By Carla Mozee, MarketWatch
U.K. inflation rate turns negative
U.K. stocks rose Tuesday, pushed higher alongside other European
equity markets after comments about the European Central Bank's
quantitative-easing program by key bank officials.
Meanwhile, the pound (GBPUSD) fell against the U.S. dollar after
U.K.'s inflation rate turned negative for the first time in
decades.
The FTSE 100 picked up 0.4% to 6,995.10, but the benchmark was
capped by a pullback in Vodafone PLC as well as in mining
shares.
Overall, stocks climbed after European Central Bank Executive
Board member Benoît Coeuré said, the ECB will modestly raise
purchases
(http://www.marketwatch.com/story/euro-falls-after-ecbs-coeure-says-bank-will-front-load-qe-buying-2015-05-19)
of euro-area assets in May and June because of an expected drop-off
in bond issuance during the summer period. Such action "will allow
us to maintain our monthly average of EUR60 billion," Coeuré said
in a speech Monday
(https://www.ecb.europa.eu/press/key/date/2015/html/sp150519.en.html),
with the text released Tuesday.
Separately, ECB governing council member Christian Noyer said
the central bank is ready to take additional steps
(http://www.marketwatch.com/story/noyer-ecb-will-act-if-inflation-target-isnt-met-2015-05-19)
to boost inflation if its current quantitative-easing program
proves insufficient.
Both British and broader European equities this year have hit
record highs, aided by the ECB's EUR1.1 trillion bond-buying
program launched in March. The U.K. isn't a member of the
eurozone.
The euro (EURUSD) slid after Coeuré's comments. "Given the rise
in euro and European yields, this may be an attempt by the ECB to
talk them down," said RBC currency strategist Keng Goh in a note.
Against the pound (EURGBP), the euro was buying 71.85 pence, down
from 72.29 pence late Monday.
Back on the FTSE 100, Vodafone PLC shares dropped 3.2%. The
mobile network telecom heavyweight said full-year operating profit
adjusted for exceptional items -- a key performance metric -- fell
19% to GBP3.51 billion as the company invested in its network
(http://www.marketwatch.com/story/vodafone-hails-signs-of-stabilization-in-europe-2015-05-19-24854139).
Revenue rose 10.1%, but excluding handset sales, it fell 1.6%.
Vodafone did say it will pay a dividend of 11.2 pence, up 2%.
In the mining sector, Fitch Ratings said Tuesday it expects
iron-ore prices will stay low for several years in part because of
increasing supply and weak Chinese demand growth. "We expect market
leaders BHP Billiton, Rio Tinto and Vale to continue increasing
production in 2015 despite falling prices, as they are also the
lowest-cost producers," said Fitch.
Shares of BHP Billiton PLC (BHP) fell 3.9% and Rio Tinto (RIO)
fell 2.7%. Glencore PLC fell 2.5% and Anglo American PLC fell
1.5%.
Pound: The pound fell to $1.5515 from $1.5653 late Monday after
official data showed U.K. consumer prices declined on the year, the
first such fall since 1960. The consumer-price index fell 0.1%
(http://www.marketwatch.com/story/uk-flirts-with-deflation-as-prices-fall-in-april-2015-05-19)
in the year to April after a flat reading in March. Core inflation,
which excludes prices energy, food and other volatile items, slowed
to 0.8%.
West Texas Intermediate oil prices had been pushing above $60 a
barrel but was sliding on Tuesday as the U.S. dollar strengthened.
There were expectations for a slight uptick in the CPI reading,
said James Hughes, chief market analyst, at eToro, in a note.
Tuesday's report shows "that despite efforts to overt the
deflationary pressures many central banks are powerless against the
fall, [and] secondly, that despite oil price fluctuation inflation
is still dipping lower," he said.
The Bank of England has forewarned of a period of very low
inflation or even deflation, "but due to the [core] figure coming
in lower than expected, it means pressure is on the BOE to keep
interest rates low for longer," said Angus Campbell, senior analyst
at FxPro, in a note.
Minutes from the BOE's meeting earlier this month will be
released on Wednesday, and investors will want to see if the vote
to hold the benchmark rate at 0.5% remained at 9-0.
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