- Cost of living jumps to 3.6%, led by stubborn fuel prices.
- Bank of England predicts the increase will be temporary.
- Sterling rises in response, betting that future interest rates cuts could be smaller or slower.
- Nvidia benefits from reports of US export licence grants.
Steve Clayton, head of equity funds, Hargreaves Lansdown:
“With the corporate interim results season yet to kick off in earnest, today was always going to see investors turning their attention to economic news, and today’s inflation release gives them good reason to do so. The FTSE opened up 3.2% but European markets had a weaker start to today’s session.
The headline pace of cost-of-living increases picked up to 3.6% in June, up from 3.4% the previous month. The Office for National Statistics highlighted fuel prices as the main driver of the increase. Fuel prices are actually going down, but not as quickly as they were a year ago, which means that increases elsewhere are felt more acutely in the overall figure. Services pricing remains stubbornly strong too, with the pace of service price inflation sticking at 4.7%.
So far, the Bank of England has held to the view that rising unemployment will drag inflation back down later in the year. But traders will fret that cutting rates while prices are accelerating may be asking too much of the Bank’s confidence in its own predictions.
Sterling has reacted positively to the news, with investors betting that the news could push rate cuts further out into the future. The pound has risen to just over $1.34, putting an end to now for the weakening trend that we have seen in the last few trading sessions.
Elsewhere, crude oil was firming to around $69.0 per barrel in the Brent crude future’s markets, with attention more focused on the US WTI oil marker which is currently trading almost 50 cents firmer at $66.98.
Asian markets have had mixed trading overnight, with modest gains in Hong Kong but losses of up to 0.9% in the Korean KOSPI index. Taiwan is bucking the trend with the local index up 0.9%, driven by gains in the shares of Taiwan Semiconductor Manufacturing Corporation (TSMC), boosted by its client NVIDIA’s comments on exports to China.
Wall Street was a little weak last night, but there was no holding Nvidia back. Having recently claimed the crown of World’s Most Valuable Company, the $4 trillion market cap tech giant powered ahead by a further 4% last night on reports that the US is set to allow the group to resume selling some of its most advanced chipsets into China.”
