The FTSE 100 has recouped early losses and just turned positive on the day in the past hour following the release of the German Zew economic sentiment index which provided a boost to stocks. The market opened lower this morning after a negative Asian session for equities and the release of inflation data showing a higher than expected rise for the UK did little to attract buyers into the market. The pound did rise on the CPI number though, with higher inflation having the potential to hinder the Bank of England’s aggressive easing measures if it increases or persists.
Uptick in inflation provides lifeline to the Pound
The Pound has moved off its lowest level in over a month against the US dollar this morning aided by a small increase in inflation. The data for July showed increases in three broad measures of inflation - CPI, RPI and PPI input - since the EU referendum. The most noticeable rise was in PPI input which can largely be explained by the drop in the pound itself. Whilst Governor Carney stated that the Bank of England would be willing to allow inflation to move above the 2% target in the short term - which is far more likely to occur following the rate cut and expansion of the QE programme announced at the start of the month - a persistent rise in inflation could lead to second thoughts about further easing. Today’s data on its own is far from significant enough to suggest as much but nonetheless has seen some upside in sterling following the release.
UK stocks boosted by German data
The reaction in the FTSE 100 to the inflation release and the subsequent German Zew economic sentiment print half an hour after is interesting with the latter causing the greater move. The positive German data has usurped that from the UK in terms of importance and further supports the idea that today’s uptick in inflation on its own isn’t a particularly major development. With the UK blue chip index broadly flat, it is easy to assume that it’s been a quiet morning for stocks, but closer inspection reveals some large moves under the surface. Mining stocks are firmly higher with BHP Billiton (LON:BLT) up over 4% despite posting its largest ever loss in excess of 6 billion before the market open. Rio Tinto (LON:RIO), Anglo American (LON:AAL) and Glencore (LON:GLEN) are all gaining firmly too as the sector as a whole enjoys a strong start to the week. Stock in airlines are amongst the worst performing on the index with EasyJet and International Consolidated Airlines both moving lower, in part due to the rise in oil prices with Brent trading at it highest level in more than 4 weeks at the time of writing.