MARKET WRAP: UK inflation at 10-year high, GBP rallies, FTSE falls

imageEconomy17 hours ago (Nov 17, 2021 16:22)

© Reuters.

Key Points

  • FTSE 100 closing price of 7290.85, -0.5%
  • UK CPI prints at a 10-year high
  • GBP higher after data
  • FTSE declines
  • Glencore higher after unit sale
  • Travel & leisure stocks lower amid rising COVID cases
  • Crude slips
  • Bitcoin remains below $60,000

By Samuel Indyk – The FTSE 100 slipped on Wednesday as increasing COVID cases in the UK and Europe and higher-than-expected inflation weighed on stocks.

UK CPI jumped to 4.2% in annual terms in October, the highest level in almost 10 years. The UK’s Office for National Statistics said the surge was driven by household energy bills as a price cap was lifted, a rise in second hand car prices, and increases in prices at restaurants and hotels. The higher inflation readings have prompted many analysts to pencil in a rate hike by the Bank of England at the December meeting.

“The latest inflation metrics further cement expectations for a move on rates next month after yesterday’s jobs data provided encouragement for the post-furlough labour market,” said Newsquawk Senior Market Analyst Adam Linton.

Other metrics of inflation were also at multiyear highs with PPI Output prices up 8% and input prices up 13%, the highest level since 2008.

The inflation data lifted GBP which traded at its strongest level against the EUR since February 2020, before the pandemic. EUR/GBP dropped below 0.8400 while GBP/USD traded at its highest level since November 10th.

The FTSE was lower following the data and as COVID cases have begun to rise again in the UK, while European cases are also on the up. Reports suggested Germany was looking to bring back tough restrictions, especially for the non-vaccinated.

This led to a decline in a number of Travel & Leisure stocks and those that benefit from national and international travel. Wizz Air (LON:WIZZ), SSE (LON:SSE), Restaurant Group (LON:RTN), WH Smith (LON:SMWH) and IAG (LON:ICAG) were some of the worst performing stocks in the FTSE 350.

Glencore (LON:GLEN) was one of the best performing stocks in the FTSE 100 after the mining company announced it had agreed to sell its Ernest Henry Mining copper & gold mine in Australia to Evolution Mining (ASX:EVN) for AUD 1 billion.

WTI and Brent crude futures were both trading lower as the increase in COVID cases could slow down the demand recovery. Today’s inventory data from the Department of Energy (DoE) did little to support prices. The DoE said crude stockpiles unexpectedly declined in the latest week by 2.101 million barrels, versus expectations for a build of 1.398 million. There was also a draw down in gasoline and distillate inventories. The data also showed that stocks in the Strategic Petroleum Reserve declined by 3.1 million barrels during the week.

Comments from the White House also weighed on prices with the Biden Administration writing to the Federal Trade Commission to investigate anti-consumer behaviour by oil & gas companies, which they suggest is keeping gasoline prices high.

Cryptocurrencies were mostly lower with Bitcoin continuing to nurse losses and trade below $60,000.

“Bitcoin is continuing to come under pressure this week and the correction could become more severe if we see a break of $58,000,” writes OANDA Senior Market Analyst Craig Erlam. “This is roughly where it found strong support at the end of October and given how much it’s struggled to make major strides higher since, it could be the catalyst for a deeper correction.”


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MARKET WRAP: UK inflation at 10-year high, GBP rallies, FTSE falls

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