Stocks rally as oil price fall provides relief

Stocks in London rallied on Wednesday despite news of higher inflation and an expected US rate increase, as oil prices edged lower.In London, the FTSE 100 index ended up 30.34 points, 0.3%, at 10,688.47. The FTSE 250 advanced 251.46 points, 1.1%, at 24,070.20, and the AIM all-share climbed 5.21 points, 0.7%, to 788.36.Brent oil was quoted at 104.54 dollars a barrel in London on Wednesday, down from 108.48 dollars late on Tuesday.Russ Mould, investment director at AJ Bell, said the oil price fall provided some “much-needed relief” to the market following an intense period that fired up inflation worries.“The dip in the commodity price might not be enough to steer the Federal Reserve on a different path, though. It is widely expected to raise interest rates today, with the first of potentially two or three hikes over the next six months,” he added.The US Federal Reserve announces its interest rate call at 7pm with a quarter-point rate increase widely forecast.Analysts at UBS said: “The decision represents a major policy test for Federal Reserve chairman Kevin Warsh, including his ability to build consensus and manage market expectations around the degree of guidance provided on the interest rate path ahead.”Ahead of the decision, bond yields eased back from recent highs. The yield on the US 10-year Treasury was quoted at 4.97%, narrowed from 5.01%. The yield on the US 30-year Treasury was quoted at 5.34%, trimmed from 5.37%.In European equities on Wednesday, the CAC 40 in Paris rose 0.6%, while the DAX 40 in Frankfurt added 0.5%.In New York, the Dow Jones Industrial Average was down slightly at the time of the closing bell in London. The S&P 500 rose 0.5%, and the Nasdaq Composite advanced 0.9%.Read MoreFigures in the US showed retail sales increased strongly in August.The US Census Bureau said retail and food services sales totalled 773.9 billion dollars in August, rising 1.2% from July and 6.0% from a year earlier. The monthly increase beat the FXStreet-cited consensus of 0.8%.Retail sales had fallen by a revised 0.5% on-month in July, compared with the previously reported 0.6% decline. For the three months from June through August, sales were 6% higher than in the corresponding period a year earlier.Ksenia Bushmeneva, economist at TD Economics, said retail sales had “roared back to life” in August following a disappointing performance in July.That said, headwinds are “mounting”, the analyst added, pointing to higher mortgage rates and the squeeze on households from higher energy prices.“This is likely to lead to some moderation in spending growth as we move into next year,” Ms Bushmeneva said.In London, investors digested the latest UK consumer price inflation figures from the Office for National Statistics.The ONS said consumer price inflation accelerated to 3.1% year-on-year in August from 2.9% in July, in line with market expectations cited by FXStreet.The increase was driven by higher transport costs, particularly motor fuel, as rising oil prices fed through to consumers.Core CPI, which excludes energy, food, alcohol and tobacco, rose 2.6% annually in August, unchanged from July and also matching market expectations.Sanjay Raja, Deutsche Bank’s chief UK economist, said: “Bottom line, inflation is on the ascent with an unknown destination. Events in the Middle East continue to add to inflationary pressures.“For the Bank of England, its job to keep inflation at 2% has become harder. Our own projections point to CPI on course to get close to 4% around the turn of the year. Rates may be restrictive, but the key policy question for the MPC will remain: are they restrictive enough.”The Bank of England announces its latest interest rate decision at noon on Thursday, with a hold thought to be the most likely decision, albeit with a split vote.Reflecting on the inflation figures, UK Prime Minister Andy Burnham said that he was ready to take “difficult decisions” ahead of the government’s coming budget.While acknowledging that the impact of the Middle East war on inflation was “a challenge”, he said the government “won’t take risks with people’s living standards”.The pound was quoted at 1.3449 dollars on Wednesday, down from 1.3485 dollars at the same time on Tuesday. Against the euro, sterling fell to 1.1658 euro from 1.1681 euro.The euro eased to 1.1537 dollars from 1.1545 dollars. Against the yen, the dollar was trading at 155.09 yen, slightly down from 155.12 yen.On the FTSE 100, Barratt Redrow led the risers, up 12%, after reporting mixed full-year results as the housebuilder looks to weather a tough backdrop for the sector.The Leicestershire, England-based housebuilder reported better-than-expected profit but trimmed its outlook for financial year 2027.Citigroup analyst Ephrem Ravi thinks that while lower financial 2027 volume guidance implies some downside risk to consensus earnings estimates, “strong sales momentum, synergy benefits and the sizeable buyback programme should help offset the earnings downside risk”.Lower bond yields also supported the sector, with Persimmon up 5.8% on the FTSE 100. On the FTSE 250, Bellway, Taylor Wimpey and Vistry rose 7.1%, 5.9% and 5.7% respectively.Mining stocks rose as metal prices climbed. Fresnillo, Antofagasta and Endeavour Mining advanced 2.2%, 2.7% and 1.6% respectively.But the weaker oil price saw BP and Shell give back some recent gains, closing down 2.3% and 2.1%.Gold was quoted at 4,345.07 dollars an ounce on Wednesday, up from 4,285.70 dollars on Tuesday.The biggest risers on the FTSE 100 were Barratt Redrow, up 32.4p at 308.8p; Persimmon, up 63.5p at 1,162p; Burberry, up 31.4p at 1,009p; SSE, up 68p at 2,401p; and Babcock International Group, up 27.9p at 1,021.5p.The biggest fallers on the FTSE 100 were St James’s Place, down 28p at 1,085p; BP, down 13.5p at 566.8p; Shell, down 76p at 3,576.5p; Metlen Energy & Metals, down 0.9p at 45.7p; and Compass, down 0.4p at 30.9p.Thursday’s local corporate calendar has half-year results from retailer Next, and a trading statement from student accommodation provider Unite.Thursday’s global economic calendar has an interest rate decision in the UK, eurozone CPI data and US initial jobless claims figures.Contributed by Alliance News.