FTSE 100 nudges up ahead of Fed decision following broadly expected CPI data
London's FTSE 100 posted modest gains on Wednesday amid ongoing Middle East tensions, as investors weighed broadly expected UK inflation data ahead of rate calls on either side of the Atlantic.
The FTSE 100 index closed up 9.44 points, 0.1%, at 8,843.47. The FTSE 250 ended 53.21 points higher, 0.3%, at 21,290.26, and the AIM All-Share rose 2.71 points, 0.4%, at 763.36.
The oil price fluctuated, with the Israel-Iran conflict entering its sixth day, as Iran's supreme leader, Ayatollah Ali Khamenei, rejected US President Donald Trump's call for an 'unconditional surrender'.
Brent oil traded lower at 75.06 dollars a barrel late on Wednesday from 75.45 dollars on Tuesday. It had earlier traded above 77.00 dollars per barrel.
Mr Khamenei warned of 'irreparable damage' if the US launches military action against Iran.
Of particular concern to markets is the possibility of Iran shutting off the Strait of Hormuz, through which around one fifth of global oil supply is transported.
Mr Trump said he was considering whether the US will join Israeli strikes on Iran and said that Tehran had reached out to seek negotiations on ending the conflict.
'I may do it, I may not do it. I mean, nobody knows what I'm going to do,' Mr Trump told reporters when asked if he had decided whether to launch US air strikes.
'I can tell you this, that Iran's got a lot of trouble, and they want to negotiate.'
In European equities on Wednesday, the CAC 40 in Paris closed down 0.3%, while the DAX 40 in Frankfurt gave up 0.5%.
Stocks in New York were green across the board at the time of the London close. The Dow Jones Industrial Average was up 0.5%, as was the S&P 500 and Nasdaq Composite.
The Federal Reserve announces its interest rate decision at 1900 BST.
According to the CME FedWatch Tool, it is near-certain that the Fed will maintain rates at the 4.25%-4.50% range this week. The Fed held in each of the first three meetings this year. Its last cut was in December, a 25 basis point trim to the federal funds rate range.
Ahead of that, figures showed seasonally adjusted initial jobless claims stood at 245,000 in the week that ended June 14, down by 5,000 from 250,000 a week earlier, which was revised up from 248,000. The most recent figure was in line with the FXStreet-cited consensus.
The four-week moving average of initial claims, which smooths weekly volatility, increased by 4,750 to 245,500.
Michael Pearce, at Oxford Economics, said both initial and continuing unemployment claims are 'trending higher, consistent with a gradual softening in labour market conditions'.
He added: 'Even so, with inflation risks looming, we do not think the economy is weakening by enough to force the Federal Reserve into rate cuts in the coming months.'
In the UK, the Bank of England's (BoE) Monetary Policy Committee announces its rate call at 12pm on Thursday. It too is expected to back the status quo, with interest rates staying unchanged at 4.25%.
Inflation figures on Wednesday provided food for thought for the BoE ahead of the decision.
The Consumer Prices Index (CPI) rose by 3.4% in May from a year before, slowing from annual growth of 3.5% in April. The May inflation figure was in line with FXStreet consensus.
Consumer prices rose 0.2% on a monthly basis in May, slowing from 1.2% in April and in line with FXStreet-cited market consensus.
Earlier in June the ONS reported that the UK's headline inflation figure was 0.1 percentage point too high for April due to an error in the vehicle tax data collected. As is standard practice, the April figure has not been revised, the ONS explained.
Excluding this adjustment, the headline rate of inflation would have been unchanged in May from April.
Core CPI, which excludes energy, food, alcohol and tobacco, eased to 3.5% on an annual basis in May, against the prior month's 3.8% figure and below the consensus estimate of 3.6% growth.
Growth in closely watched services inflation decelerated to 4.7% in the 12 months to May from 5.4% in April, and was below 4.8% consensus.
Barclays thinks the MPC will 'take comfort' from progress on underlying services measures, especially given that these now encompass two months after the increase in firms' costs via the national living wage and national insurance changes, made in the Government's autumn budget.
'However, high levels, combined with strong food inflation, will keep the MPC cautious around the outlook for inflation over the coming months. This will only be exacerbated by recent moves in commodity prices,' it said.
'Taken together, we continue to expect the MPC to be on a quarterly rate cutting path from here until it reaches 3.5% in February next year,' the broker added.
Final figures in Europe from Eurostat showed annual inflation in the euro area cooled to 1.9% in May, dipping below the European Central Bank's 2% target for the first time in more than three years.
The May rate of consumer price inflation slowed from 2.2% in April and marked a significant cooling from 2.6% a year earlier. The final reading confirmed a flash estimate released at the beginning of this month.
The pound was quoted down at 1.3472 dollars at the time of the London equities close on Wednesday, compared with 1.3502 dollars on Tuesday. The euro stood a touch higher at 1.1526 dollars against 1.1522 dollars. Against the yen, the dollar was trading at 144.65 yen, down compared with 145.07 yen.
The yield on the US 10-year Treasury was quoted at 4.36%, narrowed from 4.42%. The yield on the US 30-year Treasury was quoted at 4.86%, trimmed from 4.93%.
On the FTSE 100 Melrose rose 2.6% as positive musings emerged from the Paris Air Show.
RBC Capital Markets reiterated an 'outperform' rating after what it termed a 'supportive meeting' with Melrose management who continue to see attractive growth opportunities in defence markets amongst others.
Whitbread firmed 0.4% ahead of Thursday's trading statement, but Howden Joinery fell 3.0% as Citi said it expects first-half performance to be 'somewhat underwhelming' limiting the scope for upgrades.
'We add a negative short term view on the stock as we think the underlying demand softness near term may dampen investor sentiment,' the broker said.
On the FTSE 250, Rathbones Group climbed 5.2% as Bank of America BofA slapped a 'buy' rating on the London-based investment firm and wealth manager.
'We think the current valuation does not price in the transformational acquisition of IW&I,' BofA said, calling Rathbones 'highly undervalued'.
Gold was quoted higher at 3,387.84 dollars an ounce against 3,381.51 dollars.
The biggest risers on the FTSE 100 were Melrose Industries, up 12.40 pence at 486.60p, IAG, up 6.80p at 319.80p, Aviva, up 11.80p at 616.40p, Entain, up 16.00p at 853.60p, and Intermediate Capital Group, up 34.00p at 1,971.00p.
The biggest fallers on the FTSE 100 were Howden Joinery, down 26.50p at 848.50p, Ashtead Group, down 99.00p at 4,465.00p, GSK, down 31.00p at 1,449.00p, WPP, down 9.60p at 521.60p and Compass Group, down 45.00p at 2,501.00p.
Thursday's global economic calendar has interest rate decisions in the UK, Switzerland and Norway, plus Australian jobs data.
The domestic corporate calendar on Thursday has a trading statement from Premier Inn owner Whitbread.
US financial markets are closed for Juneteenth National Independence Day.
Contributed by Alliance News.
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