U.K. inflation spikes and home builders are climbing

The FTSE 100 joined a rebound for global equities on Wednesday, with home builders in the lead after a bullish note from HSBC and as fresh data showed surging U.K. inflation.

The index UKX, -0.44%  rose 0.8% to 7,440.10, more than reversing a 0.7% drop on Tuesday. The pound GBPUSD, +0.5822%  initially surged after U.K. consumer prices rose by the fastest rate in six months, but has since given up that lead, last changing hands at $1.2985, a 0.1% drop.

Inflation remains below the Bank of England’s 2% annual target, and analysts said the data takes some pressure off the central bank to cut interest rates. The data did help cheer up home builders though, with Berkeley Group Holdings BKG, +2.20% UK:BKG up 3.4%, Taylor Wimpey TW, +1.00%  gaining 2%, Persimmon PSN, +0.64%  up nearly 2% and Barratt Developments BDEV, -0.02%  up just over 1%.

“The outperformance seen across the house builders today can be attributed to the impact that housing and household services had upon the inflation reading, with confidence in the sector clearly picking up after the December election uncertainty,” said Joshua Mahony, senior market analyst at IG, in a note to clients.

The sector also got a boost from analysts at HSBC, which lifted profit forecasts, some dividends and target prices on the home builder names by an average 29%, with the view that the housing market is looking more constructive. A team of analysts led by John Fraser-Andrews said HSBC now has buy ratings on all nine listed house builders — it upgraded Berkeley to buy from hold on Wednesday.

“The upshot of our more constructive housing market expectations and the self-help operational improvements under way within most of the house builders is that we forecast the current elevated level of operating margin to nudge higher in 2020 and be sustained, generating high-teen ROICs (return on invested capital) and high-single-digit free cash flow yields for most house builders through our forecast horizon,” he wrote.

Elsewhere, some easing concerns over the coronavirus, after a related warning from Apple roiled global markets on Tuesday, supported gains for stocks across the globe. While the death toll in China moved past 2,000, the number of infections fell for a second day on Wednesday, official data showed.

Bank stocks also supported the FTSE 100, specifically heavily weighted HSBC Holdings HSBC, +0.80% HSBA, +0.45%, which rose 2.5%. The bank was clawing back some of Tuesday’s sharp losses triggered by news of a massive overhaul that included plans to cut 35,000 jobs and axe dividend for two years.

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