UK stocks outperform as inflation drop fuels interest rate-cut bets

BLOOMBERG

British stocks rallied after data showed inflation in the UK slowed far more than expected, bolstering rate-cut bets. Argenx SE plunged after negative news on its skin disease drug trial, holding Europe back as the benchmark stalled near a January 2022 high. The pan-European Stoxx 600 Index ended the session with a 0.2%% gain. UK real estate stocks and banks were among the biggest outperformers as inflation data showed further evidence that the cost-of-living crisis is easing, and the Bank of England will likely pivot toward interest rate cuts next year.
Sticky inflation has been weighing on UK stocks this year, adding to underperformance over the past decade.
This year the FTSE All-Share Index has inched up just 3.7%, while euro-area and US peers have notched double-digit gains, despite being the cheapest shares in the developed world. “With meaningful moves on core inflation and cooling inflation in the service sector, which had been something central bankers were watching nervously, it does feel like those sticky tendrils are loosening their grip,” Danni Hewson, head of financial analysis at AJ Bell, wrote in a note.
Among single stocks, Telefonica SA jumped after the Spanish government said it plans to buy a stake in the carrier worth as much as $2.2 billion, while Argenx shares fell as much as 35% after a setback as its only medicine was seen to not help patients with a rare skin disorder.
Meanwhile, European stocks in the region are rallying for a second month amid optimism about central bank easing, with the main index now up 12% since the start of the year. The recent gains have taken major European benchmarks to levels usually seen as ‘overbought’ and some fear the strong gains are now overdone.