Lower-than-expected inflation hurts pound, helps FTSE

Britain's top stock index climbed on Wednesday, with Pearson's outlook impressing the market, while mid-cap Mediclinic sank by a fifth after its results missed estimates.

The FTSE 100 was up 0.3 per cent by 0835 GMT after weaker-than-expected inflation data took the pound down a notch. The index is dominated by international exporters, who benefit from a weaker currency.

Shares in education publisher Pearson topped the FTSE with a 3.9 per cent rise after it stuck to its target of returning to profit this year.

"The education giant has been shifting away from more traditional classroom materials in favour of digital, and progress there looks more positive," said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

Pearson is a widely shorted stock, and the amount of shares out on loan has risen this year, data from FIS Astec Analytics showed.

A weak update from mid-cap housebuilder Crest Nicholson sent the shares down 6.2 per cent. That weighed on FTSE 100 housebuilders Persimmon, Taylor Wimpey, and Berkeley Group which lost 1.6 to 3.2 per cent.

Crest Nicholson warned its full-year profit would be lower than expected, citing a challenging real estate market, and said its chief financial officer had stepped down.

Hargreaves Lansdown shares gained 3.3 per cent after Bernstein analysts upgraded it to "market perform" from "underperform", saying they were now more convinced its valuation is justified.

Shares in software company Micro Focus were also among top gainers, up 3.1 per cent as tech shares across Europe climbed.

Overall, analysts are downgrading their earnings estimates for the FTSE 100 as well as the mid-cap FTSE 250 index, which was down 0.1 per cent on Wednesday.

"Valuations don't look particularly stretched in absolute terms, but the earnings newsflow is still mixed at best," said Ian Williams, strategist at Peel Hunt.

The mid-cap segment, home to more growth stocks, fell in last week's selloff as investors seemed to turn back to value plays. Growth still had its attractions, though.

"You can be too gung ho about saying I'm rotating into value if the earnings are still quite disappointing," said Williams.

Mid-caps saw big moves after results and broker notes. Mediclinic shares sank 20 per cent to the bottom of the FTSE 250 after its earnings and margins missed estimates, hit by weaker performance in its Swiss segment.

"Investors will likely be disappointed by Swiss performance while revised margin guidance may imply another leg down in the Swiss story, introducing further uncertainty," wrote UBS analysts.

Inchcape shares tumbled 10 per cent after HSBC slashed its target price on the stock to 650p from 840p.

Dealmaking was also a mover. Shares in ContourGlobal climbed 3 per cent after the power firm said it was in talks to possibly buy Spanish utility Iberdrola's 50-megawatt solar power plant in Spain.

Among small-caps, Asos shares jumped 12 per cent after the online fashion retailer said its potential was "huge". It narrowly beat forecasts with a 28 per cent jump in 2017-18 profits, maintaining guidance for its new financial year.

"Asos' positive statement should reassure investors today, concerned by recent disappointments in the retail sector (muted sales growth and various profit warnings)," said Stifel analysts.

(With inputs from agencies.)