London stocks turned to a negative finish on Tuesday, as investors mulled higher-than-expected inflation data from the US, as well as the latest UK jobs data.
The FTSE 100 ended the session down 1.17% at 7,385.86, and the FTSE 250 was off 1.78% at 19,167.21.
Sterling was also in the red, last trading down 1.37% on the dollar at $1.1523, and losing 0.2% against the euro to change hands at €1.1519.
“Up until this afternoon’s US CPI number it had all been going so well, with European markets initially picking up where they left off yesterday, trading at two-week highs, despite another sharp deterioration in the latest German and EU ZEW expectations survey for September, with both indicators falling further below their pandemic lows of March 2020,” said CMC Markets chief market analyst Michael Hewson.
“The pessimism around German business is being driven by concerns over the possibility of energy shortages, which is driving a decline in orders production and exports.”
Hewson said the week’s initial dollar weakness was being fed by a belief that perhaps the peak for inflation had already been reached.
“That may well be true, and today’s US CPI numbers do nothing to change that narrative, because we have still seen a modest fall to 8.3%, but the rise in core prices means inflation is likely to be a lot stickier than perhaps markets had been pricing.
“It also helps explain this afternoon’s sharp reversal, with the DAX and FTSE 100 both falling back sharply.”
In economic news, US consumer price inflation slowed in August but was still above expectations, according to the Labor Department, fuelling expectations of another big rate hike from the Federal Reserve.
Inflation eased to 8.3% on the year from 8.5% in July, but came in above expectations of 8.1%.
On a monthly basis, consumer price inflation rose 0.1%, compared to a flat reading in July.
Core inflation, which strips out food and energy, increased to 6.3% in August from 5.9% a month earlier.
The food index rose by 11.4% on the year, marking the biggest 12-month increase since May 1979.
Neil Wilson, chief market analyst at Markets.com, said the hotter-than-expected inflation number was being seen as a signal that “the Fed is nowhere near done raising rates”.
“75 basis points next week is nailed on now and markets now see a 20% chance of a 100-basis point move,” Wilson noted.
“And this inflation number, having failed to live up to hopes it would show a real sign of cooling in inflation pressures as energy was sharply down, points to a more prolonged hiking cycle and for the Fed to need to go higher.”
Neil Wilson said April next year was now priced for a rate of 4.2%, as the yield curve remained inverted, suggesting markets believed the Fed would eventually “snap”.
“Markets are saying the Fed will get its recession but it’s not able to adjust to the fact that rates will need to stay higher for longer.”
On home shorts, UK real wages continued to fall in July, while the jobless rate dipped to its lowest level since 1974 as more people dropped out of the workforce.
According to the Office for National Statistics, the unemployment rate fell to 3.6% in the three months to July from 3.8% in the previous quarter.
Economists were expecting the rate to be unchanged.
The number of people in employment grew by 40,000 in the three-month period, making for the smallest increase since February, and well below consensus expectations for a 128,000 jump.
Even so, the UK workforce remained 250,000 smaller than it was before the pandemic hit.
“The further fall in the unemployment rate to a new multi-decade low of 3.6% in July together with the extra pick-up in wage growth will increase the pressure on the Bank of England to deliver another 50 basis point hike at the next policy meeting on 22nd September,” said Ruth Gregory, senior UK economist at Capital Economics.
Elsewhere, grocery price inflation reached a new record in August, with Britons further switching to cheaper lines and discount supermarkets.
Take-home grocery sales increased 3.8% in the 12 weeks ended 4 September according to Kantar, making for the third consecutive month that the sector’s sales grew after more than a year in decline as a result of comparisons with the Covid-19 pandemic.
The rise came as grocery price inflation hit 12.4% during the month, reaching a new record based on Kantar’s data.
“It seems there’s no end in sight to grocery inflation as the rate at which food and drink prices are increasing continues to accelerate,” said Fraser McKevitt, head of retail and consumer insight at Kantar.
“Now standing at 12.4% for August, the latest figure means that the average annual grocery bill will go from £4,610 to £5,181 if consumers don’t make changes to what they buy and how they shop to cut costs – that’s an extra £571 a year.
“Categories like milk, butter and dog food are jumping up especially quickly at 31%, 25% and 29% respectively.”
Across the channel, German inflation in August was confirmed at 7.9%, up from 7.5% in July, according to statistics office Destatis.
Consumer price inflation had declined slightly both in June and July due to temporary government measures.
In August, however, consumer prices rose 8.8% on the year by EU harmonised standards, Destatis said.
On London’s equity markets, software company Aveva Group rallied 3.08% after a report it was closing in on a takeover agreement with French industrial group Schneider Electric worth around £9bn.
According to Sky News, the boards of the two companies and their advisers were discussing a price of more than £30-a-share for Schneider to acquire the roughly-40% of Aveva it did not already own.
Fund management services provider JTC shot 9.75% higher after well-received first-half results, while media company Future added 5.57% after it said full-year adjusted operating profits were set to be at the top end of market expectations.
Review website Trustpilot Group surged 15.48% after it reported a narrowing of its first-half losses as sales jumped 22%.
On the downside, Ocado Group tumbled 14.59% after the online supermarket warned of an expected fall in annual sales as customers started to tighten their belts amid the cost-of-living crisis.
Its 50% partner in the UK online grocery operation, Marks and Spencer Group, was down 3.79% by the close, while the other listed supermarkets fell too, as J Sainsbury and Tesco lost a respective 1.59% and 3.08%.
Elsewhere, iron ore pellet maker Ferrexpo gave up its Monday gains, slumping 9.27%.
Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk and Frank Prenesti.
Market Movers
FTSE 100 (UKX) 7,385.86 -1.17%
FTSE 250 (MCX) 19,167.21 -1.78%
techMARK (TASX) 4,314.02 -1.21%
FTSE 100 – Risers
Aveva Group (AVV) 3,050.00p 3.08%
Harbour Energy (HBR) 491.00p 2.27%
Haleon (HLN) 266.60p 0.98%
BP (BP.) 461.55p 0.81%
BAE Systems (BA.) 794.00p 0.43%
Shell (SHEL) 2,327.50p 0.26%
Pearson (PSON) 923.80p 0.22%
National Grid (NG.) 1,080.00p 0.19%
DCC (CDI) (DCC) 5,064.00p 0.16%
Compass Group (CPG) 1,928.00p 0.10%
FTSE 100 – Fallers
Ocado Group (OCDO) 679.20p -14.59%
Scottish Mortgage Inv Trust (SMT) 807.40p -4.97%
International Consolidated Airlines Group SA (CDI) (IAG) 108.00p -4.37%
SEGRO (SGRO) 906.00p -4.29%
Frasers Group (FRAS) 821.00p -4.09%
Melrose Industries (MRO) 121.60p -3.99%
Kingfisher (KGF) 246.90p -3.89%
Next (NXT) 5,828.00p -3.89%
Barratt Developments (BDEV) 417.20p -3.83%
Hikma Pharmaceuticals (HIK) 1,266.50p -3.76%
FTSE 250 – Risers
JTC (JTC) 841.00p 9.36%
Future (FUTR) 1,818.00p 5.57%
Polymetal International (POLY) 231.00p 4.05%
Lancashire Holdings Limited (LRE) 547.50p 3.79%
Abrdn Private Equity Opportunities Trust (APEO) 420.00p 2.44%
Serco Group (SRP) 171.50p 2.08%
Beazley (BEZ) 628.00p 1.62%
Plus500 Ltd (DI) (PLUS) 1,671.00p 1.52%
Rathbones Group (RAT) 1,842.00p 0.99%
Kainos Group (KNOS) 1,470.00p 0.96%
FTSE 250 – Fallers
Ferrexpo (FXPO) 156.10p -10.13%
Aston Martin Lagonda Global Holdings (AML) 157.25p -8.97%
Bridgepoint Group (Reg S) (BPT) 258.60p -8.10%
IntegraFin Holding (IHP) 255.40p -6.86%
IWG (IWG) 141.90p -6.80%
Allianz Technology Trust (ATT) 232.00p -6.26%
TUI AG Reg Shs (DI) (TUI) 133.40p -6.22%
Baltic Classifieds Group (BCG) 140.00p -5.79%
Synthomer (SYNT) 182.20p -5.45%
Dunelm Group (DNLM) 723.00p -5.24%
