The FTSE 100 and European stocks closed higher this Monday as markets looked ahead to the latest inflation data this week, while Europe’s economy is expected to avoid falling into recession this year.
Across the pond, Wall Street pushed higher as investors take stock ahead of Tuesday's consumer price index release that could confirm the inflation battle isn't over.
The Bureau of Labor Statistics is set to release its consumer price index report for January on Tuesday, which is expected to show a slowdown in price rises.
However, there is a risk that markets will be surprised by disappointing figures.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank said: “If US inflation hasn’t eased, or eased enough, or God forbid, ticked unexpectedly higher on yearly basis, we could rapidly see the post-NFP optimism, and the pricing on the goldilocks scenario to leave its place to fear and chaos.
“So, investors are holding their breath before they see how the recent developments impacted the US inflation, and how the US inflation will impact the Fed expectations and the market sentiment.”
Lifting sentiment, a survey showed UK employers expect to raise wages for their staff by the most in at least 11 years.
Richard Hunter, head of markets at Interactive Investor, said the FTSE 100 has benefited from a switch towards defensive companies by investors.
"Such a fallback option has served the UK’s primary index well over the challenges of the last year as investors hunker down in the face of potential recessionary and particularly inflationary pressures" he said.
"The market’s initial move higher was achieved despite another small raid on the housebuilding sector where rising interest rates, concerns over mortgage availability and affordability and recently cautious comments from some of the leading names have added to the mix. Even so, the FTSE 100 remains ahead by 6% so far this year and still one of the favoured global investment destinations."
Investors will be looking ahead to US inflation data due on Tuesday, while the UK consumer price index will be released later this week.
Neil Wilson, chief market analyst, at markets.com, said: “If the market thinks inflation is coming down, then any print that points in the opposite direction will have a very severe disruptive effect on equity prices, as well as bonds. That’s the new data-dependent Fed.”
“This all makes tomorrow’s CPI print all the more important for the market. Core inflation is expected to decline to 5.4% from 5.7%, with persistently high rents preventing a bigger drop.”
“Remember the Fed has ditched full gremlin mode and is now data dependent,” he added.
Across the wider FTSE 250 index, courier firm DX Group (DX.L) has seen its shares plunge after confirming that a legal claim has been lodged against it by a rival logistics company, accusing it of alleged corporate espionage.
Shares in DX tumbled as much as 6% on Monday morning after it said that Tuffnells Parcels Express submitted the claim in the High Court on Friday “in relation to confidential competitor information being obtained by DX in the past”.
AJ Bell investment director Russ Mould, said: “Industrial espionage has rarely sounded more prosaic although the consequences for delivery and logistics firm DX, if the claims from Sheffield-based rival Tuffnells are proven at the High Court, could be anything but.
“According to newspaper reports DX employees, formerly of Tuffnells, conspired to obtain customer service receipts from the latter. The £50 payments offered to ‘Pat’ the delivery driver in exchange for the confidential corporate information make it sound like an off-the-wall episode in the life of Greendale’s favourite postie."
“DX has put out the expected robust defence and the company has already conducted a corporate governance investigation into the matter which resulted in a shake-up of its senior management and a long suspension for the shares.
“The company desperately needs to move on from the scandal and continue to capitalise on the progress it made during the pandemic when there was a sizeable increase in demand for parcel deliveries. Previously the company had a chequered history as a listed firm, littered with profit warnings and dividend cuts, so it is important to clean up this mess as soon as it can.”
Markets were also lifted as Europe’s economy is expected to avoid falling into recession this year, the European Commission (EC) said on Monday, with inflation expected to be lower than feared.
It now expects eurozone GDP to rise by 0.9% during 2023, up from the 0.3% predicted three months ago.
Announcing the forecasts, the EC said: " Almost one year after Russia launched its war of aggression against Ukraine, the EU economy entered 2023 on a better footing than projected in autumn."
The wider European Union is expected to grow by 0.8%, up from 0.3% expected before.
Ireland is expected to be the fastest-growing EU member this year.
Growth forecast for 2023 (%):
Winter #ECForecast ↓
— European Commission 🇪🇺 (@EU_Commission) February 13, 2023
Meanwhile, Brent crude (BZ=F) slipped and was trading at around $85 per barrel as traders await the latest inflation reading from the US.
In Asia, Tokyo’s Nikkei 225 (^N225) closed lower, losing 0.88% to 27,427 points, while the Hang Seng (^HSI) in Hong Kong finished flat at 21,180. The Shanghai Composite (000001.SS) bucked the trend across Asian markets and edged higher, rising 0.72% to 3,284 points.