7.46am: Barratt bets on buybacks over dividends

Barratt Redrow has pledged to return £400 million to shareholders after deciding buybacks represent better value than paying larger cash dividends, as the housebuilder reported annual profits in line with expectations.

The FTSE 100 group completed 17,667 home sales in the year to 28 June, at the top end of its guidance range and up from 16,826 a year earlier.

There was net cash of £772 million at year-end, well ahead of the £550-650 million range it guided to in April, helped by lower land spending and delayed building safety remediation payments.

Looking ahead, completions are seen increasing to 17,700-18,200 in the new financial year, with “minimal” house price inflation but 3-4% build cost inflation. 

7.28am: Rates in focus

The boost to the market from the US CPI inflation is not likely to last long, reckons market analyst Ipek Ozkardeskaya at Swissquote.

A softening in the annual rate of CPI and a month-on-month fell tamed hawkish Federal Reserve expectations, leading to a sharp pullback at the short end of the US Treasury yield curve.

The US two-year yield, which best captures Fed rate expectations, fell 10 basis points yesterday, with Fed funds futures now pricing out a July hike and sending the probability of a September rate hike down to 60% from 77% before the CPI release.

“But because the drop in US inflation was largely driven by the sharp pullback in energy prices, the inflation relief will probably not last long,” Ozkardeskaya says. 

“Middle East tensions are escalating. The US President walked back his latest – and perhaps one of the most absurd proposals yet – to charge a 20% fee on all ships transiting the Strait of Hormuz (we did the math yesterday: it would amount to a $30–34 million fee per oil tanker and would be against international law).

“Yet strikes in the region continue, energy infrastructure is being damaged, and oil and gas prices are rising. US crude is consolidating its rebound near $80 per barrel, Brent is trading near $85pb. NYMEX natural gas remains stable below $3, yet European TTF futures are up more than 30% since the June dip.”

Deutsche Bank’s Jim Reid notes that the 10-year US Treasury yield traded low as 4.521% post-CPI but it then climbed somewhat, “in part as Fed chair Kevin Warsh continued to strike a tough note on inflation as he delivered his first testimony as Chair before the House Financial Services Committee”.

Reid says Warsh refrained from any direct policy guidance, but stressed that the softer CPI print did not mean “mission accomplished”.

The central bank chief also said that “members of our Committee have no tolerance for persistently elevated inflation”. 

In all, says Reid, “the new Chair looked to cement inflation-fighting credibility. But he was fortunate to be making these tough remarks in a day of soft CPI, with the inflation data easing the pressure for any immediate policy tightening”.

FTSE 100 Live pre-open

London and European shares are predicted to struggle on Wednesday morning, in contrast to gains for most Asian and US stocks after a shift in rate expectations following US inflation data yesterday. 

The FTSE 100 is expected to open around 40 points lower, according to the futures market, more than erasing the 31 points added yesterday when the index closed at 10,529.39.

Wall Street enjoyed a positive session overnight, following the biggest monthly fall in US CPI inflation for six years, which boosted hopes that the Federal Reserve may not need to raise interest rates this month.

The Nasdaq led the gains, climbing 0.9% as semiconductor stocks rallied, while the S&P 500 added 0.4% and the Dow Jones edged up just 10 points, held back by a big fall for IBM.

Asian markets are mostly higher, led by the tech sector, with Korea’s Kospi jumping 7.3% and Japan’s Nikkei up 1.45%, with US futures also positive, again led by the tech-powered Nasdaq, up 0.8% currently.