Stocks directionless; pound continues to climb

(Alliance News) - Stock prices in London were trading sideways at midday on Wednesday, while sterling continued to strengthen, as investors digested the news that consumer price inflation in the UK had fallen for the second consecutive month in December, though core inflation remained stubborn.

The FTSE 100 index was up just 1.78 points at 7,852.81. The FTSE 250 was down 4.62 points at 19,943.42, and the AIM All-Share was up 0.55 of a point, or 0.1%, at 858.74.

The Cboe UK 100 was up 0.1% at 785.70, the Cboe UK 250 was up 0.1% at 17,417.80, and the Cboe Small Companies was up 0.1% at 13,777.13.

In December, the consumer price index rose annually by 10.5%, compared to a 10.7% rise in November, the Office for National Statistics said. Consensus had expected 10.6% inflation last month, according to FXStreet.

Core inflation, which excludes energy, food, alcohol, and tobacco, remained unchanged a 6.3%.

"That [data] will come as a relief to households and businesses suffering the cost-of-living squeeze although, with the headline CPI still above 10%, there's still obviously a long way to go," said Craig Erlam at Oanda.

For Tom Hopkins, a portfolio manager at BRI Wealth Management, the annualised core reading showed that inflation in the UK is "sticking".

"The potential downtrend in UK inflation could fan expectations that the Bank of England may hint an end to its tightening cycle, but we wouldn't risk getting too excited, too soon," he said.

In December, the Bank of England raised UK interest rates by 50 basis point to 3.5% in an attempt to return inflation to its 2% target. In February, the Monetary Policy Committee will meet again. Currently, markets expect another 50-basis-point rise in rates.

The pound was quoted at USD1.2382 at midday on Wednesday in London, sharply higher compared to USD1.2278 at the close on Tuesday.

"The continued falling away in today's inflation figures from their October high is welcomed, and expected," said James Richard Sproule, UK chief economist at Handelsbanken.

"However, we remain cautious: the global cost of energy has clearly plummeted and the base effect alone (measuring today's prices against levels from a year ago) will naturally be taking inflation down in coming months."

The ONS revealed that that the average UK house prices rose by 10.3% annually in November, compared to a rise of 12.4% in October.

The average UK house price was GBP295,000 in November, GBP28,000 higher than a year before but a slight decrease from October's record high of GBP296,000.

Analysts at Pantheon Macroeconomics were optimistic that house prices will continue to fall, at least over the first half of 2023.

"We continue to expect a peak-to-trough fall in house prices equal to around 8%, reversing around one-third of the increase since the pandemic," the analysts said.

In London, Ocado rose 6.2% to become the best blue-chip performer at midday.

On Tuesday, the online retailer had lost 9.3%, after it said its joint venture with high-street retailer Marks & Spencer achieved annual revenue of GBP2.2 billion, down 3.8% against the year prior.

Shares in Marks & Spencer were down 0.1% on Wednesday.

Burberry was up 2.1%. The luxury fashion house said comparable store sales grew by 1% in its financial third quarter, following significant lockdown disruption in China and the reopening of the nation.

Comparable sales growth outside of China was 11%. Europe in particular continued to perform well, Burberry said, driven by strong trading over the festive period, with leather goods delivering another quarter of double-digit growth.

Pearson was up 1.7%. The education publishing and assessment service said that it traded ahead of expectations last year.

Pearson attributed its 2022 performance to good results in English language learning, virtual learning, workforce skills, and assessment & qualifications, which were offset by an expected decline in higher education.

It now expects group underlying sales to be up by 5% for the full year and adjusted operating profit to be GBP455 million, up 11% on an underlying basis compared to 2021.

In the FTSE 250, Currys jumped 11% despite reporting a fall in like-for-like sales in its "peak" period, the 10 weeks to January 7.

The electronics retailer said its core UK & Ireland sales region was its best performer. There, like-for-like sales fell by 5%, with better-than-forecast profit due to margin increases and cost savings.

Elsewhere in London, Just Eat Takeaway climbed 8.0%. The online food delivery market place reported it swung to positive earnings on an adjusted basis in the second half of last year, and for 2022 as a whole, as it focuses on achieving profitability.

Just Eat said the performance was driven by improved revenue per order, reduced delivery costs per order, and lowered overheads.

On AIM, Team17 jumped 7.9%. The video game and educational entertainment app publisher and developer reported strong trading in the second half of 2022, with multiple new first and third-party games released.

As a result, it now expects full-year revenue and adjusted earnings before interest, tax, depreciation and amortisation to be significantly ahead of market expectations, which it did not specify.

In European equities on Wednesday, the CAC 40 in Paris was up 0.1%, while the DAX 40 in Frankfurt was flat.

The euro stood at USD1.0824 midday on Wednesday, higher against USD1.0804 at the London equities close on Tuesday. Against the yen, the dollar was trading at JPY129.21, up a yen from JPY128.18 late Tuesday.

The Bank of Japan defied speculation on Wednesday and held its loose monetary policy steady in a move which sent the yen lower.

Analysts at ING noted that dollar-yen remains "one of the most volatile" currency pairs in the G10 FX space.

"We expect that volatility to continue, especially in the March/April window when Governor [Haruhiko] Kuroda will hand over the reins of the BoJ governing board," they continued.

Stocks in New York were called higher. The Dow Jones Industrial Average was set to open marginally up, the S&P 500 index up 0.1%, and the Nasdaq Composite up 0.2%.

Brent oil was quoted at USD87.24 a barrel at midday in London on Wednesday, up from USD85.56 late Tuesday. Gold was quoted at USD1,914.65 an ounce, higher against USD1,912.88.

Still to come on Wednesday's economic calendar, the US will publish its producer price index at 1330 GMT.

By Heather Rydings, Alliance News senior economics reporter

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