Inflation Relief Boosts Homebuilders as Traders Revise BoE Bets

FTSE news and analysis

Home builders respond to better-than-expected UK inflation data

Yesterday’s encouraging move lower in core inflation rates brought a welcome sigh of relief to UK citizens as they struggle to keep broader price pressures under control. The core CPI reading of 6.9% compared to the expected figure of 7.1% represents a small victory in the larger scheme of things but reveals that inflation is on the right track.

Homebuilders have been one of the main beneficiaries of slow, subdued inflation, with Persimmon and Barrett Development seeing notable recovery in their respective share prices. Prospective homebuyers had to think twice before committing to long-term financing after seeing mortgage rates above 6%. Unsurprisingly, the uptick in mood saw the property sector outperform its peers with the rest of the UK, with the exception of the materials sector, seeing modest gains.

FTSE Sector Performance (July 17-20)

Source: Refinitiv Data, compiled by Richard Snow

The FTSE rebound overcomes two major hurdles in quick succession

Yesterday, the FTSE rose around 1.8% to close above not only the long-term trend line resistance but also the 200 day simple moving average. The 200 SMA is largely seen as an indicator of the longer-term trend – which bodes well for the FTSE bulls now that prices have continued their bullish momentum.

Immediate resistance comes at 7640, which is a level being tested at the time of writing, followed by 7710 which supported prices in January and May of this year.

FTSE 100 daily chart

Source: TradingView, prepared by Richard Snow

Reversal bull market bets

after Bank of England’s surprise 50bp hike in June Markets were pretty much pricing in the prospect of another 50bp hike, especially after June average earnings rose 7.3% yoy. Since yesterday’s core CPI reading, the picture has basically reversed and the market is now expecting a 25bp lower hike in August with about 70% probability. Previously, optimistic expectations of a rate hike had supported the pound sterling, which affected the index. With the prospects of a rate hike and a weaker pound, the FTSE is receiving a welcome tailwind.

BoE implied rate hike odds

Source: TradingView, prepared by Richard Snow

– Posted by Richard Snow for DailyFX.com

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