FTSE 100 winners, inflation, interest rates and mortgage costs

Inflation figures for March showed the annual rate of CPI lifted to 3.3% from 3% in February. 

Inflation and interest rate uncertainty amid the continued backdrop of $100 oil today ensured the FTSE 100 index extended its run of sideways trading to an 11th session.

While the blue-chip benchmark is still 6.2% higher than its Iran war low point on 23 March, it has been stuck in a narrow range since topping 10,600 on 8 April and remains more than 3% below where it was prior to the conflict starting at the end of February.

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Attacks on three ships in the Strait of Hormuz today offset US President Donald Trump’s extended ceasefire as Brent crude returned to $100 a barrel and the FTSE 100 slipped 10.74 points to 10,487.55.

In contrast to the UK’s top flight, Tokyo’s Nikkei 225 is up 15% since 23 March and slightly higher than before the war. The revival of the AI trade and a strong earnings season has lifted the Nasdaq by 7% since the war started and the S&P 500 index by 2.7%.

Global stock markets since Iran war began

Source: ShareScope. Past performance is not a guide to future performance.

Those favourable US tech trends have been reflected in the best-performing FTSE 100 stocks since the war started, with Sage Group (The) (LSE:SGE), Scottish Mortgage Ord (LSE:SMT) and Pearson (LSE:PSON) among 10 stocks up by double-digit percentages over that period.

Polar Capital Technology Ord (LSE:PCT) and Scottish Mortgage, which includes SpaceX and the semiconductor firms ASML Holding NV (EURONEXT:ASML), Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM) and NVIDIA Corp (NASDAQ:NVDA) in its portfolio, have both rallied by more than a fifth since the conflict’s low point on 23 March.

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Quality compounder Diploma (LSE:DPLM) has posted a war-time rise of 22%, which is the best in the FTSE 100 and just ahead of the 20% gain for BP (LSE:BP.) after its balance sheet deleveraging efforts were boosted by the higher-for-longer oil price environment.

Top 10 FTSE 100 performances since Iran war low

Source: ShareScope. FTSE 100's reached its lowest since Iran war began on 23 March. Past performance is not a guide to future performance.

With energy flows from the Middle East heavily disrupted, UBS Global Wealth Management said today that its base case is for Brent crude to stay above $90 a barrel until the end of year.

Inflation figures for March today showed UK pump prices rose by 8% month-on-month, with domestic heating oil up by 90.5% as the annual rate of CPI lifted to 3.3% from 3% in February.

The headline rate was in line with City expectations, with little sign of any accompanying upward pressure on core prices.

While April’s figure is set to fall as big hikes in regulated prices drop out of the annual comparison, economists are braced for inflation to surge back towards 4% later in the year.

As well as higher energy and fuel costs, they will be watching the movement of food prices and the impact of higher shipping costs and plastic prices on the inflation picture.

The Ofgem utility price cap is seen rising by 15% month-on-month in July and by 3.5% in October, which Capital Economics estimates will add a cumulative 0.7 percentage points to the inflation rate.

The consultancy added: “We expect CPI inflation to climb to about 4% in November. That said, with economic growth weak and the labour market still fragile, we think second-round effects will be limited and interest rates will remain unchanged at 3.75% this year.”

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The next meeting of the Bank of England takes place on 30 April, when policymakers are expected to keep interest rates on hold.

Analysts at Jefferies point out that the bar for interest rate hikes appears high, given that price hikes and the recent rise in gilt yields will serve to further tighten financial conditions.

It said this was in contrast to current market pricing, which continues to imply one to two additional rate increases from the Bank of England.

Jefferies said today: “Higher energy costs raise near‑term inflation risks, but with demand weak and policy already restrictive, the data do little to justify further tightening. We continue to expect the Bank of England to remain on hold, despite markets pricing one to two additional hikes.”

The average mortgage rate recorded by Moneyfacts surged from 4.89% at the start of March to 5.76% on 8 April but has since slipped to 5.73% amid cuts by lenders including NatWest Group (LSE:NWG).

However, the strain on mortgage affordability and impact of rising costs have left the shares of Barratt Redrow (LSE:BTRW) and Persimmon (LSE:PSN) down by 27% and 24% since the war started and unchanged since the start of the recovery on 23 March.

Other hard-hit stocks since the start of the conflict include B&Q owner Kingfisher (LSE:KGF) and the consumer healthcare products firm Haleon (LSE:HLN) following declines of 20% and 15% respectively.

Just over a third of the FTSE 100 has lost 6% or more since the end of February, including Rolls-Royce Holdings (LSE:RR.) following a reverse of 13%. Marks & Spencer Group (LSE:MKS) is down 11%, British Airways owner International Consolidated Airlines Group SA (LSE:IAG) off 9% and AstraZeneca (LSE:AZN) down by 6%.