FTSE under pressure as UK rising inflation bites
London’s benchmark index closed 0.5% down, held back by a stronger pound, which rose amid the news. The CAC (^FCHI) picked up slightly to 0.2% in Paris, and the DAX (^GDAXI) was 0.1% higher in Germany, adding to new record highs set the previous session.
Travel and leisure stocks were at the bottom of the European basket of stocks amid concerns about rising COVID cases, while banks and basic resources outperformed on expectations of an incoming interest rate hike from the Bank of England (BoE).
UK inflation soared to its highest level in 10 years thanks to a rise in fuel and household energy costs.
The consumer prices index (CPI) rose by 4.2% in the year to October, climbing from 3.1% the previous month, the Office for National Statistics revealed on Wednesday.
It marked a bigger rise than economists had expected, the highest since November 2011, adding pressure on the Bank of England (BoE) to hike interest rates.
Read more: UK inflation jumps to decade high making interest rates rise inevitable
“For now markets are cautiously increasing bets that the Bank of England will deliver next month, however there is also the muscle memory of being bitten once too often,” Michael Hewson of CMC Markets said.
“This time the central bank needs to deliver in a way that markets can absorb without too much volatility.”
The pound touched a 21-month high against the euro, hitting €1.1915 for the first time since late February 2020, when it slumped as the pandemic sparked a market crash.
The sour mood came as US housing starts fell unexpectedly last month by 0.7% to an annual rate of 1.520m units. Economists had expected a rebound to 1.576m. September’s data was also revised lower, from 1.555m to a 1.53m rate.
However, permits for future homebuilding did rise 4.0% to a rate of 1.650m units in October, while mortgage applications fell by 2.8% last week.
Markets are also still waiting for concrete news on who might be nominated as the next Federal Reserve chair, although president Joe Biden did say to reporters that an announcement would be coming “in about four days”.
Senator Sherrod Brown, who chairs the Senate Banking Committee, indicated earlier in the week that a pick was imminent, and was “certain” that the Senate would confirm either chair Jerome Powell or governor Lael Brainard.
Overnight, Asian markets mostly dipped on Wednesday as a recent rally ran out of steam and investors struggled to follow a lead from Wall Street.
In Japan, the Nikkei (^N225) fell 0.4% while the Hang Seng (^HSI) fell 0.3% in Hong Kong, retreating for the first time in a week. Meanwhile, the Shanghai Composite (000001.SS) rose 0.4% on the day.