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FTSE 100 reclaims 7,000, US inflation at 13-year high, USD & yields jump

EconomyMay 12, 2021 16:36
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Key Points

  • FTSE 100 closing price of 7,002.45, +0.8%
  • US CPI hits 13-year high
  • UK grows more than expected in Q1
  • USD and US yields jump after data
  • Oil remains higher after inventory data
  • Ethereum market cap breaches $500bln

By Samuel Indyk

Investing.com – The FTSE 100 and other major European bourses outperformed their US counterparts on Wednesday as US inflation stoked fears of rate hikes in the US, while European indices were supported by strong earnings and faster than expected growth.

US CPI hit a 13-year high, rising to 4.2% on a yearly basis versus expectations of 3.6%. The figure will likely prompt calls for the Federal Reserve to begin tapering asset purchases and hike interest rates sooner than the central bank is communicating. Markets have now begun to price the first interest rate hike from the Fed by the end of the year. The Fed themselves do not expect to hike interest rates until 2023.

With that in mind, US stock markets resumed their declines, led lower by the tech-heavy Nasdaq 100 amid fears that the liquidity that has supported the rally in some low or not profit making companies is set to dry up.

UK markets fared better, supported by strong corporate updates, M&A news and stronger than expected growth figures.  

Drinks maker Diageo (LON:DGE) stormed to the top of the FTSE 100 after the company provided a positive trading update and said it is restarting its share buyback programme.

BP (LON:BP) and Royal Dutch Shell (LON:RDSa) shares also outperformed amid a rally in WTI and Brent prices, which held gains after the US inventory data. The EIA said crude oil stockpiles fell by 427,000 barrels in the latest week, although that was slightly less than expectations. The Colonial Pipeline still remains out of action and fuel shortages have been observed at some petrol stations along the East coast, nevertheless, the company that operates the pipeline still expects to restart most of the pipeline by the end of the week.

Shares in FTSE 250 company UDG Healthcare (LON:UDG) jumped over 20% after the company announced it was subject to takeover bid. The pharmaceutical company has agreed to be taken over by Clayton, Dubilier & Rice for £10.23 per share.

In FX markets, the US Dollar Index jumped after the CPI data which pushed GBP/USD back below 1.4100. However, GBP was generally strong after UK GDP figures. The Office for National Statistics said GDP only shrunk 1.5% in the first quarter versus expectations of a 1.6% decline.

EUR/GBP fell to its lowest level since April 6th in the wake of the data.

Bond yields in the US and UK both jumped following the dual data releases. The United States 10-Year yield traded at its highest level since April 29th while the United Kingdom 10-Year yield jumped to its highest since March 18th.

In the cryptocurrency space, Ethereum traded at another record high and the market cap exceeded $500bln for the first time. However, the world’s second largest cryptocurrency still has a long way to go until the ‘flippening’ occurs with the market cap of Bitcoin still exceeding $1tln.

FTSE 100 reclaims 7,000, US inflation at 13-year high, USD & yields jump
 

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