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FTSE 100 loses gains at close and pound falls as inflation shock subsides

·3-min read
The FTSE 100 lost gains and sterling fell against dollar on Thursday. Photo: Tolga Akmen/AFP via Getty
The FTSE 100 lost gains and sterling fell against dollar on Thursday. Photo: Tolga Akmen/AFP via Getty

European shares finished mixed on Thursday as a bounce on Wall Street helped markets adjust following a rout this week on higher-than-expected US inflation data.

In London, the FTSE 100 (^FTSE) was up 0.1% after the closing bell despite a surprise drop in consumer prices doing little to calm fears of a large interest rate hike from the Bank of England next week.

France’s CAC (^FCHI) declined 1.1% on the day and the DAX (^GDAXI) fell 0.5% in Germany.

Read more: UK inflation unexpectedly falls to 9.9% as fuel prices ease

"The sharp selling pressure seen at the beginning of the week has eased somewhat, as traders await the next major move lower in anticipation of a potential 100-basis point hike from the Fed," Joshua Mahony, senior market analyst at online trading platform IG said.

It comes as Britain's rate of inflation eased in August after registering a double digit increase for the first time in more than four decades last month.

Consumer price index (CPI) inflation unexpectedly fell to 9.9% in the 12 months to August from 10.1% the month before, according to the Office for National Statistics (ONS) on Wednesday.

The pound (GBPUSD=X) was trading at a near 35-year low against the dollar as a rise in core prices intensifies concerns that price rises have become embedded into the UK economy.

Sterling fell as much as 0.4% to $1.149 against the strengthening greenback. It dipped 0.6% against the euro (GBPEUR=X) to €1.14.

Across the Atlantic, US benchmarks were mixed following the previous day’s wild session that was spurred by news that inflation in August jumped more than anticipated to 8.3%.

Wall Street’s S&P 500 (^GSPC) lost 22.13 points, or 0.6%, to 3923.88. The tech-heavy Nasdaq (^IXIC) slipped 1% after early gains, while the Dow Jones (^DJI) was trading flat at London's close.

Read more: Why UK is scrapping banker bonus cap

Michael Hewson, chief market analyst at CMC Markets, said: "This unexpectedly high number prompted the biggest one day fall for US markets since March 2020, and while US markets did manage to recover some of those losses yesterday, it wasn’t anywhere near enough to repair the damage of the previous day.

"Consequently, the negative sentiment hung over yesterday’s European session like a black cloud as investors mulled the prospect of another big rate rise from the Federal Reserve when they meet next week.

"Yesterday’s PPI number for August was slightly more encouraging in that it showed further evidence of a slowing in the pace of inflation, however its unlikely to be enough to prevent a 75bps move at the very least, with the prospect of further hawkish rhetoric when it comes to further 50bps moves in November and December."

Asian stocks closed in mixed territory overnight, with the Hang Seng (^HSI) leading the way in Hong Kong, closing up 0.6%.

In Tokyo, the Nikkei (^N225) added 0.2%, while the Shanghai Composite (000001.SS) declined 1.2% in mainland China.

Watch: What is a recession and how do we spot one?