UK Inflation Data in Focus as Sterling Holds Two-Month Peak

UK inflation data for January is expected to show an uptick to 2.8%, reinforcing the Bank of England's cautious stance on rate cuts, keeping sterling near a two-month high. European markets remain strong, with the STOXX 600 closing at a record level, while defence stocks continue their rally amid ongoing Russia-Ukraine peace talks. In the corporate sector, Rio Tinto's earnings will be closely watched as the mining giant navigates global trade tensions, following BHP's warning on economic risks from tariffs.

Equities

The FTSE 100 closed flat on Tuesday, while the FTSE 250 fell 0.3% as investors reacted to economic data suggesting limited scope for further interest rate cuts. Banking stocks rose 1.5%, with HSBC gaining 2% to its highest level in over two decades following investor support for its restructuring plans.

InterContinental Hotels Group fell 4.5% after announcing a $900 million share buyback, which fell short of expectations. Plus500 dropped 4.8% after issuing a full-year forecast in line with market estimates. BT Group declined 2.9% after Citi downgraded its stock from "buy" to "sell."

The S&P 500 edged up 0.24% to close at an all-time high, with investors awaiting minutes from the Federal Reserve’s January meeting. The Dow Jones Industrial Average rose 0.02%, and the Nasdaq gained 0.07%.

Intel jumped 16.1% following reports that Taiwan Semiconductor Manufacturing Co. and Broadcom are considering deals that could split the company in two. The news lifted the Philadelphia Semiconductor Index by 1.7%. Constellation Brands climbed 4% after Berkshire Hathaway disclosed a stake in the company. Meta Platforms fell 2.8%, breaking a 20-session winning streak.

Forex & Commodities

The US dollar held firm, supported by ongoing uncertainty around trade tariffs and Russia-Ukraine peace talks. The dollar index was little changed at 106.97, remaining close to a two-month low despite fresh tariff pledges from President Trump. Sterling traded at $1.26175 after touching a two-month high earlier in the session, with markets waiting for UK inflation data. The euro edged up 0.06% to $1.0451 but has weakened in recent days amid divisions between the US and Europe on Ukraine. The yen gained 0.16% to 151.83 per dollar, bolstered by expectations of a Bank of Japan rate hike.

The New Zealand dollar rose 0.28% to $0.572 after the Reserve Bank of New Zealand cut interest rates by 50 basis points to 3.75% and signalled that future reductions would be smaller. Economists expect quarter-point cuts in April and May before a possible pause.

Gold fell 0.2% to $2,930.38 per ounce, retreating from last week’s record high of $2,942.70 as investors took profits and awaited further developments in Russia-Ukraine talks. US gold futures slipped 0.1% to $2,947.30. Analysts see strong resistance at $2,970 and support at $2,890.

Oil prices rose as concerns over supply disruptions in the US and Russia offset broader geopolitical uncertainty. Brent crude futures gained 0.2% to $75.98 per barrel, while West Texas Intermediate rose 0.2% to $72.01. A Ukrainian drone attack on a Russian pumping station led to a 30%-40% reduction in oil flows through the Caspian Pipeline Consortium. Meanwhile, cold weather in North Dakota could cut US production by up to 150,000 barrels per day.