LONDON MARKETS : FTSE 100 Rebounds From 15-month Low After Inflation Slowdown

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03/20/2018 | 06:25 pm


By Carla Mozee and Sara Sjolin, MarketWatch



Fenner jumps on Michelin buyout; home builders up after Bellway's update



U.K. blue-chip stocks ended higher on Tuesday, recovering from lows not seen in more than a year and holding gains after the pound dropped following data that showed there's been a slowdown in British inflation.



The inflation figures arrived before the Bank of England makes its next monetary policy decision on Thursday. Focus is also on the U.S. Federal Reserve, whose policy makers will begin a two-day meeting later Tuesday.



How markets are moving



The FTSE 100 index ended up 0.3% to 7,061.27, partly rebounding from its lowest close since Dec. 21, 2016 reached on Monday after a 1.7% slide .



The pound traded at $1.3992, down from $1.4025 late Monday in New York. Sterling had bought as much as $1.4067 intraday, but started to move lower after the disappointing inflation reading.



What's driving markets



Stocks stayed higher after February inflation data were released. The Office for National Statistics said consumer price inflation came in at 2.7%, which was lower than the FactSet consensus estimate of 2.8%. That was also a decrease from 3% in January, but still well above the Bank of England's target of 2%. February's slowdown was led by changes in transportation and food prices, which rose by less than a year ago.



The pound pulled back after the inflation data. A weaker pound can help stocks on the FTSE 100, as about 75% of revenue for the index's components are made overseas. A stronger pound can reduce revenue when it's translated back into sterling.



Policy makers at the BOE will assess the inflation report as their next policy decision is due Thursday. Analysts widely expect the central bank to hint that an interest rate rise will take place in May.



Stateside, the U.S. Federal Reserve will begin its two-day meeting on Tuesday, and the Fed is expected to raise its benchmark interest rates on Wednesday.





Don't miss: What to expect from the new Fed dot plot on interest rates



What strategists are saying



"Monetary Policy Committee hawks who were pushing for an interest-rate increase sooner rather than later may be given a lifeline tomorrow as U.K. average earnings look set to increase and counter today's inflation reading, which will bring a new and more welcome problem for [Bank of England] Governor [Mark] Carney and Co.," said Anthony Kurukgy, senior sales trader at Foenix Partners, in a note.



"With only a slow trend down, inflation risks on the upside, and U.S. rate pressure building, we are likely to see a few interest hikes here in the U.K. during 2018. Aegon continues to see the big risk as interest rates rising above the current yield curve, which will put downward pressure on fixed- income prices, especially those such as government bonds with low yield support," said Nick Dixon, investment director at Aegon, in a note.



Stock movers



Micro Focus shares (>> company sheet) lost 1.9%. Shares on Monday plunged 46% after the software maker said CEO Chris Hsu has resigned and warned that revenue for fiscal 2018 will fall more than previously anticipated.



Home builders were higher after Bellway PLC said it's on track to deliver record sales for the full year and that pretax profit rose 17% for the first half of fiscal 2018. Bellway PLC rose 3.5% on the midcap FTSE 250 index



On the FTSE 100, Barratt Developments PLC closed 1.3% higher, Taylor Wimpey PLC picked up 1.5%, and Persimmon PLC rose 0.8%.



Fenner PLC surged 25% on the FTSE 250 as the polymer-based products manufacturer reached a deal, announced late Monday, to be purchased by Compagnie Generale des Etablissements Michelin in a deal valuing Fenner at GBP1.2 billion pounds ($1.67 billion) .





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