The FTSE 100 has rebounded strongly and the rally is set to continue into the afternoon session as investor sentiment turns more positive, shrugging off the weaker inflation numbers from this morning. The FTSE is up 1.81%, adding 111pts to the index and is currently trading at 6257.80. The biggest mover on the index is Smiths Group, which has jumped 10% after the engineering group made significant changes so to its pension scheme.
The biggest loser today is EasyJet which fell more than 3.6% despite better than expected earning numbers. EasyJet said demand for European flights was buoyant and it’s reported that the airliner will order 36 more planes to drive its expansion, after reporting an 18% rise in pre-tax profits to a record £686m. However, shares sold off as profits missed analyst expectations of £689m, despite the fact that EasyJet has now seen record profits for six straight years. In the long-term, with depressed oil prices and a weaker euro we could see a strong performance in the airline industry as travelers head to Europe over Christmas.
UK’s CPI remains negative, but cannot stop the bulls
Earlier this morning we had the headline inflation numbers, which remained negative for a second consecutive month in October at -0.1, in line with analyst expectations. Despite the headline number, core inflation was better than expected which strips out volatile goods such as energy prices. Core inflation picked up slightly to 1.1% vs 1.0%, which helped strengthen the pound. Sterling is currently is staging a relatively strong comeback, with GBP/USD trading at 1.5217 as we go to print.
According to the ONS fuel prices fell by 14% on an annual basis, while food and drink prices fell by 2.7% in October and energy costs were 4.1% lower. In a statement from the BoE in its last quarterly inflation reports, it commented that it was unlikely to see inflation rise back to 1% in the second half of next year, whereas inflation will not reach its 2% target until 2018.
The latest numbers gives equity investors comfort that the BoE will not increase the benchmark borrowing rate anytime soon. However, it will be mindful of the risks of leaving interest rates lower for longer. For now, the markets will be focusing on a potential Santa Claus rally and the looming Fed hike in December.