FTSE 100 at best level for nearly two years and Wall Street rises despite US inflation at near 40-year high

• FTSE 100 up 51 points
• Sainsbury lifted by Christmas sales
• BHP leads miners higher

2.50pm: US markets shrug off high inflation

US markets have started on the front foot as investors appeared to brush off the latest inflation report.

The Dow Jones Industrial Average rose 86 points to 36,338 in early trading, while the S&P 500 gained 19 points at 4,732. The tech-heavy Nasdaq advanced 134 points to stand at 15,287.

Earlier, the consumer price index (CPI) inflation report showed a gain of 7% year-over-year – the biggest jump since 1982..

« This reading will put further pressure on the Fed to start tightening policy and the narrative around four rate rises this year is likely to be strengthened, » said Dan Boardman-Weston from BRI Wealth Management.

But he added: « Inflation will start falling from May/June as energy prices start to have weaker impact on the overall level of inflation.

« The economy is in a strong position at the moment and it should be able to cope with four rate increases. Whether the market will take tighter policy in its stride is another matter but our expectation is that the monetary policy induced volatility will abate and that the strength of the economy will positively impact markets. »

The strong start on Wall Street has given more support to the FTSE 100, which is now up 69.03 points or 0.92% at 7560.40.

2.33pm: « Investors feared much worse »

More on US inflation.

Craig Erlam, senior market analyst at Oanda, said: « In a sign of the times we’re living in, the US inflation data wasn’t too bad. At 7% year on year, the CPI was in line with expectations while the core reading was only marginally ahead at 5.5%. On a monthly basis, the CPI readings were also marginally ahead of expectations, although not to the degree that has caused any alarm.

« Rather, it seems the inflation data has been welcomed with investors seemingly fearing much worse. The dollar is slipping after the data, while US yields have eased and US futures are rallying. It would appear relentless optimism is perhaps returning to the markets and dip buyers are diving back in. »

1.55pm: US investors welcome inflation news

US markets have picked up the pace after inflation – despite hitting 7% – was no worse than expected.

Futures are now indicating a 0.47% or 168 point rise on the Dow Jones Industrial Average while the S&P 500 is expected to open up 0.51% and the Nasdaq Composite is indicated 0.72% higher.

In the UK, the FTSE 100 is up 51.47 points or 0.69% at 7542.84.

1.37pm: US consumer price index climbs 7%

US inflation hit a near 40-year high, but came in much as expected.

The consumer price index for December rose 7% year on year, up from 6.8% the previous month. This was the biggest annual increase since June 1982 when Ronald Reagan was in the White House.

On a month by month basis it rose 0.5%, after rising 0.8% in November.

Shelter and used cars and trucks were the biggest contributors to the increase while food increased less than in previous months and energy declined, falling 0.4% as petrol and gas both decreased.

US CPI (M/M) Dec: 0.5% (est 0.4%; prev 0.8%)

– CPI (Y/Y) Dec: 7.0% (est 7.0%; prev 6.8%)

– Core CPI (M/M) Dec: 0.6% (est 5.4%; prev 4.9%)

– Core CPI (Y/Y) Dec: 5.5% (est 0.5%; prev 0.8%)

— LiveSquawk (@LiveSquawk) January 12, 2022

OUCH! US #inflation rate jumped 7% in December YoY, the 3rd consecutive month >6% & the biggest annual increase since Jun1982, while Core CPI, which excludes food and energy and is the Fed’s preferred gauge of inflation, rose 5.5% YoY pic.twitter.com/S5fcDyy1K1

— Holger Zschaepitz (@Schuldensuehner) January 12, 2022

12.20pm: FTSE 250 lifted by Savills and Dunelm

The mid-cap index is also in the green, albeit underperforming the blue chip index.

Helped by strong performances from Savills PLC (LSE:SVS), up 7.42%, and Dunelm Group PLC (LSE:DNLM), 5.3% better, following their latest updates, the FTSE 250 is up 0.23% at 23,080.48.

Meanwhile the FTSE 100 is off its best levels but is still at its highest since mid-February 2020, up 43.97 points or 0.59% at 7535.34.

11.43am: US markets calm ahead of key inflation data

US stocks are expected to open higher after Federal Reserve chair Jerome Powell soothed investors’ nerves ahead of data that is likely to show inflation at its highest in almost 40 years. 

Futures for the Dow Jones Industrial Average rose 0.11% in Wednesday pre-market trading, while the broader S&P 500 index also gained 0.11% and those for the tech-heavy Nasdaq 100 added 0.24%.

Stocks finished higher on Tuesday after Powell told a congressional hearing that the Fed could raise interest rates to rein in surging inflation without harming the economy.

The Nasdaq led the gains, rising 1.41% to close at 15,153 points. The S&P 500 followed with a 0.92% increase to 4,713 points, while the Dow also posted a healthy gain of 0.51% to close at 36,252 points.   

The consumer price index (CPI), due for release ahead of the market open, is expected to show headline inflation reached 7.1% in December from 6.8% in November, a 39-year high. 

“US equities are looking to further pare 2022’s losses with futures now edging higher, potentially extending Tuesday’s rebound in which tech stocks outperformed,” commented Han Tan, chief market analyst at Exinity Group.

“Stock bulls are taking a liking to Fed Chair Jerome Powell’s reassurances that the central bank could trigger rate hikes to rein in surging inflation without harming the US economic recovery. 

“It’s intriguing how a volatile market that had dreaded the prospects of more rate hikes than previously expected has been suddenly soothed by near-term policy tightening.”

11.29am: Crude prices on the rise

Oil prices continue to move higher on rising demand as economies recover and Opec+ remains careful about its output increases.

Brent crude is up 0.45% at US$84.1 a barrel, not too far off October’s three year high of US$86.

Meanwhile West Texas Intermediate, the US benchmark, is up 0.66% at US$81.73.

That has helped push the oil majors higher, with BP PLC (LSE:BP.) 2.25% better and Royal Dutch Shell PLC (A shares) (LSE:RDSA) rising 2.23%.

Overall the FTSE 100 is up 56 points or 0.75% at 7547.37.

10.18am: JD Sports and housebuilders among the fallers

Leading shares are continuing on their merry way higher, hitting a new pre-pandemic intraday peak.

The FTSE 100 is currently up 56.26 points or 0.75% at 7547.65, having earlier hit 7551.86.

This marks the highest level since the 7585 reached on 27 January 2020.

Not everyone is joining in however.

JD Sports Fashion PLC (LSE:JD.) is down 2.65% despite an upbeat trading statement where it upgraded this year’s profit forecast from £810mln to £875mln.

It said it expected a similar figure – £875mln – for next year. But analysts at UBS pointed out that their recent conversations with investors suggested they had expected a figure closer to £900mln next year.

Housebuilders are also in the red, with Taylor Wimpey PLC (LSE:TW.) down 2.8% and Barratt Developments PLC (LSE:BDEV) off 2.2%.

In the wake of this week’s results Electrocomponents PLC (LSE:ECM) has lost 2.1% to 1165p after JP Morgan cut its price target from 1477p to 1419p.

And BT Group PLC (LSE:BT.A) has slipped 0.93% to 175.5p after Bank of America (NYSE:BAC) moved its target down from 228p to 213p.

9.25am: Investors » regaining confidence »

Miners are now dominating the blue chip risers, given the renewed optimism about the global recovery.

So the FTSE 100 remains firmly in positive territory, up 50.21 points or 0.67% at 7541.58.

Russ Mould, investment director at AJ Bell, said: “Volatility is down, equities are up. Investors look to be regaining their confidence after a choppy start to 2022 with all the main indices across Europe and Asia pushing ahead, following a similar performance on Wall Street last night.

“Driving confidence were remarks by Federal Reserve chairman Jay Powell that the central bank would do everything it could to stop inflation running out of control.

“The FTSE 100 traded 0.6% higher, with miners dominating the index’s top performers. The top six risers were all metal producers, and this sector is a bellwether for global economic activity.

“Risk appetite appears to have returned given how more stodgy companies like BT, Reckitt Benckiser and Imperial Brands were among the fallers on the FTSE. Instead, investors were more interested in bidding up some of the tech plays which have been beaten up recently, including Scottish Mortgage.

“Also in vogue were a slew of consumer-facing companies riding high after upbeat trading statements. These included Sainsbury’s which upgraded its profit guidance.”

J Sainsbury PLC (LSE:SBRY) has lost some of its early gains but is still up 1.43%

Elsewhere homeware retailer Dunelm Group PLC (LSE:DNLM) is up 5% after a record performance in its second quarter, with sales up 13%.

Mould said: « The pandemic has arguably been favourable to [Dunelm} in some respects; we’re spending more time indoors and are therefore more likely to want to upgrade our furniture, bedding or curtains.

“A key plank of the transformation of Dunelm under chief executive Nick Wilkinson has been an improvement and expansion in online sales. That has really helped during periods when footfall in its stores has either been reduced or wiped out entirely thanks to restrictions or people’s reluctance to go out.

“The fact that Dunelm was able to boost profitability in the period despite cost pressures is testament to the quality of its product range and how it is resonating with consumers. It has also ensured good product availability by maintaining a high level of inventory. »

8.28am: Sainsbury leads the way after strong Christmas

J Sainsbury PLC (LSE:SBRY) is leading the FTSE 100 risers after the supermarket raised its full year profit guidance after stronger-than-expected Christmas sales.

Its shares are up 2.97% to 287.6p on the news.

Richard Hunter, head of markets at interactive investor, said “While there are some clear reasons for cheer within the update, there are also some concerning developments within general merchandise in particular.

« Against strong comparatives, limited supply and weak demand in some of its key categories, general merchandise sales at both Argos and within the supermarket have fallen on both a one and two year basis. Sainsbury has highlighted particular declines in technology, gaming and toy market sales with the well reported disruption to supply chain blockages playing its part…

« Despite these pressures, Sainsbury has been making some promising progress at the headline level. Its focus on price and service resulted in a market share gain over the period, which implies some defence against the discounters who arguably provide the largest threat to the bread and butter business.

« At the same time, the progress of the company’s online capability is clear to see, with online grocery sales up by 92% as compared to pre-pandemic, demonstrating a shift in both consumer behaviour and Sainsbury’s ability to deliver…

« In all, Sainsbury may be given the benefit of the doubt. Structural cost savings and better than expected grocery volumes have resulted in an upgrade to guidance for full year pre-tax profit, to a figure of £720mln from the previously estimated £660mln. »

Also providing support to the market are the miners, boosted by hopes the global economy will continue to recover and helped by the comments from Fed chair Powell.

BHP Group PLC (LSE:BHP) is 2.24% better while Antofagasta PLC (LSE:ANTO) has added 1.94%.

Elsewhere, the rise on Nasdaq has lifted tech investor Scottish Mortgage Investment Trust PLC (LSE:SMT) by 1.76%.

8.19am: Market back to pre-pandemic levels

Leading shares have hit their highest level for nearly two years, adding to yesterday’s gains which mainly came in the wake of a turnaround on Wall Street.

With investors continuing to worry about inflation – and today’s US numbers will be widely watched – there was some comfort from the comments of Federal Reserve chair Jerome Powell at a congressional hearing.

Powell seemed to play down any premature action by the central bank, despite recent suggestions of up to four rate rises this year, more than previously expected.

Ipek Ozkardeskaya, senior analyst at Swissquote, said: « Global equities breathed a sigh of relief yesterday as the Federal Reserve chair Jerome Powell said, at his congressional confirmation yesterday, that he could pull off the hard task of fighting back inflation without damaging the economy.  

« He soothed investors’ nerves saying that the Fed is ‘just going to be moving over the course of this year to a policy that is closer to normal, but it’s a long road to normal from where they are now’. »

With that background, the FTSE 100 has added 43.26 points or 0.58% to 7534.63, its highest intraday level since February 12, 2020 before the pandemic really took hold.

6.50am: Bright start expected

The FTSE 100 is set to start Wednesday on the front foot as equity benchmarks find their feet after recent falls.

IG Markets sees London’s blue-chip benchmark around 51 points higher, making the price 7,537 to 7,540 with just over an hour to go until the start of trading.

The market’s attention, broadly, remains on inflation and the likely central bank responses to rising prices and at the same time the threat of economic stagnation amidst pandemic restrictions.

“The recent decision by the Federal Reserve to accelerate its tapering program to $30bn a month confirmed that Fed officials are now much more worried about inflation, than it is about the labour market,” said Michael Hewson, analyst at CMC Markets.

“With a March rate hike now almost a done deal, today’s US CPI is likely to be a key signpost in the wider discussion, on how many more hikes are coming down the pipe, as central banks wrestle with a dilemma of rising price pressures, the risks of an economic slowdown caused by tighter restrictions, and a decline in consumer confidence.”

On Wall Street, stocks rebounded somewhat after Monday’s sell off.

The Dow Jones added 183 points or 0.51% to close last night at 36,252 whilst the S&P 500 was slightly stronger rising 0.9% to 4,713.

A 1.4% gain saw the Nasdaq finish the session at 15,153. Meanwhile, the Russell 2000 small cap index climbed just over 1% to 2,194.

Asian stock indices were up strongly this morning. Japan’s Nikkei rose 543 points or 1.9% to 28,765 whilst Hong Kong’s Hang Seng added 615 points or 2.59% to 24,346. The Shanghai Composite meanwhile advanced 0.8% to 3,596.

Around the market

Pound: US$1.3644, up 0.07%

Gold: US$1,820 per ounce, down 0.02%

Silver: US$22.84 per ounce, up 0.33%

Brent crude: US$83.58 per barrel, up 3.3%

WTI crude: US$81.21 per barrel, up 3.8%

Bitcoin: US$42,750, up 1.5%

Ethereum: US$3,243, up 4.3%

6.50am: Early Markets – Asia / Australia

Asia-Pacific shares rallied on Wednesday as China’s consumer price index rose 1.5% in December compared to a year ago.

This is a drop from the 2.3% rise in November and lower than the 1.8% increase expected in a Reuters poll.

China’s Shanghai Composite gained 0.78% while Hong Kong’s Hang Seng index surged 2.56%.

The Nikkei in Japan jumped 1.92% and South Korea’s Kospi rose 1.54%.

Australia’s S&P/ASX200 closed 0.66% higher at 7438.9 points, with the energy and technology sectors leading gains.

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