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(Alliance News) - European stocks were on the back foot heading into Wednesday afternoon, while sterling hit its best level in over three years after a loftier than forecast UK inflation reading.
The FTSE 100 index traded down 8.44 points, 0.1%, at 8,772.68. The FTSE 250 was down 175.93 points, 0.8%, at 20,920.51, and the AIM All-Share was down 3.56 points, 0.4%, at 734.02.
The Cboe UK 100 was down 0.1% at 875.09, the Cboe UK 250 was 0.7% lower at 18,329.88, and the Cboe Small Companies was 0.9% higher at 16,387.71.
In Paris, the CAC 40 fell 0.7%, while Frankfurt's DAX 40 lost 0.5%.
Middle East tensions are keeping a lid on positivity, but lifted oil. Brent rose to USD65.84 midday Wednesday, from USD65.09 late Tuesday.
Crude prices surged following US intelligence reports that suggested Israel was planning a strike on Iran, which would send geopolitical tensions into overdrive and fuel regional conflict fears. CNN reported multiple US officials as saying the government had received intelligence indicating Israel was preparing to target Iranian atomic facilities.
US stocks are called to open lower. The Dow Jones Industrial is called down 1.0%, and the S&P 500 and Nasdaq Composite down 0.8%.
SPI Asset Management analyst Stephen Innes commented: "Markets stirred with a familiar jolt as Middle East tensions reignited—Brent spiked on reports of a possible Israeli strike on Iranian nuclear assets. No confirmation, but in this game, denials are noise—price moves on the mere scent of escalation. Gold firmed, havens like the yen and franc caught a bid, and futures turned defensive."
Gold traded at USD3,310.13 an ounce early Wednesday afternoon. up from USD3,276.82 late Tuesday afternoon.
Against the dollar, sterling shot up to USD1.3420 on Wednesday morning, from USD1.3363 at the time of the London equities close on Tuesday. It had traded as high as USD1.3467 on Wednesday, its best level since February 2022.
The pace of annual consumer price inflation accelerated to 3.5% in April, from 2.6% in March, topping the FXStreet cited consensus of 3.3%. The last time the rate of inflation was higher was back in January 2024, when it stood at 4.0%.
On a monthly basis, consumer prices shot up 1.2% in April, after a 0.3% hike in March.
Service price inflation picked up to 5.4% in April, from 4.7% in March.
Excluding energy, food, alcohol and tobacco, the annual core consumer price inflation rate was 3.8% in April, quickening from 3.4% in March.
Deutsche Bank's Sanjay Raja said the print will make for "uncomfortable reading" for the BoE's Monetary Policy Committee, especially with services CPI a "whopping" 0.6 percentage points higher than consensus expectations.
However, Raja said policymakers could still find "solace" in the report.
Raja added: "Big picture, this is not the end of a quarterly cutting cycle – not yet at least. While the bar may be higher for an August rate cut than previously thought, it's likely that the majority of the MPC will look past this if inflation expectations start to recede as we expect them to ahead of the August decision, the labour market continues to loosen as we expect, and pay settlements continue to come in lower.
"Indeed, the bank's preferred core services measure (excluding indexed and volatile components, rents and foreign holidays, monthly annualised) actually slowed in April to 4.18% y/y (Mar-25: 4.42%). This will almost certainly be the death knell for a June rate cut, however. While August still seems likely in our view, it certainly has become a lot more interesting and balanced. The MPC will see one more inflation print ahead of June. But any talk of a dovish pivot in Q2-25 should be put to rest."
The yield on the 10-year Treasury stretched to 4.54% on Wednesday afternoon UK time, from 4.48% at the time of the London equities close on Tuesday. The 30-year yield widened to 5.03% from 4.97%.
The euro climbed to USD1.1346 on Wednesday afternoon from USD1.1258 late Tuesday. Against the yen, the dollar fell to JPY143.58 from JPY144.62.
Analysts at Barclays commented: "The steepening at the long end of the US curve has proxied dollar weakness accurately. The current fresh bout of steepening, linked to both US risk premia and also global drivers could lead EUR/USD to our new 1.15 forecasts but its influence on the greenback is unlikely to be boundless.
"Regardless of the precise underlying dynamics, bond market volatility is creating an unfavourable market environment for the dollar. Shifts in rhetoric, trade policy mishaps or data softening could all lead EUR/USD higher."
In London, JD Sports sunk 9.7%. It reported an increase in annual revenue but a decline in profit for the year to February 1.
It said sales in the 13 weeks to May 3 rose 3.1% on an organic basis. However, they were down 2.0% like-for-like.
AJ Bell analyst Russ Mould commented: "JD has thrived on consumers' willingness to load up on the latest footwear, with many people viewing trainers and sneakers as collectables rather than functional items. It has also capitalised on the athleisure boom, selling a wide range of fitness clothing to the mass market. There is a risk both of these trends run out of steam or at least go through a temporary moment of weakness as individuals reassess their spending choices."
Conversely, M&S rose 1.8%, recovering earlier weakness. The stock had initially fallen as it predicted a roughly GBP300 million hit to annual profit in its new financial year, amid cyber incident chaos.
Currys was another retail name on the up, adding 1.7% as the electronics products seller plans to reinstate its dividend.
Shoe Zone slumped 20%, however, as it reported a fall in revenue and a swing to a half-year loss.
Water utilities traded higher, with Severn Trent among the pick of the bunch. It rose 2.8% on well-received annual results.
The Coventry, England-based water utility said pretax profit jumped 59% to GBP320.1 million in the financial year ended March 31, from GBP201.3 million a year prior.
Revenue climbed 3.8% to GBP2.43 billion from GBP2.34 billion.
Pennon was the FTSE 250's best performer, rising 3.9% in a positive read-across.
By Eric Cunha, Alliance News news editor
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