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Global stocks rallied on Wednesday as investors welcomed slowing inflation in the UK as the latest sign that central banks could soon stop raising interest rates.
London’s FTSE 100 jumped 1.9 per cent, its steepest one-day gain since November, as shares of UK property companies surged following signs that inflation was slowing and interest rates could peak lower.
The Europe-wide Stoxx 600 closed 0.3 per cent higher, extending gains from the previous session, while France’s Cac 40 edged up 0.2 per cent and Germany’s Dax ended the day flat.
In the US, Wall Street’s benchmark S&P 500 and the tech-focused Nasdaq Composite both added 0.4 per cent, as traders prepared for Tesla and Netflix to post the first tech sector results of this earnings season.
Both companies are among the heavyweights that have lifted the S&P almost 20 per cent since the start of the year, as artificial intelligence hype and expectations of peaking rates boosted tech sector valuations.
Meanwhile, Goldman Sachs shares advanced 1.6 per cent, even as the bank reported its lowest quarterly profit in almost six years, citing a slowdown in its investment banking and trading business.
The KBW index of bank stocks added 2.4 per cent on Wednesday and extended its gains from the previous session, when upbeat earnings news from Morgan Stanley and Bank of America lifted investor sentiment.
The results came at a time of heightened scrutiny of US lenders’ balance sheets, after the collapse of several regional banks in the spring sent shockwaves through the financials sector.
The moves came after the Office for National Statistics said the UK’s annual consumer price inflation eased to 7.9 per cent in June, from 8.7 per cent in the previous month, landing below analysts’ forecasts.
The reading ended a four-month streak of UK price growth readings that exceeded expectations, easing the pressure on the Bank of England policymakers who have already lifted interest rates to 5 per cent, their highest level since 2008.
“We finally got a much-needed and long-awaited cooling in UK inflation, which will come as a huge relief to both policymakers and the government,” said Jamie Dutta, market analyst at Vantage.
The figures come a week after slower than expected US inflation boosted global markets.
The FTSE 100 index of the largest London-listed companies has trailed far behind its peers in the region since the start of the year, as investors worried that sticky price pressures in the UK would force the central bank to keep interest rates higher for longer.
But the inflation reading on Wednesday pushed traders to bet that it is more likely that the BoE’s Monetary Policy Committee will lift rates by 0.25 percentage points at its next meeting in August, instead of another 0.5 percentage point increase.
The pound, which tends to weaken when investors expect lower interest rates, dropped 1.1 per cent against the dollar to trade at $1.2869, its lowest level in a week.
“One slower CPI print is not enough to cause a change in policy,” said Chris Beauchamp, chief market analyst at IG Group. “But [BoE governor] Andrew Bailey and his team will hope that it is the start of a tend.”
The yield on interest rate-sensitive two-year gilts dropped 0.2 percentage points to 4.89 per cent, while the yield on the 10-year gilt fell 0.13 percentage points to 4.21 per cent. Bond yields fall as prices rise.
Earlier, Asian equities had slipped, as China’s stalled economic recovery and the government’s slow rollout of stimulus measures weighed on market sentiment. The Hang Seng index dropped 0.3 per cent, while China’s blue-chip CSI 300 index slipped 0.1 per cent.
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