continued to waver after a reading on U.K. inflation remained well above the Bank of England's target.
Mining stocks largely bucked the losing trend, aided by stronger prices for metals.
How did markets perform?
The FTSE 100 closed 0.1% lower at 7,168.01 after moving in and out of positive territory throughout the session. On Monday, the benchmark jumped 1.2% , breaking a two-session losing run.
The basic materials group had the strongest showing among sectors on Tuesday, while utility, telecom and consumer-goods shares were among those that lost ground.
The pound traded at $1.3891, compared with $1.3837 late Monday in New York.
What drove the markets?
A new round of mild volatility washed over U.K. and European equity markets, which largely started with modest gains before flipping lower. A recovery in U.S. stocks, which often set a lead for U.K. equities, was faltering Tuesday , with the Dow Jones Industrial Average down more than 80 points during the session.
But gains for metals prices such as copper and gold buoyed shares of mining companies listed in London. Metals prices denominated in dollars found strength on the back of a softening in the U.S. dollar .
What's was on the economic docket?
The U.K.'s Office for National Statistics on Tuesday said the rate of inflation in January was 3% . That's the same rate logged in December, and Tuesday's result was just ahead of a 2.9% consensus estimate from FactSet. The pound spent time above $1.39 after the data.
Inflation is tracked by BOE policy makers in plotting the path of interest rates, with a target of 2% inflation. Last week, the BOE signaled that it could raise interest rates at a faster pace than it previously anticipated, if the global economic recovery and U.K. wage growth continue to strengthen. That message was reiterated Monday in a speech by Bank of England policy maker Gertjan Vlieghe.
What strategists are saying
In the inflation report, "the real head turner turned out to be the core CPI reading, which jumped back to 2.7% to negate last month's 0.2% fall. With core CPI now back to the joint highest level since 2011, the intense price pressures remain on the BOE to raise rates, with markets factoring in a greater than 50% chance of two or more rate rises in 2018," said IG market analyst Joshua Mahony in a note.
"Unfortunately for [Bank of England Governor] Mark Carney, his recent reasoning that inflation could rise over the short term due to energy prices appears to be undermined, with the core reading showing that U.K. inflation is on the rise irrespective of energy prices," said Mahony.
Stocks in focus
TUI AG shares rose 1.2% after the vacation-services company posted a narrower net loss of 99.6 million euros ($112.7 million) for the first quarter and backed its full-year guidance .
BHP Billiton PLC shares (>> BHP Billiton Plc) (>> BHP Billiton Limited) (>> BHP Billiton Limited) picked up 1.8%. The iron-ore producer said it expects to recognize a $1.8 billion income-tax expense to reflect the reduction in the U.S. federal corporate-tax rate and other changes.
Leading decliners on the FTSE 100, water management company Severn Trent PLC (>> Severn Trent) lost 3.4%, United Utilities Group PLC (>> United Utilities) moved down 3.1% and financial services firm Hargreaves Lansdown PLC (>> Hargreaves Lansdown) ended 2.6% lower.