FTSE 100 Propelled Higher by Inflation Relief

Although UK inflation increased, gilts stabilised during the day, which underpinned the FTSE index, while a lower than expected US core inflation reading also helped to support confidence.

With a more positive Asian session and robust gains in European bourses at the open, the UK index moved sharply higher in early trading with a quick move back above the 7,000 level.

The latest UK inflation data was slightly higher than expected with an increase in the annual rate to 1.0% for September from 0.6% the previous month and the higher rate since November 2014. The underlying rate also increased slightly more than expected to 1.5% from 1.3%.

There was some relief that the data was not even stronger than expected and there was no significant negative reaction in the FTSE index, which continued to hold just above the 7,000 level.

Sterling was able to secure a more positive tone during the session and gilt yields also declined slightly, which helped underpin sentiment.

Comments from the UK Attorney General that any Brexit deal would probably have to be ratified by parliament helped soothe market nerves and triggered a rally across all UK asset classes, although uncertainty remained elevated.

Energy prices maintained a positive tone during the European session, which also provided net support to the UK equity market.

The headline US CPI data was in line with expectations with a 0.3% monthly increase as energy prices strengthened on the month and the annual increase rose to 1.5%, which was the strongest increase since October 2014.

The core increase was below expectations with a 0.2% monthly gain, which held the annual increase to 2.2%.

Wall Street indices made a robust start, but failed to hold the best levels as energy prices retreated significantly from intra-day highs.

In this environment, the UK index was also dragged form its best levels, although US equities found good support at lower levels and rallied ahead of the London close.

At the close, there was an FTSE gain of 52.51 points and 0.76% at 7,000.06.

The latest UK labour-market data and Chinese GDP data will be watched closely on Wednesday, although the movements in energy prices may have a greater short-term influence if Sterling maintains a more stable tone.

FTSE 100 Daily Chart

ftse18-10-16

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Tim Clayton

Tim is a contributing author to EconomicCalendar.com. He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.

Indices

NamePrice($)CommentChange($)Change %
S&P 5002,192+0.87+0.04%
NASDAQ5,256+4.55+0.09%
NYSE10,839+9.59+0.09%
FTSE 1006,730.72-22.21-0.33%
DAX10,513.35-20.70-0.20%
CAC 404,528.82-31.79-0.70%
EURONEXT 100872.00-5.61-0.64%
Nikkei 22518,426.08-87.04-0.47%
HANG SENG INDEX22,564.82-313.41-1.37%

Commodities

NamePrice($)Change($)Change %Comment
Light Sweet Crude Oil Futures,D47.48-0.01-0.02%
Gold Dec 161,175.70+8.80+0.75%
Silver Dec 1616.75+0.32+1.94%
Copper Dec 162.62-0.01-0.36%