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FTSE 100 Live: Inflation dips to 9.9%, markets rattled by US rates outlook

·10-min read
 (Evening Standard)
(Evening Standard)

A dip in the UK’s annual inflation rate to 9.9% today brought some relief for traders after last night’s big Wall Street sell-off.

The tech-focused Nasdaq dived 5% yesterday after US inflation fell by less-than-expected to 8.3%, fuelling expectations for another big hike in interest rates next week.

Today’s easing in UK inflation from 10.1% the previous month was caused by lower petrol prices, but economists still expect a peak of around 11% later this year.

FTSE 100 Live Wednesday

  • Inflation eases to 9.9% but peak still to come

  • Global shares weaken after US inflation surprise

  • London house prices soar to record high

FTSE 100 stays lower in afternoon trade as Europe misses out on US stocks bounce back

15:37 , Michael Hunter

London’s FTSE 100 remained lower in late trade with declines across European stock markets after a fall in industrial production served as a reminder of the bleak economic conditions in the region. It remained after better-looking US inflation data and modest gains in New York.

The main UK equities index was down 110 points at 7275.90, a fall of 1.2%, with the Europe-wide Stoxx 600 down 0.7% and losses of 0.7% in Paris for the CAC 40 and 1.3% for the Xetra Dax in Frankfurt.

Official figures showed a 2.3% month-on-month decline for industrial production in July, the largest fall since April 2020, stoking fears about the threat posed to the region’s economy by soaring energy prices after Russia’s invasion of Ukraine.

London-listed industrial stocks stood out on the list of the biggest fallers. Melrose Industries fell 5.3% to 115p. Smurfit Kappa, the packaging maker, was down 3.6% at 2862p. Intertek, the product testing group, was down 3.3% at 3945p.

New York stocks make modest gains as producer prices inflation data soothes market sentiment

14:53 , Michael Hunter

The S&P 500 is making modest opening gains in New York, after soothing producer prices inflation data.

The numbers helped the market turn around from one of the biggest sell-offs on Wall Street in months over the previous session, when a stubborn rise for the more closely-watched Consumer Price Index stoked fears of a longer run for the Federal Reserve’s aggressive interest rate tightening cycle.

The broad New York stock gauge rose 11 points to 3944.40, a rise of 0.3%, after the annual rise for the Producer Price Index in August was softer than forecast and the month-on-month increase was in line with expectations. While seen as less influential for monetary policy, the PPI numbers feed into later CPI readings and will play into the Federal Reserve’s outlook on inflation.

US producer prices inflation data shows softer-than-expected annual inflation for August

13:40 , Michael Hunter

A day after closely-watched consumer prices inflation data roiled global markets, producer prices data has sounded a more reassuring tone.

The annual rise in the producer prices index for August read 8.7%, softer than the 8.8% in consensus forecasts, while the month-on-month rise was 0.1%, bang in line with expectations. Lower gasoline costs helped. The Federal Reserve pays more heed to the Consumer Price Index as it plots the extent of its moves to tame inflation with higher interest rates, but producer prices data feeds into later CPI readings.

Futures trading pointed to a modest opening gain of 8 points for the S&P 500, which would take the broad US stock index to 3958.0, with buyers coming back in after the biggest single-session fall since June over the previous session.

Wall Street stocks expected to fight back after inflation data rout, attention turns to producer prices

13:01 , Michael Hunter

New York stock futures are pointing to opening gains for the S&P 500, with buyers expected to come straight back to the market after the worst sell off since June over the previous session, when stubbornly strong consumer inflation data spooked investors.

The broad US stock index is called up -- only by 6 points to 3956.0 -- but a rise nonetheless, after it tumbled almost 180 points on Tuesday. The slump came after consumer price index data failed to meet expectations for the first fall since May 2020, instead rising by a further 0.1%, implying more aggressive rate rises lie ahead as the Federal Reserve seeks to tame inflation.

Attention now turns to the producer price index, due out at 1.30 p.m. London time, and usually a less market-sensitive data point. It is expected to ease to 8.8% year-on-year for August, down from 9.8%, with a month-on-month reading of 0.1%.

Further pain for European industry as production falls by most since Covid

12:10 , Michael Hunter

Industrial production in the eurozone fell by the biggest margin in two years according to official data, deepening fears about the threat posed to the region’s economy by soaring energy prices after Russia’s invasion of Ukraine.

Eurostat reported a 2.3% decline month-on-month in July, the largest fall since April 2020, which followed three consecutive months of rises. The drop was significantly bigger than the 1% seen in consensus forecasts compiled by Reuters.

Stock indices were weaker across the continent, in line with bearish trade across global markets, after sharp losses in New York following inflation data that pointed strongly to a longer and more aggressive outlook for interest rate rises in the US.

The glum production numbers chimed with the bleak mood, with the Europe-wide Stoxx 600 index down 0.7% to 418.39. Paris’ CAC 40 fell 0.3% to 6226.77 and the Xetra Dax in Frankfurt lost 0.5% to 13118.29.

Redrow’s move out of London helps profit break records and sends shares higher

11:54 , Michael Hunter

Changing commuting patterns after Covid have helped Redrow, the FTSE 250 developer, take its profit past pre-pandemic levels to a new record, while rising interest rates are not yet a threat to demand.

Its chief executive, Matthew Pratt, told the Standard there is “still some way to go” before the rising cost of home loans bites into the industry.

“The mortgage market is still incredibly competitive despite the fact rates are going up. Historically, the UK’s average [interest rate] is about 5%, we’ve got miles to go before we get to that.”

He also said people were prepared to travel further to get into work, now that the frequency of commutes has fallen, helping demand for larger properties with more outside space. Redrow specialises in four-bedroom detached family homes.

“We took a strategic decision to move outside London and aim for commuter areas -- people who were doing five day a week commutes are down to two or three days, they are prepared to go further ... instead of wanting under the hour, they’ll do an hour and a half. They still want great communications into London, but they are going further out.”

Redrow reported underlying profit before tax of £410 million for the year to July 3, up 31% to a new record. Its shares rose 1% to 481p.

London house prices soar to record high

11:48 , Jonathan Prynn

London house prices have leaped to a new record high despite the rising burden of increasing mortage bills and surging inflation.

The average cost of a home in the capital jumped more than 9% to £543,517 in the year to July, according to latest data from the Land Registry. Prices have not risen faster in the capital since July 2016.

The increase means that homeowners have seen the value of their bricks and mortar grow by more than £45,000 in a year on average.

However, London was still the region with the slowest growing prices. The UK rate of increase was 15.5% while England house prices grew by 16.4%. The south west was the fastest growing region with annual growth of 20.7%.

Prices nationally were rising at their fastest rate since May 2003 although the ONS cautioned that the year on year figure was boosted by a slight dip in prices a year ago at tyhe end of the stamp duty holiday.

In London the biggest rise was in Harrow where prices were up 14% at an average £546,597.

FTSE 100 extends losses, Dunelm 4% higher after results

08:52 , Graeme Evans

BP and Shell are among today’s leading fallers as the FTSE 100 index weakened on the back of last night’s Wall Street slump.

The energy giants lost 1% after oil prices dropped on fears that much higher interest rates to curb inflation will choke global demand.

The FTSE 100 index followed last night’s 1.2% decline by dropping another 0.9% or 67.11 points to 7318.75 today. The support of a weaker pound for overseas-earning stocks limited some of the damage after Wall Street’s worst session in two years.

Other big fallers included asset management business Abrdn, which dropped 6.45p to 142.75p as Deutsche Bank lowered its target price to 135p.

The FTSE 250 index fell 0.7% or 140.88 points to 19,026.33, with easyJet and Wizz Air among the stocks more than 3% lower. Homewares chain Dunelm rose 4% or 27.5p to 750.5p after reporting robust current trading alongside its record annual results.

Inflation still to peak despite petrol price fall

08:23 , Graeme Evans

Economists have warned that inflation is yet to peak, despite the annual rate of the consumer prices index (CPI) easing to 9.9% in August from 10.1% the previous month.

CPI’s downward move was due to a 6.8% month-on-month fall in fuel prices, which offset a further rise in food price inflation to 13.4% and an increase in clothing price inflation.

Next month’s increase in the average energy price cap to £2,500 means Capital Economics expects a peak for CPI of 11% later this year.

The consultancy has also highlighted today’s upward momentum in services inflation, which rose to 5.9% and meant core CPI inflation stayed at a 30-year high of 6.3%.

Chief UK economist Paul Dales said: “We think CPI inflation will peak around 11% just before the end of the year and that core inflation will continue to edge higher too.

“That means the Bank will have to continue raising interest rates, from 1.75% now to 3% if not higher.”

FTSE 100 under pressure, dollar strengthens

07:48 , Graeme Evans

Wall Street endured its worst session since June 2020 last night, with the tech-focused Nasdaq down 5% after US inflation figures rattled investor confidence.

The annual inflation rate of 8.3% was down by less than expected, fuelling expectations for a 0.75% increase in US interest rates by the Federal Reserve next week. Some traders are even talking about the possibility of a 1% rise.

With core prices greater than expected, there are also fears that higher rates will be needed for much longer.

Federal Reserve chair Jerome Powell has already made it clear that the central bank will keep raising rates until there is clear evidence that inflation is on a sustainable downward path.

Fears over the resulting impact on the global economy were reflected in Wall Street’s biggest one-day drop in over two years, with the Dow Jones Industrial Average off 4% and the S&P 500 4.3% lower after four previous sessions of progress.

Asia markets continued the selling pressure after the Nikkei 225 fell more than 2% and the FTSE 100 index is today poised to drop by 50 points at 7,335, according to CMC Markets.

London’s top flight ended yesterday down by 1.2%, with consumer-focused and retail among those hardest hit.

The US dollar has strengthened on expectations for further aggressive rises in US interest rates, causing sterling to reverse this week’s gains at just below $1.15. Oil prices steadied today, with Brent crude at $93 a barrel.