London close: FTSE higher after sterling hit by inflation data

London stocks closed higher as sabre-rattling between the US and North Korea returned to background noise, while the pound slipped as inflation proved less than expected.

At the close, the FTSE 100 had added 29.96 points or 0.41% to finish at 7,383.85, with the FTSE 250 up 0.0% or 2.34 points to 19,694.81.

European bourses closed higher on Tuesday with the DAX up 0.1% to 12,177.04, the CAC 40 adding 0.36% to 5,140.25 and the Stoxx 600 edging higher by 0.09% to 376.50.

Forays higher for stocks were accelerated as the pound dropped, falling to 1.2854 against the dollar, and down 0.4% against the euro to 1.0963, with the latter a close to new seven-year low despite a disappointing third quarter German GDP growth print of 0.6% quarter-on-quarter (consensus: 0.7%).

Weakness in Sterling was sparked by the Office of National Statistics (ONS) publication of consumer price index data that showed a 2.6% rise for July, the same as June but lower than the 2.7% the market was expecting.

"More importantly, it’s a decent way away from the 2.9% reading seen in May. And given that the Bank of England didn’t pull the rate hike trigger at that level, they’re not going to do it for anything lower, helping to explain why the pound found itself in such a bad mood once the figure was released," said analyst Conor Campbell at Spreadex.

Another big domestic focus is on the government's Brexit plans, with a new position paper published on Tuesday which has outlined two broad approaches to trade with the EU. One being a streamlined customs arrangement between the UK and the EU with customs requirements that are as friction-less as possible, and the other concerning a new customs partnership with the EU by aligning the UK's approach to the customs border in a way that removes the need for a UK-EU customs border.

Brexit secretary David Davis said, "The approaches we are setting out today will benefit both the EU and UK and avoid a cliff-edge for businesses and individuals on both sides." And Chancellor Philip Hammond saying, "Our proposals are ambitious, and rightly so. They set out arrangements that would allow UK businesses to continue to trade with their European partners in the future, while expanding their markets beyond the EU."

"There was little to no uplift so far from the proposal for Britain to have a customs union with the EU for some years after the official Brexit date in 2019," said Neil Wilson at ETX Capital.

"The market is treating anything from London with due caution, rightly so given the open splits in the cabinet and precarious tenure of Theresa May."

The positive mood in London comes as tensions in the Korean peninsula are felt to be tapering off, noted analyst Michael Hewson at CMC Markets.

"Tension does appear to have come down a notch or two helped in some part by more clarity on the US side in saying that they weren’t looking to a policy on regime change in North Korea, but also by China as they surprisingly agreed to ban imports of North Korean iron, lead and coal as part of the new UN sanctions regime, thus increasing the pressure on the rogue state to ease back on its aggressive stance towards the US."

Rebecca O'Keeffe, head of investment at Interactive Investor, said the ease with which equity markets have shrugged off last week’s woes was "reassuring, but also a little bit frightening".

"Reassuring in that it confirms there is a wave of liquidity willing and actively looking for buying opportunities on any dips. Frightening in that markets appear to be utterly invincible to any threat, despite potentially stretched valuations," she said.

"It looked like the market was at a tipping point last week, but the robust rally over the past two days suggests that there are still plenty of investors who think otherwise. Trying to call the top of this market has been a fool’s errand over the past few months and the weight of money supporting the market doesn’t show any sign of abating."

The economic calendar for the day included, US retail sales figures for July which beat analyst expectations to come in at 0.6% on the month, the first positive print since February, alongside the Federal Reserve bank of New York's regional manufacturing gauge (Empire State Manufacturing Index) which also beat expectations to come in at 25.2.

In company news, Standard Life Aberdeen was up for a second day after its merger was completed.

Shire was higher as it announced the application for Europe-wide marketing of its lifitegrast dry-eye disease drug has been approved by the UK. "If approved, lifitegrast would be the first and only treatment in a new class of drugs to address the signs and symptoms of dry eye disease in adults in Europe," the company said.

Financial services firm Hargreaves Lansdown saw its shares fall despite confirming it had "sufficiently strong financial, liquidity and capital positions" and pledged to operate a "sustainable and progressive ordinary dividend policy" with special dividends in future years when sufficient excess cash and capital is available.

Gold miners like Randgold, Fresnillo and Acacia were in the red as gold headed for a second day of losses but found some support at $1,268, close to levels it ran into difficulty around a couple of weeks ago.

"Assuming we don’t see another flare up in the war of words between the two countries – or worse – then Gold could remain under pressure in the days ahead, although traders are understandably cautious still," said analyst Craig Erlam at Oanda.

Next was lower after Berenberg downgraded its recommendation following the recent rally in the clothing retailers's shares, telling clients there was now "material downside" following the company's weather-driven second quarter beat.

Market Movers

FTSE 100 (UKX) 7,383.85 0.41%
FTSE 250 (MCX) 19,694.81 0.01%
techMARK (TASX) 3,397.66 0.57%

FTSE 100 - Risers

easyJet (EZJ) 1,322.00p 4.51%
Standard Life Aberdeen (SLA) 427.70p 4.11%
International Consolidated Airlines Group SA (CDI) (IAG) 631.00p 2.94%
BAE Systems (BA.) 594.00p 2.33%
Old Mutual (OML) 202.10p 2.28%
CRH (CRH) 2,719.00p 2.26%
TUI AG Reg Shs (DI) (TUI) 1,319.00p 2.25%
Imperial Brands (IMB) 3,221.50p 2.12%
Worldpay Group (WPG) 421.40p 1.91%
Intertek Group (ITRK) 4,810.00p 1.56%

FTSE 100 - Fallers

Provident Financial (PFG) 1,882.00p -3.78%
Randgold Resources Ltd. (RRS) 7,200.00p -3.16%
Fresnillo (FRES) 1,501.00p -2.97%
Next (NXT) 4,271.00p -2.82%
BHP Billiton (BLT) 1,342.00p -1.40%
Anglo American (AAL) 1,241.50p -1.19%
United Utilities Group (UU.) 918.00p -1.13%
Rio Tinto (RIO) 3,375.50p -1.10%
Antofagasta (ANTO) 921.00p -0.97%
Mediclinic International (MDC) 738.00p -0.87%

FTSE 250 - Risers

Wizz Air Holdings (WIZZ) 2,932.00p 4.64%
Aldermore Group (ALD) 229.70p 3.23%
Coats Group (COA) 75.30p 3.16%
Ascential (ASCL) 364.90p 2.99%
Pershing Square Holdings Ltd NPV (PSH) 1,110.00p 2.30%
Countryside Properties (CSP) 358.50p 2.05%
Indivior (INDV) 410.00p 1.74%
Diploma (DPLM) 1,060.00p 1.53%
Capita (CPI) 667.00p 1.52%
Dechra Pharmaceuticals (DPH) 1,839.00p 1.49%

FTSE 250 - Fallers

Acacia Mining (ACA) 175.40p -9.45%
Tullow Oil (TLW) 153.60p -5.71%
Carillion (CLLN) 51.90p -5.38%
Centamin (DI) (CEY) 149.50p -4.96%
Nostrum Oil & Gas (NOG) 389.90p -4.81%
Petrofac Ltd. (PFC) 420.10p -4.52%
Hochschild Mining (HOC) 317.00p -4.37%
Petra Diamonds Ltd.(DI) (PDL) 90.95p -3.86%
Polymetal International (POLY) 911.00p -3.19%
Wood Group (John) (WG.) 586.50p -2.41%