FTSE wobbles as investors digest falling UK inflation and rising COVID cases

·3 min read
Bank of England
The Bank of England in the City of London. Photo: PA

The FTSE 100 (^FTSE) wavered on Wednesday afternoon in London, faltering between gains and losses as investors reacted to a raft of new COVID cases as well as data from the ONS which shows that inflation is falling.

The latest inflation figures are likely to dampen speculation of an earlier-than-expected interest rate hike by the Bank of England.

The data unexpectedly showed that inflation slipped to 3.1% from 3.2% in August. 

"The Monetary Policy Committee (MPC) has become increasingly hawkish over the last few weeks, so rate hikes are clearly on the horizon but slower economic growth over the rest of 2021 may give them some reason to delay tightening policy until 2022," said Thomas Pugh, economist at RSM UK. 

Inflation continued to rise in most categories, especially food (0.3% in August vs 0.8% in September) and transport (7.8% vs 8.4%). 

Watch: What is inflation and why is it important?

But this was more than offset by a large drop in inflation in restaurants and hotels (8.6% vs 5.1%) due to the Eat Out to Help Out scheme falling out of the annual comparison. This alone knocked about 0.3 percentage points off inflation in September.

German PPI (producer price inflation) figures released this morning also showed it was at its highest in 50 years, rising to 14.2% in September, up from 12% in August. This was the highest annual rate since October 1974, with prices for gas rising 58.9% and prices for electricity supply by 23.0% from a year earlier.

Following the figures the DAX (^GDAXI) was unfazed, finishing the day flat. France's CAC (^FCHI) headed 0.6% higher.

Meanwhile, news filtered through of a press conference to be given by the UK's health secretary Sajid Javid at 5pm.

The FTSE finished 0.1% higher following the release, having been dragged down earlier in the day in part by travel stocks.

In the UK, a further 223 people died within 28 days of testing positive for COVID as of Wednesday, according to data from the Department of Health and Social Care (DHSC). It is the highest figure for daily reported deaths since 9 March.

The number of people testing positive for the virus in the UK has been rising in recent days to more than 40,000 daily cases.

In the past three months there have been roughly as many cases as there were during the three months last winter, which allows us to compare the two time periods.

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Across the pond, US stocks were higher by the afternoon in London The S&P 500 (^GSPC) and Dow (^DJI) were up 4%. The Nasdaq (^IXIC) also rose 0.1%. 

"Corporate earnings are proving to be a strong support for the major stock market indices at a time when stock traders have been bombarded with bad news such as the risk of an impending power crisis, rising coronavirus cases, and surging consumer prices, which are having a significant impact on the global economic recovery," said Naeem Aslam, chief market analyst at AvaTrade.

"Signs of exhaustion can already be seen in the two biggest economies of the world, both facing a reduction in industrial activity. However, another week of superb earnings could just be what the markets need to rally the bulls and drag stock market indices back to their all-time highs."

On Tuesday, the IMF cut its forecast for economic growth in Asia from 7.6% to 6.5% in 2021.

Overnight, Asian stocks had a mixed day. The Hang Seng (^HSI) headed 1.3% higher alongside the Nikkei (^N225) which was up 0.1%. Meanwhile, the SSE Composite (000001.SS) declined 0.2%. 

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