LONDON MARKETS: FTSE 100 Leaps Past 7,500 As Pound Dragged By Rate Outlook

By Carla Mozee, MarketWatch Features Dow Jones Newswires

Vodafone and oil shares rise

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U.K. blue-chip stocks leapt to record highs Tuesday, aided by a drop in the pound despite British inflation hitting its strongest level in more than three years.

The FTSE 100 index hit an intraday high of 7,505.46, marking the first time it's reached 7,500. It has since pulled back slightly, rising 0.5% to 7,494.30. Only the utility and tech sectors were in the red.

The London benchmark on Monday closed at a record high of 7,454.37 (http://www.marketwatch.com/story/oil-mining-shares-lead-ftse-100-toward-another-record-high-2017-05-15), bolstered by gains for commodity shares.

Sterling and inflation: The FTSE 100 surged above 7,500 came after the pound dropped below $1.29 even as data showed inflation in April increased to 2.7%, the highest since September 2013 (http://www.marketwatch.com/story/uk-inflation-rate-at-fastest-since-2013-2017-05-16). That outstripped expectations for a rise to 2.5%.

"The pound is in the currency market equivalent of a Catch-22. In theory, it should surge on the back of an above-consensus number like this, but in practice interest rates aren't going anywhere and the markets know that," wrote Berry FX founder Richard Berry in a note.

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"The Bank of England would sooner tolerate above-average inflation than risk raising rates, which could offer an instant threat to what remains a highly leveraged economy," he said.

The Bank of England last week left the benchmark interest rate at 0.25%. Policy makers said inflation could reach about 3% this year, driven by the decline in sterling in the run-up to and after the U.K.'s June 2016 referendum on leaving the European Union. Carney said British households would face tougher conditions this year, as consumer prices rise while the pace of wage growth has slowed.

The pound fell to $1.2884 from an intraday high of $1.2956 after the inflation data. Pound weakness benefits foreign-denominated profit made by multinational companies listed on the FTSE 100.

Movers: Vodafone shares (VOD.LN) climbed 3.9% as the telecom forecast profit growth (http://www.marketwatch.com/story/vodafone-forecasts-stronger-profit-growth-2017-05-16-3485299) in the current year after hitting its organic growth target for fiscal 2017. Vodafone also raised its final dividend by 2% but posted an annual loss of 6.1 billion euros ($6.73 billion).

EasyJet PLC shares (EZJ.LN) dropped 5.7% after the budget carrier's six-month net loss widened to 192 million pounds (http://www.marketwatch.com/story/easyjet-loss-deepens-as-brexit-hit-pound-bites-2017-05-16) ($248 million). The airline said weakness in sterling against the dollar and euro shaved GBP82 million off the bottom line.

Oil producers BP PLC (BP.LN) (BP.LN) and Royal Dutch Shell PLC (RDSB.LN) (RDSB.LN) were up 0.8% and 0.9%, respectively, adding to their advances on Monday.

Oil prices on Tuesday were building on two-week highs after energy ministers from Saudi Arabia and Russia on Monday said they backed a nine-month extension of OPEC-led production cuts (http://www.marketwatch.com/story/oil-prices-add-to-gains-with-investors-cheered-by-opec-news-2017-05-16).

(END) Dow Jones Newswires

May 16, 2017 07:23 ET (11:23 GMT)