FTSE 100 closes up as Wall Street pushes on to new highs ahead of trade deal

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  • FTSE 100 index finishes around 20 ahead
  • US stocks reach new highs
  • UK inflation hits three-year low

5.05pm FTSE 100 index closes to the good

FTSE 100 index finished ahead as US stocks pushed on to new highs but it was a muted day of trading in London.

Britain's blue chip index closed positively, propped up by defensive stocks, and finished at 7,642, up by around 20 points.

But the FTSE 250 fared less well, shedding nearly 43 points at 21,713.

It comes amid a drop in UK inflation, sparking talk of an interest rate cut by the Bank of England at the end of the month.

Elsewhere, the interim US-China trade deal remains the focus with the agreement due to be signed in the next few hours.

"While the deal will almost certainly help the US economy through increased Chinese demand, the decision the retain tariffs on Chinese imports does highlight a continued America first deal which seeks to benefit US growth at the expense of global prosperity," noted Joshua Mahony, senior market analyst at online trader IG Index.

"For those global exporters who had been hoping for a deal that kick-starts global trade, we are now looking at an environment where tariffs are likely to remain in place for the entirety of 2020," he added.

On Wall Street, the Dow Jones Industrial Average added over 160 points at 29,100. The S&P 500 added nearly 15 points at 3,298.

3.30pm: IAG hits out at UK government over Flybe rescue

The owner of British Airways, International Consolidated Airlines Group SA (LON:IAG), has complained to the European Union about the UK governments support for ailing regional airline Flybe, calling on the bloc to investigate whether the action violates its rules on state aid.

Willie Walsh, IAGs chief executive, said a support plan, which was reported to have involved the deferred payment of a tax bill and a possible loan from the government, amounted to “blatant misuse of public funds”. And will prevent airlines from competing on a level playing field.

There is, however, speculation that IAGs displeasure with Flybes potential bailout is connected to its old rival airline Virgin Atlantic, the ultimate owner of Flybe, as part of a feud dating back almost 20 years in which the two firms have traded insults, engaged in price wars, and questioned regulators over each others acquisitions.

IAGs shares were 1.2% lower at 639p in late-afternoon trading, while the FTSE 100 was flat at 7,622.

2.40pm: Wall Street opens in the green

Despite expectations of a slower start, US markets managed to move into positive territory shortly after the opening bell in New York on Wednesday despite a lacklustre reception for the US-China trade deal.

The Dow Jones Industrial Average was 0.16% higher at 28,984 in the first minutes of trading, while the S&P 500 climbed 0.19% to 3,289 and the Nasdaq rose 0.27% to 9,275.

Back in London, the positive start for the US seemed to have done little to move the FTSE 100, which was up 2 points at 7,624 shortly before 2.45pm.

2.00pm: FTSE 100 reverses course as US-China trade deal falls flat with investors

The FTSE 100 slipped was stagnant in mid-afternoon trading as traders did not seem best pleased with the finer details of the US-China phase one trade deal.

Investors seemed to take issue with the fact that the US will maintain existing tariffs on Chinese goods until after Novembers elections, while thornier issues such as intellectual property have been earmarked for a phase two deal further down the line.

Markets reacted with muted disappointment, with the FTSE 100 effectively flat at 7,621 at 2pm.

Away from trade, the US producer price index, which reflects the wholesale cost of goods and services, rose slightly in December by 0.1%, suggesting that the core of the US economy was seeing little risk of inflation building up.

The cost of goods rose 0.3% during the month, mostly down to higher petrol prices, while services costs, usually the more volatile segment, were unchanged.

The pipeline for the economy also showed little sign of rising inflation, with the cost of raw materials and partly finished goods falling 7.3% and 1.7% over the past year.

The lacklustre inflation is likely to provide more cover for the Federal Reserve to keep interest rates low and support slower US economic growth.

12.25pm: Wall Street to start lower ahead of US-China trade pact signing

The US markets look set for a lacklustre start on Wednesday as investors once again decided to keep their powder dry until the details of the US-China trade deal make their appearance at a signing ceremony later today.

Traders are likely to be on the look out for any specific details on tariff changes between the worlds two largest economies, as well as any benefits the Chinese have managed to extract from the Trump administration as recent disclosures have mostly highlighted benefits for the US.

“The finer details of the deal are expected to be made public later, so in the meantime, volatility is expected to be low. A huge amount of good news has already been factored into the equity markets, so it is understandable that things are quiet ahead of the agreement being made official. It was reported yesterday the tariffs will remain in place for at least 10 months after the signing of the deal, so US-China relations might settle down”, said CMC Markets David Madden.

Back in London, the FTSE 100 was 14 points higher at 7,636 in lunchtime trading.

11.35am: FTSE 100 sluggish in late-morning as traders await US-China trade deal reveal

As the morning portion of Wednesdays session drew to a close, traders seemed content to sit on their hands and await more details around the phase one trade deal between the US and China, with the FTSE 100 up just 7 points at 7,629 shortly after 11.30am.

“The big day has arrived and investors are, well, not quite sure what to do and whether there's actually much cause for excitement yet… We've been waiting for the signing ceremony for so long but there is a worry that, despite details of the deal being largely concealed, what we are hearing is a little underwhelming and may be already priced in, maybe even too much”, said OANDAs Craig Erlam.

“Of course, there's going to be lots of fanfare around the event itself, but the actual substance of the deal may not be what people hope. Of course, all we're relying on here is various reports and subtle comments but this looks far from the comprehensive deal Trump was initially seeking going into the election.”

“The various reports also appear to heavily favour the US which begs the question, what exactly does China get out of this? Either there's a lot more to be revealed or commitments on purchases and intellectual property etc, could be a little loose. Traders may also be disappointed by [US Treasury secretary Steven] Mnuchin's claim that there's no agreement on future tariff easing”, he added.

On the markets, online grocery firm Ocado Group PLC (LON:OCDO) was the biggest blue-chip riser in late-morning, up 2.8% at 1,339.5p, while insurer Prudential PLC (LON:PRU) was sitting at the bottom of the pile, falling 2.1% to 1,423.5p.

Meanwhile, the unexpectedly low UK inflation data had failed to spark any meaningful movement in sterling, which was essentially flat against the dollar at US$1.3021.

10.30am: Likelihood of BoE rate cut now over 60%, say analysts

The chances of a January interest rate cut by the Bank of England have now reached around 60% compared to around 50% yesterday in the wake of the UK inflation data, according to some analysts.

“Inflation was a fair bit weaker than expected in December and this will offer the necessary cover for the Bank of England to cut interest rates this month. I feel this may persuade a couple more on the MPC to cut now, to get ahead of the curve and not allow softer data to fester”, said Markets.coms Neil Wilson.

“Coming off the back of those weaker GDP and industrial production numbers, it does not look as though the economy was firing on all cylinders at the tail end of last year. While there may well be a Boris Bounce in the offing, I rather think the die is cast in favour of a rate cut”, he added.

Meanwhile, Olivier Konzeoue, FX sales trader at Saxo Markets, said a January rate cut will put putting “further pressure” on the pound, particularly if the UK economy fails to “bounce” in the first quarter of 2020.

However, Argentex FX strategist John Goldie warned that it was “dangerous to take the early-year UK data at face value – as they are backward looking and from a time of greater uncertainty in the face of No Deal risk and a General Election”.

With this in mind, he argued that the central bank could have a valid reason to hold fire until its next meeting in mid-March as this will allow the country to advance beyond the Brexit deadline and compile “another couple months data”.

Looking ahead, Share Centre research analyst Joe Healey said the “deciding factor” for a January rate cut could be the UKs flash PMIs, which are due on 24 January.

“Overall, I think these figures show the realisation that Brexit is not over and how growth is likely to remain sluggish moving forward until a clearer picture is presented. Businesses are still clouded by uncertainty and it is safe to say, if we continue to see no signs of a bounce, the question of a rate cut will shift from if to when”, Healey said.

The FTSE 100 was 13 points higher at 7,635 shortly before 10.30am.

9.50am: UK inflation unexpectedly slows to three-year low in December

Inflation in the UK has slowed unexpectedly in December, raising the possibility that the Bank of England could cut interest rates later this month.

The UK consumer price index (CPI) came in at 1.3% for the month, a three-year low and down from 1.5% in November.

The drop seemed to have confounded the expectations of most analysts, with RBC having predicted an increase to 1.6% while ING had forecast that inflation would have stayed put at 1.5%.

#UK #consumer #price #inflation down to 1.3 in December (1.5% in November), lowest since November 2016. Core inflation at 1.4% (1.7%). Likely to boost expectations #BOE #MPC could cut #interestrates to 0.50% on 30 January. Helpful for #consumers purchasing power

— Howard Archer (@HowardArcherUK) January 15, 2020

The decline was attributed to hotels slashing prices over the period as well as prices in womens clothing falling more than expected.

“A relatively mediocre Christmas trading period may go some way to explain why inflation is still languishing below its two percent target. In fact, retail footfall is said to have dropped by 2.5% throughout December, highlighting the challenging environment”, said Robert Alster, head of investment services at Close Brothers Asset Management.

“These figures back up outgoing Bank of England Governor Mark Carneys suggestion that there is clear headroom to cut interest rates to stimulate the economy if required. However, with Brexit-linked uncertainty improving and wage growth outstripping inflation, CPI could soon creep closer to target. This might make a rate cut more unpalatable”, he added.

The pound was 0.19% lower at US$1.2995 against the dollar in the wake of the data, however, the FTSE 100 had inched 18 points higher to 7,641 shortly before 10am.

8.30am: Cautious progress

The FTSE 100 index defied expectations to open its account in positive territory on Wednesday, although, that said, it was a quiet start with traders keeping their powder dry ahead of UK inflation data later in the morning that could help shape the narrative around a potential Bank of England interest rate cut later this month.

Additionally, there were a few nerves as the US and China readied to sign the long-awaited phase-one trade deal, a move towards normalising relations between the worlds two largest economic powers.

After 30 minutes of trading, the index of blue-chip stocks was 8 points to the good at 7,630.66.

“The US-China trade deal is like watching a live show in the theatre of the absurd,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank

“The Trump administration revealed a detail that nobody expected just before the signature of the phase-one trade deal today: the tariff cuts will not take effect before the US election in November.

“This means that the US tariffs will continue weighing on Chinese exports for almost an additional year, while the emerging market giant will certainly be asked to deliver on its promise to buy massive amounts of US farm goods and manufactured products immediately. The risk here is that the double-standard agreement could provide a weak basis for the future negotiations, impair the benefits, or even spoil the deal.”

Heading the list of blue-chip fallers was Royal Bank of Scotland (LON:RBS), down 1.6% amid the UK rate cut fears, and with reports of a downgrade in rating from fellow lender Barclay's investment banking arm.

Meanwhile, housebuilders Persimmon (LON:PSN) and Vistry Group PLC (LON:VTY) – formerly Bovis Homes – saw their 2019 trading updates greeted with a collective meh. The stocks were off 2.8% and 1.1% respectively.

Dropping down to the FTSE 250, a robust production update provided support for Hochschild Mining Plc (LON:HOCH), which led the midcap index with a 3% gain.

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