Stocks in London pulled back by Wednesday afternoon, after stubborn US core inflation figures all but extinguished hopes of a 50 basis point rate cut from the Federal Reserve.
The FTSE 100 index fell 12.04 points, or 0.2%, at 8,193.94. The FTSE 250 ended down 118.89 points, 0.6%, at 20,537.25, and the AIM All-Share eased 5.77 points, or 0.8%, at 738.09.
The Cboe UK 100 fell 0.3% to 819.82, the Cboe UK 250 declined 0.5% at 18,089.32, and the Cboe Small Companies ended down 1.4% at 16,612.65.
On Wall Street at the time of London’s close, the Dow Jones Industrial Average was down 1.2%, the S&P 500 was 1.0% lower and the Nasdaq Composite eased 0.5%.
US consumer price inflation abated by more than expected last month, numbers on Wednesday showed, although core figures surprised on the upside.
According to the US Bureau of Labor Statistics, annual consumer price inflation faded to 2.5% in August, from 2.9% in July.
A less tame reading of 2.6% was expected for August, according to consensus cited by FXStreet.
The BLS said it was the softest inflation reading since February 2021.
Excluding food and energy, the annual core inflation rate remained at 3.2% in August, where it stood in July. The reading met the FXStreet cited consensus.
On a monthly basis, consumer prices increased 0.2% in August, in line with consensus, and matching the pace of growth seen in July from June.
But core inflation rose 0.3% on-month, picking up speed from 0.2% in July, and ahead of the 0.2% consensus.
Analysts focused squarely on the core inflation reading.
‘The unexpectedly strong rise in core inflation in August reflected upward surprises in shelter and transport services, which we do not think will be sustained. Even so, the unwelcome news on inflation makes it more likely that officials stick with a measured approach to easing, beginning with a 25bp cut next week,’ said Michael Pearce, deputy chief US economist, at Oxford Economics.
Pooja Sriram at Barclays thinks the upside surprise to core CPI makes a surprise 50bp cut next week even less unlikely. She sticks with her call for a 25bp cut next Wednesday.
The CME Fedwatch tool places an 85% chance of a 25 basis points rate cut next week and a 15% likelihood of a larger 50bps cut. A week ago the chances were put at 66% and 34% respectively.
The data pushed the dollar higher.
The pound was quoted at $1.3026 late Wednesday afternoon in London, down compared to $1.3060 at the equities close on Tuesday. The euro stood at $1.1013, weaker against $1.1021. Against the yen, the dollar was trading at JP¥141.58, down compared to JP¥142.55.
In European equities on Wednesday, the CAC 40 in Paris fell 0.1%, while the DAX 40 in Frankfurt climbed 0.3%.
Spanish retailer Inditex rose 4.5% in Madrid after impressing analysts with strong first-half results, ahead of expectations.
The Galicia, Spain-based clothing retailer, whose brands include Zara, Berksha and Stradivarius, said net income for the six months ended July 31 increased 10% to €2.78 billion from €2.52 billion the previous year.
Earnings per share increased 10% to 88.9 euro cents from 80.7 cents.
Inditex’s Spring and Summer collections were ‘very well received by [its] customers’, with net sales increasing 7.2% to €18.07 billion from €16.85 billion and ‘showing very satisfactory development both in stores and online’.
Jefferies said the results confirm the remarkable consistency of delivery from the group.
‘This at a time when downgrade momentum continues to afflict a number of peers,’ the broker noted.
In the UK, figures showed the economy stood still in July, the second successive month of no growth, an outcome that underperformed expectations.
The Office for National Statistics said the UK economy registered no growth on-month in July. It had also made no progress in June.
It had been expected to advance 0.2% in July from June, according to FXStreet cited consensus.
Bank of America said the biggest disappointment came from industrial production which fell by 0.8% on-month, relative to consensus of a 0.3% rise. Construction fell as well by 0.4%. Services rose by 0.1%, slightly below expectation of a 0.2% rise, BofA added.
‘While growth has disappointed today, the monthly numbers tend to volatile and come after above trend growth in [the first half] and a tight labour market. On a [three month on three month] basis the economy grew by 0.5%. Moreover, the stagnation in July was driven largely by manufacturing, and the biggest services sector is growing. However, this data does increase the focus on inflation numbers next week before the September [BoE] decision,’ BofA commented.
Peel Hunt’s Kallum Pickering thinks ‘we should not worry too much about the miss’.
‘We expect momentum to ease towards a more normal rate of 0.4% quarter-on-quarter in the [third and fourth quarter]. While the July downside surprise suggests some modest risk to our 3Q call, a likely snap back in production in August due to normal month-to-month volatility keeps us on track for now.’
On the FTSE 100, Rentokil tumbled 20%. It warned slower growth in North America and the strong pound will dent full-year profit.
The pest control and hygiene company said trading in North America in July and August was lower than anticipated while there had been been some modest disruption to organic growth from branch integration.
The firm now expects second half organic revenue growth in North America of around 1%. Rentokil previously had forecast full-year organic revenue in North America between 2% to 4%.
‘We expect the news to be taken negatively by the market and believe it creates uncertainty around the progress and execution of the integration programme in North America. Furthermore, given the weakness in organic growth seen since [the third-quarter of 2023], we also believe the company’s medium-term targets could be at risk given the negative operating leverage implications from ongoing volume weakness,’ analysts at Goldman Sachs commented.
Trustpilot jumped 12%. It reported half-year profit, predicted full-year earnings at the top end of market expectations, and announced a £20 million share buyback.
The Copenhagen-based consumer reviews platform said it swung to a pretax profit for the six months ended June 30 of $2.6 million, from a loss of $4.0 million a year prior. Revenue was $99.8 million, up 18% from $84.6 million.
WH Smith rose 11% as a combination of strong trading and shareholder returns drew praise from analysts.
In a trading update, the Swindon-based travel operator and retailer announced a £50 million share buy back, and pledged further returns to shareholders amid strong trading.
In the fourth-quarter ended August 31, group revenue rose 6% on-year, while like-for-like revenue advanced 4%. For the full-year, revenue was 7% higher, rising 5% like-for-like.
Overall, WH Smith expects the outcome for the year to August 31 to be in line with expectations.
Barclays raised its share price target to 1,590 pence from 1,535p before.
‘Whilst the update does not prove conclusively that the US growth rate will continue to improve from here, we consider this a clear step in the right direction, and an endorsement of the investment thesis.’
Costain fell 8.6% after ASGC Construction sold a 15% stake in the firm worth £37.9 million.
Brent oil was quoted at $70.32 barrel at the time of the London equities close on Wednesday, up from $69.20 late Tuesday.
The price of gold eased to $2,512.09 an ounce against $2,515.08.
Thursday’s economic calendar sees the European Central Bank interest rate decision at 1315 BST and US PPI and weekly jobless claims data at 1330 BST.
The local corporate calendar has a trading statement from Trainline and half-year results from Fevertree Drinks.
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