It was a classic risk-on session on both sides of the Pond on Wednesday as lower-than-expected readings on both headline and core consumer prices in the US for July, stoked hopes that a peak in price gains might now be in the rear-view mirror.
Automobiles as well as Non-Life and Life Insurance paced gains, alongside a jump in interest rate sensitive Household Goods and Homebuilders’ shares.
Going the other way, defensives including Electricity and Pharma were all to be found at the bottom of the pile.
Longer-term Gilt yields reversed the drop seen immediately after the CPI data was released, but not Sterling, which put on 1.39% against the Greenback.
Strength in Sterling dragged on the FTSE 100 but the second-tier index ended the day up by nearly 2%.
In tandem, gauges of stockmarket volatility were sharply lower.
The falling price of petrol was responsible for the bulk of the slowdown in the headline Consumer Price Index from 9.1% year-on-year for June to 8.5% in July.
But core CPI also surprised with a 5.9% increase, which was unchanged from the prior month, but below forecasts for a rebound to 6.2%, thanks to downside surprises in core goods prices including for apparel and used cars.
Fed funds futures shifted back in the wake of the data and were left pricing in a 50 basis point interest rate hike as the most likely outcome of the US central bank’s next policy meeting in September, instead of 75bp.
Economists were nonetheless cautious, telling clients that risks remained, not least from the US jobs markets or the possibility of new supply shocks.
Top performing sectors so far today
Automobiles & Parts 1,927.30 +5.34%
Non-life Insurance 3,101.38 +4.32%
Industrial Transportation 3,521.80 +4.30%
Life Insurance 6,971.63 +3.88%
Household Goods & Home Construction 12,800.95 +3.73%
Bottom performing sectors so far today
Electricity 11,028.02 -2.75%
Pharmaceuticals & Biotechnology 20,760.32 -1.93%
Gas, Water & Multiutilities 6,283.47 -1.02%
Telecommunications Service Providers 3,003.29 -0.92%
Tobacco 34,888.42 -0.71%