MARKET WRAP: FTSE rallies above 7,200, US CPI keeps Q4 taper on track

imageEconomy18 hours ago (Aug 11, 2021 16:33)

© Reuters.

Key Points

  • FTSE 100 closing price of 7,219.9, +0.8%
  • Avast higher after merger agreement
  • Meggitt jumps after rival offer
  • Deliveroo falls despite sales surge
  • US CPI keeps Fed on track for Q4 taper
  • USD marginally lower, EUR/USD support at 1.17
  • Oil falls after White House intervention, inventory data
  • Bitcoin steady below key resistance

By Samuel Indyk – The FTSE 100 rallied for the fourth consecutive trading day and seventh in the last eight amid a broad European equity rally.

Shares in FTSE 100 cyber security company Avast (LON:AVST) jumped after the company agreed to merge with US rival NortonLifeLock (NASDAQ:NLOK) in a deal valued between $8.1 billion and $8.6 billion. Avast shareholders will receive a combination of cash and newly issued NortonLifeLock shares.

Meggitt (LON:MGGT) shares surged after the company announced it had received a 900 pence per share offer from US-based Transdigm (NYSE:TDG). Earlier this month, Meggitt had agreed to be purchased by Parker-Hannifin (NYSE:PH) in a deal worth 800 pence per share. Meggitt said it is currently reviewing TransDigm’s proposal, but, for now, the directors continue to recommend unanimously the offer by Parker.

Shares in Deliveroo (LON:ROO) declined as the company reported another pre-tax loss, despite an 82% jump in revenue and doubling of gross transaction values.

“Both the value and volume of orders came in ahead of what was expected in the first half and its coffers look pretty full – boosted by the IPO cash,” wrote AJ Bell Financial Analyst Danni Hewson in an emailed note. “Deliveroo critics will continue to point to issues with the way it treats its delivery riders and the fact it is still a long way from serving up a profit, despite its recent bumper trading.”

On the data front, all eyes were in US CPI which posted a 0.5% month over month increase in July, in line with expectations. This took the annual rate of inflation to a slightly higher than expected 5.4%.

“We suspect that we have passed the peak for the annual rate of inflation given the stretched YoY price comparisons between a pandemic hit economy in H1 2020 and a vibrant re-opened economy seen in H1 2021 will fade through Q3 2021”, analysts at ING said in an emailed research note. “Nonetheless, we are not as optimistic as the Federal Reserve in thinking that we will quickly get back down to the 2% target area.”

ING sees core inflation staying above 3% until the summer of next year and expects tapering to begin in Q4 before concluding by late Q1 or early Q2 next year, paving the way for rate hikes to begin in late 2022.

With the data out of the way, the USD was slightly weaker which helped lift EUR/USD away from key support around 1.1700-1.1710.

“Should this 1.17/1710 level give way, on a closing basis of course, we can expect a move back to re-test the lows from September and November last year, at 1.1610, in relatively short order,” said Caxton Senior Market Analyst Michael Brown.

WTI and Brent crude futures both slid following the latest oil inventory report from the Energy Information Administration. The EIA said crude inventories fell by a smaller than forecast 447,000 barrels.

Separately, US President Biden’s national security adviser Jake Sullivan released a statement calling on OPEC+ to lift oil production to help curb higher gasoline prices. Sullivan said that higher gasoline costs “risk harming the ongoing global recovery” and said they are engaging with relevant OPEC+ members on the importance of competitive markets in setting prices.

Cryptocurrencies held recent gains with Bitcoin trading north of $46,000. The world’s largest cryptocurrency is facing key resistance at the 50% Fibonacci retracement level of the April high to July low which comes in near $47,000.


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MARKET WRAP: FTSE rallies above 7,200, US CPI keeps Q4 taper on track

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