European stock markets climbed higher on Wednesday despite the UK inflation rate rising by 5.5% to a new 30-year high.

In London, the FTSE 100 (^FTSE) edged just 0.1% higher after opening, held back by a firmer pound, while the CAC (^FCHI) jumped 0.4% and the DAX (^GDAXI) was 0.4% up.

The Office for National Statistics (ONS) revealed that price falls in clothing and footwear, and transport, led to the largest downward contributions to the monthly rate in January.

Meanwhile the main offsetting upward contributions to the monthly rate came from housing and household services, food and non-alcoholic beverages, and alcohol and tobacco.

On a monthly basis, CPI fell by 0.1% last month, compared with a fall of 0.2% in January 2021.

The news pushed higher against the dollar (GBPUSD=X) after the latest inflation data boosted expectations of aggressive interest rate rises from the Bank of England (BoE).

Sterling was up 0.2% against the dollar at $1.3558, however, against the euro, it was little changed at 83.9p.

“The FTSE 350 behaved exactly as you would expect as UK inflation hit a 30-year high at 5.5%. Many of the top risers and fallers are affected by the rising cost of living,” says Danni Hewson, financial analyst at AJ Bell.

“Among the risers, banks including NatWest (NWG.L) got a lift as higher inflation strengthens the argument for higher interest rates, which in turn would benefit the sector’s earnings. Banks could see a boost in their net interest margin, the difference between the rate they charge for loans and the interest they pay on savings deposits.

“Commodity prices tend to go up in an inflationary environment which explains why mining group Anglo American (AAL.L) was among the top risers on the FTSE 350."

Across the pond, S&P 500 futures (ES=F) were up 0.2%, Dow futures (YM=F) also rose 0.2%, and Nasdaq futures (NQ=F) were 0.2% higher as trade began in Europe.

Investors will have their eyes on US macro data with the latest retail sales numbers for January as well as the latest FOMC minutes.

US retail sales expectations are for a rebound of 2%, after the slide of -1.9% in December.

Michael Hewson of CMC Markets said: “This optimism is based on better wage growth, which has been much more resilient and has been rising consistently for two to three months, while jobs growth has also been solid, defying some of the gloom around the spread of Omicron, although consumer confidence has been weak.

“Nonetheless the decline in December retail sales along with a weaker revision for November of -0.2%, could merely have been a result of US consumers purchasing all their Christmas presents early in October, when sales rose by 1.8%, due to concerns about supply chain disruptions.”

Asian shares rose on Wednesday, buoyed by hopes for a diplomatic solution instead of a Russian invasion of Ukraine. However, analysts warned that the tensions were far from completely resolved as the situation remains volatile.

In Japan, the Nikkei (^N225) climbed 2.2% while the Hang Seng (^HSI) gained 1.5% and the Shanghai Composite (000001.SS) rose 0.6%.

© 2022 LeackStat.com