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(Alliance News) - A hotter-than-expected US inflation reading on Wednesday heightened recession fears once more and ensured equities in London finished the session in the red.
The FTSE 100 index closed down 53.49 points, or 0.7%, at 7,156.37. The FTSE 250 ended down 143.60 points, or 0.8%, at 18,711.36, and the AIM All-Share closed down 2.91 points, or 0.3%, at 879.17.
The Cboe UK 100 ended down 0.6% at 714.46, the Cboe UK 250 closed down 0.5% at 16329.49, and the Cboe Small Companies ended down 1.0% at 13096.97.
In European equities on Wednesday, the CAC 40 in Paris ended down 0.7%, while the DAX 40 in Frankfurt ended down 1.2%.
The US consumer price index rose 9.1% from a year before, the fastest such increase since November 1981, the Labor Department reported. Annual inflation picked up from 8.6% in May and exceeded market consensus, according to FXstreet of 8.8%.
The beat will put further pressure on the US Federal Reserve to raise interest rates quickly to get a grip on rampant inflation. It makes all but certain a second-successive 75 basis point interest rate hike by the US central bank at its next policy meeting on July 26 and 27.
On a monthly basis, prices rose by 1.3% in June on a seasonally adjusted basis, having risen by 1.0% in May.
"With headline CPI jumping by 1.3% over the course of the month alone, it is perhaps no surprise to see market pricing around an oversized 100 basis point rate hike gather traction. Ordinarily such a hike would be unheard of, but the Bank of Canada implemented a 100bps rate rise of their own this afternoon," said Joshua Mahony, senior market analyst at online trading platform IG.
The Bank of Canada on Wednesday hiked its target for the overnight rate by 100 basis points to 2.5%. Consensus, according to FXStreet, had seen the overnight rate being lifted by 75 basis points to 2.25%.
The central bank noted that inflation is "higher and more persistent" than previously anticipated and, as a result, has decided to "front-load" its rate hike path. Interest rates will need to rise further, the bank added.
Stocks in New York were mostly lower at the London equities close, with the Dow Jones down 0.5%, the S&P 500 index down 0.3%, but the Nasdaq Composite was up 0.1%.
Despite the unexpected surge in US inflation, the dollar failed to make headway.
The euro stood at USD1.0089 at the European equities close Wednesday, rising against USD1.0068 at the same time on Tuesday and recovering from an intraday low of USD0.9998.
"The post-CPI reaction clearly suggests that investors are thinking that the big inflation readings will hurt the economy so badly that not only will the Fed stop hiking rates soon, but will go in reverse in as early as Q1. Indeed, US 10-year bond yields went back below 3%, while the market simultaneously priced in 18 basis points of rate cut for the first quarter of 2023," commented Fawad Razaqzada, market analyst at City Index and Forex.com, on the dollar's retreat.
The pound was quoted at USD1.1929 at the London equities close Wednesday, up compared to USD1.1906 at the close on Tuesday.
Sterling found support from data showing the UK economy defied expectations and strengthened in May.
According to the Office for National Statistics, UK gross domestic product grew 0.5% monthly in May, following a 0.2% decline in April. April's figure was upwardly revised from an initially reported 0.3% fall. The figure for May topped FXStreet cited consensus which had forecast the economy to register no monthly growth at all.
The Japanese yen continued to struggle, meanwhile, trading at fresh lows not seen since 1998. Against the yen, the dollar was trading at JPY137.35, up compared to JPY136.66 late Tuesday.
In London, precious metals miner Fresnillo was the top performer in the FTSE 100, rising 3.9%. Gold was quoted at USD1,739.37 an ounce at the London equities close Wednesday, up against USD1,732.30 at the close on Tuesday amid a bout of dollar weakness.
Brent oil was quoted at USD100.80 a barrel at the London equities close Wednesday, up a touch from USD100.37 late Tuesday.
At the bottom of the blue-chips was abrdn, falling 5.0% after HSBC cut the stock to 'hold' from 'buy'.
JD Wetherspoon closed down 8.3% in the FTSE 250 after cautioning that its loss for the financial year ending July 31 will be chunkier than expected, as labour costs increase.
The Watford, England-based pub chain warned its loss for the year will be larger than expected, at GBP30 million on an IFRS 16 basis. IFRS 16 is an accounting rule related to leases based on International Financial Reporting Standards. In financial 20201, Wetherspoon suffered a pretax loss of GBP167.2 million, widened from GBP44.7 million the year prior.
The company said sales have crawled closer to pre-virus levels so far in its financial fourth quarter. Sales of cocktails, spirits and food are on the up so far in its fourth quarter, though sales of typical pub-drink stalwarts such as draught ales, lagers and ciders were below pre-virus levels.
Clarkson rallied 9.1% after expecting a significant increase in interim profit, mostly due to a strong contribution from its Broking business.
The London-based shipping services firm said trading in the first half of 2022 has been "strong." As a result, the company expects to report an underlying pretax profit of at least GBP42 million. In the first half of 2021, the company recorded an underlying pretax profit of GBP27.5 million. This would represent year-on-year growth of at least 53%.
The company now expects its 2022 results to be "materially" ahead of its previous expectations.
Darktrace rose 4.6% on a vote of confidence from Stifel, which started coverage on the cybersecurity stock with a 'buy' rating.
The UK corporate calendar on Thursday has first-quarter results from water firm Severn Trent and trading statements from housebuilder Barratt Developments and emerging markets investment manager Ashmore.
Thursday's economic calendar has Japanese industrial production overnight, German wholesale prices at 0700 BST, Irish inflation at 1100 BST and US initial jobless claims at 1330 BST. The European Commission will release economic growth forecasts.
By Lucy Heming; lucyheming@alliancenews.com
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