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LONDON MARKETS : FTSE 100 Wobbles, With Investors On Edge

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02/13/2018 | 12:24pm CEST

By Carla Mozee, MarketWatch

Pound climbs above $1.39 as U.K. inflation sticks at 3%

U.K. stocks flickered higher and lower Tuesday, searching for direction as investors remained on watch for signs of another selloff, and as U.S. stock markets looked set to stumble.

Stocks continued to waver after a reading on U.K. inflation, watched closely by Bank of England policy makers, showed consumer prices on an annual basis remained above the bank's target.

Mining stocks largely bucked the losing trend, aided by stronger prices for metals.

What are markets doing?

The FTSE 100 has been moving in and out of positive territory, last rising nearly 5 points to 7,182.15. The index had opened 0.3% higher. On Monday, the benchmark jumped 1.2%, breaking a two-session losing run.

The basic materials group had the strongest showing among sectors, while utility, telecom and consumer goods shares were in the red.

The pound traded at $1.3919. compared with $1.3837 late Monday in New York.

What's driving the markets

A new round of mild volatility was washing over U.K. and European equity markets, which largely started with modest gains before flipping lower. A recovery in U.S. stocks, which often set a lead for U.K. equities, looked poised to falter Tuesday morning, with Dow futures down more than 150 points.

But gains for metals prices such as copper and gold buoyed shares of mining companies listed in London. Metals prices denominated in dollars found strength on the back of a softening in the U.S. dollar .

What's on the economic docket

The U.K.'s Office for National Statistics on Tuesday said the rate of inflation in January was 3% . That's the same rate logged in December, and Tuesday's result was just ahead of a 2.9% consensus estimate from FactSet. The pound rose above $1.39 after Tuesday's report.

Inflation is tracked by BOE policy makers in plotting the path of interest rates, with a target of 2% inflation. Last week, the BOE signaled that it could raise interest rates at a faster pace than it previously anticipated, if the global economic recovery and U.K. wage growth continue to strengthen. That message was reiterated Monday in a speech by Bank of England policy maker Gertjan Vlieghe.

The FTSE started Tuesday on a downbeat note following a weak finish in the U.S. on Wednesday , which continued into Thursday's session on Wall Street .

What strategists are saying

In the inflation report, "the real head turner turned out to be the core CPI reading, which jumped back to 2.7% to negate last month's 0.2% fall. With core CPI now back to the joint highest level since 2011, the intense price pressures remain on the BOE to raise rates, with markets factoring in a greater than 50% chance of two or more rate rises in 2018," said IG market analyst Joshua Mahony in a note.

"Unfortunately for [Bank of England Governor] Mark Carney, his recent reasoning that inflation could rise over the short term due to energy prices appears to be undermined, with the core reading showing that U.K. inflation is on the rise irrespective of energy prices," said Mahony.

Stocks in focus

TUI AG shares climbed 4.1% after the vacation services company posted a narrower net loss of 99.6 million euros ($112.7 million) for the first quarter and backed its full-year guidance .

Among mining stocks, Anglo American PLC (>> Anglo American) gained 2.6% and Glencore PLC (>> Glencore) leapt 2.2%. Randgold Resources PLC (>> Randgold Resources) picked up 0.4%.

BHP Billiton PLC shares (>> BHP Billiton Plc) (>> BHP Billiton Limited) (>> BHP Billiton Limited) were up 1.4%. The iron ore producer said it expects to recognize a $1.8 billion income-tax expense to reflect the reduction in the U.S. federal corporate-tax rate and other changes.

Leading decliners on the FTSE 100, telecom company BT Group PLC (BT.A.LN) fell 2%, United Utilities Group PLC (>> United Utilities) lost 1.4% and water management company Severn Trent PLC (>> Severn Trent) gave up 2.1%.

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