LONDON MARKET CLOSE: Europe closes mixed ahead of US inflation data

(Alliance News) - European equities closed mixed on Wednesday, pausing for breath after convincing gains on Tuesday, with a sell-off of luxury retail shares hurting the mood, while a hotter-than-expected US producer price reading did little to soothe lingering inflation worries.

All eyes will be on Thursday's consumer price index data, which could influence whether or not the US Federal Reserve enacts an interest rate hike next month. Currently, it is expected to leave rates unchanged at the 5.25%-5.50% range.

The FTSE 100 index lost 8.18 points, or 0.1%, at 7,620.03. The FTSE 250 ended down 91.43 points, or 0.5%, at 17,876.24, and the AIM All-Share lost 2.40 points, or 0.3%, at 695.69.

The Cboe UK 100 fell 0.2% to 761.15, the Cboe UK 250 lost 0.7% at 15,540.27, and the Cboe Small Companies lost 0.1% to 13,050.46.

Stocks in New York were mixed. The Dow Jones Industrial Average was down 0.1% at the time of the closing bell in London. The S&P 500 was flat and the Nasdaq Composite was up 0.4%.

The pound was quoted at USD1.2309 at the time of the London equities close on Wednesday, up from USD1.2270 on Tuesday. The euro stood at USD1.0622, up against USD1.0606. Against the yen, the dollar was trading at JPY149.01, higher compared to JPY148.74.

The dollar was mixed despite a more robust than expected US producer price index reading.

The producer price index rose 2.2% in September from a year before, accelerating from a 2.0% annual rise in August. Markets had been expecting the inflation rate cool to 1.6%, according to FXStreet-cited consensus.

Month-on-month, the producer price index rose 0.5% in September, slowing from a 0.7% rise in August. The monthly PPI inflation print had been expected to be 0.4%.

The data was printed ahead of the release of minutes from the Federal Reserve's most recent meeting, due at 1900 BST.

Fed tightening expectations have faded so far this week, supporting equities.

The Federal Reserve is on track to tackle US inflation without pushing the country into a damaging recession, a senior official on the bank's rate-setting committee said Tuesday.

"We feel like we're on track for a soft landing," Minneapolis Fed President Neel Kashkari told a conference in North Dakota, using a popular term to describe tackling inflation while avoiding a recession.

"Inflation has come down quite a bit, the labour market has remained strong, maybe we can get inflation all the way back down and avoiding (sic) a deep recession," he said.

Kashkari also engaged with recent comments from Dallas Fed President Lorie Logan, who said elevated long-term interest rates could mean there is "less need" for another rate hike.

"It's certainly possible that higher long term yields may do some of the work for us in terms of bringing inflation back down," Kashkari said Tuesday.

But he warned that if yields rose due to a change in expectations about Fed policy, the US central bank "might actually have to follow through on their expectations in order to maintain those yields".

In mainland Europe, the DAX 40 in Frankfurt rose 0.2%, though the CAC 40 in Paris lost 0.4%.

LVMH fell 5.8% after poorly-received third-quarter results, which showed revenue growth slowed.

Other luxury retail stocks across the continent also fell, under the expectation that their top-line growth will be similarly tepid.

In London, Burberry fell 3.2%. Richemont declined 4.0% in Zurich.

Helping the FTSE 100 and Frankfurt's DAX on Wednesday were defence firms BAE Systems and Rheinmetall. The duo rose 1.3% and 2.7% as investors continue to track events in the Middle East.

Israel's Prime Minister Benjamin Netanyahu announced Wednesday an "emergency government" with an opposition party leader, Benny Gantz, for the duration of the war with Gaza militants.

Ebury analyst Matthew Ryan said that while the conflict's impact on financial markets has been contained so far, the events threaten a "contagion".

"We think that the biggest risk lies in commodities, as a wider war in the Middle East would jeopardise oil supply and could push up prices, particularly should major oil producers Saudi Arabia and Iran take up arms. This may present an additional upside risk to global inflation and could ensure that central bank interest rates stay higher, for longer," Ryan said.

Back in London, Travis Perkins declined 6.7%. The builders merchant warned that falling prices of commodity products have hurt gross profit and narrowed its profit margins, leading it to cut earnings guidance.

Travis guided for 2023 adjusted operating profit of GBP175 million to GBP195 million. This is down from its previous guidance of GBP240 million, provided in August at the time of its interim results. It also will be down at least 34% from GBP295 million in 2022.

Howden Joinery and Grafton fell 2.8% and 4.7% in a negative read-across.

Over in New York, Exxon was down 4.4% at the time of the London equities close. It announced it would acquire Pioneer Natural Resources in a deal worth roughly USD60 billion.

The firm said Pioneer shareholders will receive 2.32 Exxon Mobil shares for each share of Pioneer. Pioneer is a Texas-based hydrocarbon exploration firm.

The deal gives Pioneer an equity value of USD59.5 billion and an enterprise value, so including debt, of USD64.5 billion.

The deal will be the firm's largest since its USD81 billion merger with Mobil in 1998.

Brent oil was quoted at USD85.84 a barrel late Wednesday in London, down from USD87.50 at the London equities close on Tuesday. Gold was quoted at USD1,872.58 an ounce, higher against USD1,859.73.

Thursday's economic calendar has a UK gross domestic product reading at 0700 BST, before the US CPI and latest jobless claims readings at 1330 BST.

The UK corporate diary has a trading statement from budget carrier easyJet and money transfer firm Wise.

By Eric Cunha, Alliance News news editor

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