Must read: UK inflation drop boosts stocks, Fuller Smith & Turner

GLOBAL MARKETS

Risk-on sentiment is fuelling gains for global equities. European markets are trading higher, with the FTSE 100 leading the gains, up over 1% to hit a one-month high after UK inflation fell sharply in October.

This follows strong gains on Wall Street with the Nasdaq surging 2.37% to log its best day since April after US CPI fell by more than expected to 3.2%, inching closer to the 2% target and driving hopes that the Federal Reserve could be at the peak of its rate hiking cycle. 

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Overnight, markets in Asia also rallied sharply, with the Hang Seng gaining nearly 4%. China’s factory output and retail sales figures came in stronger than expected.

UK INFLATION

UK CPI inflation dropped by more than expected in October to 4.6% from 6.7% in September, hitting a two-year low. Core inflation also fell to 5.7%, the lowest level since March 2022. 

Energy costs have been coming down over the last year following the crisis in 2022 and a reduction in the energy price cap, with gas costs down 31% and electricity costs down 15.6%. However, both remain higher over a two-year period. Food and non-alcoholic drinks inflation eased for the seventh straight month to 10.1%, the lowest level since June 2022 with milk, cheese, eggs, yoghurt, and crisps prices falling. Restaurant and hotel prices have been coming down too. 

Prime Minister Rishi Sunak’s goal of halving inflation this year has been achieved ahead of schedule. While he is likely to claim the drop in inflation as a win for his government, it has mostly been driven by factors outside of Sunak’s control such as the drop in energy prices after last year’s spike following Russia’s invasion of Ukraine, price cuts from supermarkets, restaurants and hotels to boost demand amid the sluggish consumer backdrop, and rising interest rates from the Bank of England that have encouraged saving and deterred spending and borrowing in the economy. 

The Bank of England will be encouraged by today’s lower-than-expected inflation readings both at the headline and core levels, with the central bank increasingly likely to keep rates on hold for the third consecutive time at its next decision meeting. Reflecting this expectation, the pound is under pressure today against the US dollar and the euro, and the yield on the 10-year UK gilt has fallen to the lowest level since the start of June. UK housebuilders like Barratt Developments (LSE:BDEV), Taylor Wimpey (LSE:TW.) and Berkeley Group Holdings (The) (LSE:BKG) are trading sharply higher too amid broader gains for UK equities and growing risk appetite. 

The central bank’s 14 straight rate hike prior to September’s pause continue to make their way through the economy. But with the Bank of England either at or very close to the peak of the rate hiking cycle, some mortgage lenders have been improving their offers, with two-year fixed mortgage deals dipping below 5% for the first time in five months.

FULLER, SMITH & TURNER 

Fuller Smith & Turner Class A (LSE:FSTA) reported at 12% rise in half-year revenue to £188.8 million, up from £168.9 million in the same period last year. Adjusted profit before tax increased by 48% to £14.5 million. The company expects a good Christmas, with current bookings 11% ahead of last year already. It also sharply increased its interim dividend and launched a new share buyback, both wins for its shareholders. 

The pubs and hotels group has benefitted from office workers returning to their desks, particularly in the Square Mile as well as higher leisure spending on weekends. It expects increased international tourist spending ahead, although tourism is still below pre-Covid levels. 

This is an optimistic update from a company that has struggled with strikes, the shift to working from home, inflationary cost pressures, a weak consumer and supply chain issues. However, the pub group is gearing up for a strong festive season and is returning cash to shareholders in a vote of confidence in the group. Reflecting this, the stock is up around 4.5% today, extending recent gains with shares rallying around 25% since the start of January.