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LONDON MARKET CLOSE: BoE cut hopes rise; Powell warns on US inflation

The FTSE 100 ended higher in London, with hope of UK interest rate cuts in the summer picking up, while US stocks were largely higher despite an inflation caution from the Federal Reserve chair.

Investors also had a trade war worries to contend with, as the US slapped tariffs on billions worth of Chinese imports, including in the electric vehicle and chip spaces.

The FTSE 100 index rose 13.14 points, 0.2%, at 8,428.13. The FTSE 250 added 58.18 points, 0.3%, at 20,618.52, and the AIM All-Share rose 3.07 points, 0.4%, at 789.73.

The Cboe UK 100 rose 0.2% to 841.96, the Cboe UK 250 also added 0.2% at 17,913.43, and the Cboe Small Companies climbed 0.6% to 16,125.75.

In European equities on Tuesday, the CAC 40 in Paris ended up 0.2% while the DAX 40 in Frankfurt fell 0.1%.

Sterling was quoted at $1.2582 at the time of the London equities close Tuesday, up from $1.2552 on Monday. The euro traded at $1.0818, up from $1.0791 late Monday. Against the yen, the dollar was quoted at JP¥156.41, up from JP¥156.21.

Lifting sentiment in London, the Bank of England’s top economist has boosted hopes of lower borrowing costs after saying it is ‘not unreasonable’ to expect the bank to consider cutting interest rates over the summer.

Huw Pill, the BoE’s chief economist, told an online event organised by the accountancy body ICAEW that the bank could consider cutting rates if inflation continues to ease off.

Pill said: ‘I think it’s not unreasonable to believe that through the summer we will begin to see enough confidence in the decline in persistence that bank rate will come into consideration.’

BoE Governor Andrew Bailey said last week that a rate cut in June could not be ‘ruled out’, although he stressed it was not a ‘fait accompli’.

His comments came as the bank held rates at 5.25%, keeping them at the highest level since 2008, but were widely seen as strengthening the case for a cut.

Pill said the UK jobs market was still tight by historical standards, even though latest official data also out Tuesday showed the unemployment rate rising to its highest for nearly a year, at 4.3% in the three months to March.

According to the Office for National Statistics, the UK unemployment rate in the three months to March ticked up to 4.3% from 4.2% in the three months to February. The reading landed in line with FXStreet-cited market consensus.

The ONS said average earnings excluding bonuses rose 6.0% on-year in the period, matching the pace of growth in the three months to February. Including bonuses, wages increased 5.7%, also matching the prior month, which was revised upwards from 5.6%. Market consensus had been anticipating a rise of just 5.3%.

In New York, the Dow Jones Industrial Average was flat at the time of the London equities close. The S&P 500 was up 0.2%, while the Nasdaq Composite added 0.4%.

Federal Reserve Chair Jerome Powell said that hot US inflation data has lowered his level of confidence that price rises will slow back down towards the bank’s long-term target.

‘The first quarter in the US was notable for its lack of further progress on inflation,’ the head of the US central bank said during an event in the Netherlands that was streamed online.

‘We did not expect this to be a smooth road, but these were higher than I think anybody expected,’ he continued. ‘And so what that has told us is we’ll need to be patient and let restrictive policy do its work.’

US producer price inflation picked up in April, as expected. US producer prices rose by 2.2% on-year in April, in line with expectations, after a 1.8% climb in March.

On a monthly basis, prices rose by 0.5% in April from March, following a 0.1% fall in March from February and beating expectations of a 0.3% rise.

Eyes now turn to Wednesday’s consumer price index data at 1330 BST.

Pepperstone analyst Michael Brown commented: ‘’Inflation week’ as some have dubbed it, has so far seen 2 out of 2 hotter than expected prints, likely leaving the market positioned in a hawkish manner ahead of the all-important US CPI report tomorrow. Firstly, on Monday, the latest survey of consumer expectations from the New York Fed pointed to a noticeable uptick in both short-, and longer-run metrics... Secondly, PPI, which came in hotter.

‘Risks to the April CPI figure appear to be relatively evenly balanced. While energy prices, driven primarily by gasoline, continued to rise on the month, food inflation was a touch soft, and used car prices also notched a relatively significant decline. Nonetheless, with the year-on-year headline CPI metric having surprised to the upside of consensus expectations for three straight months, plenty will be expecting another such beat of the 3.4% median expectation.’

The US is hiking tariffs on $18 billion worth of Chinese imports, targeting strategic sectors like electric vehicles, batteries, steel and critical minerals, the White House said.

The decision – which drew a fiery response from Beijing – comes as President Joe Biden gears up for a re-run of his 2020 contest with Republican rival Donald Trump in November’s election, with officials criticizing Trump’s record on trade as they made the announcement.

The tariff rate on EVs is set to quadruple to 100% this year, while the tariff for semiconductors will surge from 25% to 50% by next year, the White House said.

The action is aimed at encouraging China to ‘eliminate its unfair trade practices regarding technology transfer, intellectual property and innovation,’ it added.

In London, Vodafone rose 4.7% after reporting a return to growth in Germany, as it delivered full-year results slightly ahead of its expectations.

The Newbury, Berkshire-based telecommunications provider said pretax profit fell 88% to €1.62 billion in the financial year that ended March 31 from €13.07 billion the year prior.

Vodafone said this primarily reflects business disposals in the prior financial year, in particular the €8.6 billion gain on the disposal of Vantage Towers.

Revenue declined by 2.5% to €36.72 billion from €37.67 billion a year prior.

Chief Executive Margherita Della Valle said Vodafone was ‘delivering growth in all of our markets across Europe and Africa.’

She said the performance was ‘slightly ahead of expectations’ but stressed ‘much more still needs to be done.’

Currys surged 7.9%.

The electricals retailer raised full-year profit guidance after a reporting like-for-like sales returned to growth in the 16 weeks to April 27.

As a result, Currys expects full-year adjusted pretax profit will be £115 million to £120 million, up from guidance of at least £105 million before.

Chief Executive Alex Baldock said: ‘Our performance is strengthening, with good momentum in the UK&I, and with the Nordics getting back on track. Sales are now growing again, margins are benefiting from higher customer adoption of solutions and services, and cost discipline is good. All this means improved profits and, with our strong cash position, we’re well set up for the year ahead.’

On the Beach Group fell 14%. It said it expects to deliver ‘another record summer’, despite slower growth in the ‘value’ end of the travel market.

The Manchester, England-based beach holidays retailer also declared its first dividend since the Covid-19 pandemic, as it had guided back in December.

On The Beach reported pretax profit of £600,000 for the six months that ended March 31, swinging from a £5.9 million loss a year prior.

Revenue rose 11% to £80.8 million from £72.9 million, with booked total transaction value up 22% to £597.8 million from £491.7 million.

It said the premium market continues to perform strongly with total transaction value growth in 5 star holidays within the business-to-consumer segment of 41% on-year.

But the value market remains ‘more challenging’, reflecting cost of living pressures in the UK, with 1% TTV growth on-year.

The company declared an interim dividend of 0.90 pence after making no interim payout a year ago. It last paid a dividend before the Covid-19 pandemic, paying out 1.3 pence for the first half of financial 2019.

Gold was quoted at $2,351.24 an ounce at late on Tuesday afternoon, higher than $2,333.92 on Monday. Brent oil was trading at $82.25 a barrel, down from $83.07.

Before the US inflation data, Wednesday’s economic calendar has a eurozone gross domestic product reading at 1000 BST.

The local corporate calendar has annual results from luxury retailer Burberry, and half-year numbers from contract caterer Compass.

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