London close: Stocks flat ahead of US Fed
London stocks were little changed on Wednesday as investors mulled UK inflation data while they waited for the latest policy announcement from the US Federal Reserve.
The FTSE 100 was down 0.01% at 7,314.05, while the pound fell a touch further against the US dollar, down 0.1% at 1.2489 and was flat versus the euro at 1.1286, albeit despite data from the Office for National Statistics showed that UK inflation has fallen to its lowest level for nearly three years.
The consumer prices index including owner occupiers' housing costs (CPIH) was 1.7% in August, down on July’s figure of 2.0% and the lowest reading since the end of 2016.
The largest downward contributions came from recreational and cultural goods, including a 5% slide in the prices of games, toys and hobbies. Clothing and footwear prices rose 1.8%, considerably below last year’s 3.1% increase. The largest upward contribution came from food and beverages.
Stripping out housing costs, CPI was 1.7% compared to 2.1% in July. Economists had been looking for a reading of around 1.9%. Core inflation, which removes volatile elements such as housing and energy, dropped to 1.5% from 1.9%, also below consensus expectations 1.8%.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the inflation outlook still does not warrant lower interest rates.
"Looking ahead, the headline rate likely will remain below the 2% target this year. Energy’s contribution to the headline rate looks set to fall by 0.2pp in October, when the cap of standard variable tariffs for electricity and natural gas will be reduced by 6%. Nonetheless, sterling’s recent depreciation points to core goods inflation rising to about 1.5% in the first half of 2020, from 0.4% in August, boosting the headline rate by 0.3pp.
"In addition, we expect services firms to respond to the recent surge in unit labour costs - the pick-up in wage growth to 4% has not been accompanied by any improvement in productivity growth, which has remained near-zero - by pushing through bigger price increases next year. Accordingly, CPI inflation still looks set to rise back to and then slightly exceed the 2% target in 2020, ensuring that only a sharp downturn in the economy will prompt the Monetary Policy Committee to cut Bank Rate again."
Investors were also digesting comments from European Commission president Jean-Claude Juncker, who told the European parliament there was a "palpable" risk that the UK will crash out of the EU without a deal. Meanwhile, EU Brexit negotiator Michel Barnier warned that the consequences of no deal should not be underestimated.
Speaking in the European Parliament, Barnier said: "Almost three years after the UK referendum, I don’t think we should be spending time pretending to negotiate. I think we need to move forward with determination."
Still to come, the latest policy announcement from the Federal Reserve is due after the European close.
Neil Wilson, chief market analyst at Markets.com, said: "The Fed is highly likely to cut interest rates by 25 basis points. The question facing the market is how many more there are to come. Are we at the end of the mid-cycle adjustment, or the early stages of a full-blown easing path? Will we get yet another flip-flop? Traders are increasingly less confident in the number of cuts the FOMC will carry out this year.
"A hawkish cut is a firm possibility, albeit the median projected fed funds rate from the dot plot should come down a touch."
In equity markets, medical products and technologies provider ConvaTec drifted lower as it agreed to buy Southlake Medical Supplies - a Texas-based provider of catheter-related supplies - for an undisclosed consideration.
B&Q owner Kingfisher was in the red as it said half-year profits fell on Brexit worries and the move to a low-price strategy at its French Castorama business as the company warned of a "mixed" full-year outlook. Like-for-like sales fell 1.8% to £5.9bn with growth in Screwfix, Poland and Romania offset by B&Q in the and France as pre-tax profits came in 12.5% lower at £245m.
Defence company Cobham was trading a little lower after the government ordered an investigation into its proposed £4bn acquisition by US private equity firm Advent International on national security grounds.
Russ Mould, investment director at AJ Bell, said some of Cobham's shareholders may be feeling peeved about the announcement.
"Now investors are in limbo until the Competition and Markets Authority reports on the national security implications at the end of October. Although a muted share price reaction - with the shares trading not too far from Advent’s offer level - suggests, rightly or wrongly, that the market expects the deal to go through."
Outside the FTSE 350, shares of Pendragon tanked after the car dealer said that it swung to a loss in the first half in "challenging" markets as it scrapped its dividend, sounded a downbeat note on the outlook and announced the loss of around 300 jobs.
FTSE 100 - Risers
International Consolidated Airlines Group SA (CDI) (IAG) 450.00p 1.90%
Halma (HLMA) 2,019.00p 1.46%
TUI AG Reg Shs (DI) (TUI) 853.60p 1.35%
SSE (SSE) 1,226.00p 1.28%
Severn Trent (SVT) 2,105.00p 1.15%
Rentokil Initial (RTO) 448.70p 1.08%
Sage Group (SGE) 685.00p 1.06%
Land Securities Group (LAND) 841.00p 1.06%
ITV (ITV) 125.30p 1.05%
Evraz (EVR) 503.00p 1.02%
FTSE 100 - Fallers
Kingfisher (KGF) 196.35p -3.15%
Burberry Group (BRBY) 2,120.00p -2.53%
3i Group (III) 1,113.50p -2.20%
St James's Place (STJ) 979.40p -1.84%
Taylor Wimpey (TW.) 160.55p -1.83%
Barratt Developments (BDEV) 632.20p -1.47%
Antofagasta (ANTO) 933.40p -1.44%
Standard Chartered (STAN) 687.00p -1.42%
Bunzl (BNZL) 2,099.00p -1.41%
Morrison (Wm) Supermarkets (MRW) 200.10p -1.28%
FTSE 250 - Risers
Ascential (ASCL) 395.80p 3.88%
Sanne Group (SNN) 562.00p 3.50%
Derwent London (DLN) 3,246.00p 3.38%
Stagecoach Group (SGC) 134.80p 3.06%
Games Workshop Group (GAW) 4,816.00p 3.04%
Playtech (PTEC) 439.20p 2.97%
Wizz Air Holdings (WIZZ) 3,520.00p 2.95%
Euromoney Institutional Investor (ERM) 1,460.00p 2.82%
Aston Martin Lagonda Global Holdings (AML) 559.00p 2.77%
Quilter (QLT) 141.00p 2.73%
FTSE 250 - Fallers
Sirius Minerals (SXX) 4.42p -5.36%
CYBG (CYBG) 119.20p -4.22%
Royal Mail (RMG) 217.40p -3.98%
Hunting (HTG) 490.00p -3.35%
VinaCapital Vietnam Opportunity Fund Ltd. (VOF) 332.00p -3.35%
Weir Group (WEIR) 1,508.00p -3.30%
Mediclinic International (MDC) 348.20p -3.17%
Petrofac Ltd. (PFC) 428.90p -2.66%
Premier Oil (PMO) 87.90p -2.57%
Syncona Limited NPV (SYNC) 234.50p -2.49%