UK inflation data raises fears of further rate hikes

The recovery continued on equity markets yesterday, as fears about contagion in the banking sector eased. Financial stocks outperformed, followed by energy stocks as recession worries also eased. The FTSE 100 ended the session 1.7% higher.

The focus today will be on the Fed, with most investors betting on a 25-basis points rate hike. The UK will follow this week, with 25 bps also expected, but to a lesser extent. This is because inflation data in February was higher than expecting, jumping to 10.4% year-on-year from 10.1% in January

“The significant upside surprise complicates the monetary policy decision for the Bank of England tomorrow. Following the serious banking sector troubles and resulting tightening of financial conditions, we changed our call to a hold at the 4.0% bank rate from our previous call of a 25bp hike. But the inflation data for February skew the risks towards a further hike”, said Kallum Pickering at Berenberg.

The FTSE 100 was down 0.2% this morning, with rate sensitive sectors such as real estate underperforming ahead of the Fed and BoE decisions.

The British Land Company fell 4.2% after Morgan Stanley lowered its price target.

Meanwhile, retailer Marks and Spencer Group jumped 3.8% after Exane BNP Paribas upgraded its recommendation to "neutral" from "underperform".

 

Things to read today:

JPMorgan AM Chief warns on Commercial Real Estate risks  (Financial Times)

The Fed Flies in the Dark (WSJ)

Europe’s Top Banks Won’t Face Credit Suisse’s Fate, Moody’s Says (Bloomberg)