Must read: UK inflation, China GDP, gold, oil, Barratt Developments

GLOBAL MARKETS

The FTSE 100 has opened lower while the pound is trading higher after UK inflation remained unchanged in September, despite expectations for a slight drop.

Barratt Developments (LSE:BDEV) has slumped towards the bottom of the UK blue chip index after warning of an ‘uncertain’ outlook. Meanwhile, Whitbread (LSE:WTB) is trading at the top of the leaderboard after reporting a jump in earnings and announcing a share buyback. 

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China’s third-quarter GDP grew by 4.9% year-on-year, ahead of forecasts for 4.4%, as stimulus from Beijing helped to offset pressures from its sluggish post-Covid recovery and woes in its property sector. China’s retail sales also grew in September by 5.5% year-on-year up from 4.9% in August. 

Gold has rallied to a one-month high, driven by safe-haven demand as the Israel-Hamas war sparks nervousness among investors, boosting global appetite for safety assets like precious metals. Oil prices are staging gains, with both WTI and Brent crude higher by over 1.5% as the conflict intensifies following a strike at a hospital in Gaza. This has resulted in the cancellation of a diplomatic summit in Jordan between US, Palestinian, Jordanian and Egyptian leaders. 

With US earnings season in full swing, The Goldman Sachs Group Inc (NYSE:GS) shares ended Tuesday’s session lower after reporting a 36% slump in third quarter profits following a loss on the sale of its home improvement lending platform GreenSky. It also suffered writedowns on its property investments amid the rising interest rate environment. 

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Tesla Inc (NASDAQ:TSLA) and Netflix Inc (NASDAQ:NFLX) are among the companies due to report later today.

UK INFLATION 

The UK consumer prices index rose by 6.7% in the 12 months to September, the same rate as August, and above expectations for a drop to 6.6%. Core inflation, which strips out the more volatile components like energy, food, alcohol, and tobacco, also came in hotter than expected at 6.1% vs forecasts for 6% but down from 6.2% in August. On a monthly basis both CPI and core CPI rose by 0.5%, matching forecasts. Services inflation unexpectedly increased to 6.9% in September from 6.8% in August. 

The unchanged CPI inflation rate between August and September reflects offsetting contributions from different divisions. There were large downward effects from food and non-alcoholic beverages, furniture, and household goods. But this was largely offset by upward contributions from transport, restaurants, and hotels. 

Inflation was spurred by the rising price of motor fuels following a rally in oil prices between June and September. The average price of petrol increased by 5.1p per litre between August and September. Plus, restaurants and hotels inflation hit 8.6% in September, up from 8.3% in August, also contributing towards September’s price pressures. 

Meanwhile, food and non-alcohol drink prices fell on the month for the first time since September 2021, easing slightly but still at historically high levels at 12.2% in September versus 13.6% in August, easing for the sixth consecutive month. There were also negative contributions from the cost of household appliances and airfares. 

Despite this morning’s figure, Chancellor Jeremy Hunt said inflation rarely falls in a straight line and he expects it to ‘keep falling this year.’ 

Today’s readings indicate that inflation is proving to be stickier than hoped. It is stuck sharply above the 2% target and is the highest among G7 countries. Rising oil prices have pushed motor fuel prices higher, offsetting to some extent the impact of the Bank of England’s aggressive stream of rate increases on the headline rate of inflation.

Further increases in oil prices could derail inflation’s path back down towards more normal levels and could also potentially pave the way for further monetary tightening from the central bank. However, October’s inflation reading is likely to drop considerably, thanks to the lower Ofgem energy price cap which will help reduce household energy bills. 

Sterling rallied after the higher-than-expected inflation reading, suggesting that there is an increased likelihood of another rate hike next month, although most still believe the central bank will keep rates on hold in November. 

BARRATT DEVELOPMENTS 

Barratt Development CEO David Thomas said as part of the company’s AGM update, “the trading environment remains difficult, with potential homebuyers still facing mortgage challenges.” The company expects to deliver total home completions of between 13,250 and 14,250 in the full-year 2024 and kept its 2023 guidance unchanged. Net private reservations per average week hit 169 between July and October, down from 188 a year ago. 

Shares in Barratt Developments have been struggling lately, extending losses in today’s session, retreating from the May highs and down around 15% in the past six months. Investors have been cautious towards the housebuilders because of the confluence of pressures from falling house prices, build cost inflation, and a squeeze on mortgage affordability that looks set to stay given the ‘higher for longer’ interest rate environment. Despite this, there is still a chronic shortage of housing supply in the UK, stemming an even steeper downturn in the housing market.