The FTSE 100 (^FTSE) recovered from a weak opening to close in positive territory on Tuesday, buoyed by unexpectedly soft American inflation data.
London’s blue-chip index ended the session up 31.10 points, or 0.3%, closing at 10,529.39 after earlier losses were reversed.
The FTSE 250 also edged higher, finishing up 10.25 points at 23,406.83, while the Aim All-Share rose 0.6% to 765.58.
US consumer prices fell 0.4% in June from May on a seasonally adjusted basis, according to the Bureau of Labour Statistics, following a 0.5% rise the previous month.
The decline was the steepest since prices dropped 0.8% in April 2020 and came in well below the 0.1% fall expected by the FXStreet-cited consensus.
Annual consumer price inflation slowed sharply to 3.5% in June from 4.2% in May, undershooting consensus expectations of 3.8%.
Kathleen Brooks, research director at XTB, said the report “drastically” reduces the chance of a rate cut at this month’s Federal Open Market Committee meeting.
Brooks noted there is now a 15% chance of a rate hike from the Fed on July 31, compared to a 40% chance before the reading.
Bank of America said the downside surprise gives the Fed more time to decide its next move, while TD Economics said it should “help to quiet some of the more hawkish voices”.
The softer inflation print sent the dollar lower and pushed bond yields down, with the US 10-year Treasury yield narrowing to 4.56% from 4.60% on Monday.
The pound traded at 1.3396 dollars on Tuesday afternoon, up from 1.3378 dollars on Monday, reflecting the broader dollar weakness across currency markets.
London stocks had opened lower as oil prices surged on escalating Middle East tensions, with Iran’s Islamic Revolutionary Guard Corps announcing strikes on two UAE tankers in the Strait of Hormuz.
The US carried out a third consecutive night of strikes on Iranian targets, following President Donald Trump’s announcement of a reinstated naval blockade of Iranian ports and a planned 20% charge on cargo through the Strait of Hormuz.
Trump later scrapped the planned levy, saying he would replace the fee with trade deals with Gulf allies, though Brent crude for September delivery (CL=F) still surged to 84.00 dollars a barrel from 79.42 dollars at Monday’s London close.
Energy stocks benefited from the oil price jump, with BP rising 2.3% and Shell climbing 1.2% to lead gains among the index heavyweights.
BP’s advance was further supported by a strong second-quarter trading update, with RBC Capital Markets analysts saying they expect the company to hit its net debt reduction target a year early.
“Investors feel like they’ve hit rewind on a movie they didn’t enjoy first time round,” said AJ Bell head of markets Dan Coatsworth, reflecting the unsettled mood across global markets.
On Wall Street, Goldman Sachs shares rose 6.9% and JPMorgan climbed 2.4% after both banks beat second-quarter expectations, while IBM plunged 26% after warning of an unexpected “performance shortfall” in its Software and Infrastructure divisions.
Gold traded at 4,085.44 dollars an ounce on Tuesday, up from 4,015.30 dollars on Monday, while higher metals prices also lifted mining stocks in London.
Pearson fell 6.8% following a downgrade by JPMorgan, while animal biotechnology firm Genus rose 3.7% after flagging that annual profit is expected to come in ahead of market expectations at approximately £98 million for the year to June 30.