Must read: central banks, BT, oil, UK inflation, Inditex

With the first of a series of interest rate decisions just hours away, our head of investment rounds up latest events, including news on the cost of living here in the UK.

GLOBAL MARKETS 

European markets have opened lower amid cautiousness ahead of a slew of key central bank decisions from the Federal Reserve, the European Central Bank and the Bank of England. The Federal Reserve is likely to raise rates by 50 basis points at the conclusion of its meeting this evening as the pace of tightening looks set to slow as inflationary pressures ease. 

The FTSE 100 is trading below resistance at 7,500, with Ocado Group (LSE:OCDO) and Taylor Wimpey (LSE:TW.) towards the bottom of the basket while BT Group (LSE:BT.A) is at the top of the UK index after unveiling ‘Equinox 2’ its wholesale fibre off, which has been submitted to the regulator Ofcom. 

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Bullish momentum stateside carried forward to the Asian trading session after US inflation slowed for a fifth straight month in November to hit the lowest level since December of last year.

Oil prices are trading modestly higher with Brent crude back above $80 a barrel, logging its best daily gain in over a month. Softer US inflation data prompted a depreciation in the US dollar, which has supported Brent and WTI.

UK INFLATION 

The UK’s annual inflation rate fell from a 41-year high in October of 11.1% to 10.7% in November, which was better than analysts’ were expecting for 10.9%. Transport inflation fell for a fifth consecutive month, with easing prices of motor fuels and second-hand cards. Fuel inflation fell from 22.2% in October to 17.2% in November. Some of the easing was also because of a technicality relating to a change last year in how the figure is calculated. Offsetting this to some extent were higher prices for alcohol in restaurants, cafes, and pubs. 

November’s reading is the first indication that inflationary pressures in the UK could be starting to ease after a year and a half. Whether we are past the peak is yet to be seen, with inflation still stubbornly high and in double digits, and sharply above the Bank of England’s 2% target. The central bank is likely to raise interest rates again tomorrow in an attempt to cool economic activity and temper inflation. 

Pressures on the cost-of-living are still acute, with wages failing to outpace inflation, resulting in a drop in the affordability of goods and services in our economy. This has resulted in widespread strikes across many industries as the summer turns into the winter of discontent among workers.

INDITEX 

The parent company of Zara reported a 24% jump in nine-month profit to 3.1 billion euros. Sales were up 19% year-on-year over the period but Industria De Diseno Textil SA (XMAD:ITX), or Inditex, said November and December sales growth slowed to 12% year-on-year amid pressures on the consumer. 

The fashion retailer is known for its competitive pricing and its ability to move nimbly to offer the latest trends to consumers. This helped Zara’s parent company enjoy strong top and bottom-line growth during the first three quarters of the year.

However, Inditex is not immune to the deteriorating economic outlook, with the threat of recession in the UK, Spain and elsewhere putting pressure on the consumer and weighing on sales during the all-important run-up to Christmas. Zara has been trying to attract customers at the higher end who are less sensitive to cost-of-living pressures. It has been branching out into higher priced product ranges including skiwear and lingerie. 

Although shares had a tough start to the year, since the September lows when risk appetite started to return to stock markets, Inditex has been staging gains, rallying by more than 20%. Investors are cheering Inditex’s update today, with shares extending the recent rally.