Blue-chip equities in Europe ended lower on Tuesday, despite a promising start to the day which saw the CAC 40 in Paris spike to a record high.
The afternoon’s key US inflation data went largely to plan. The annual rate of consumer inflation eased, inching ever-so-slightly closer to the Fed’s 2% target. However, stubborn month-on-month price growth tempered enthusiasm.
The FTSE 100 index ended down just 2.12 points at 7,542.77. The FTSE 250 fell 88.27 points, 0.5%, at 18,662.12, and the AIM All-Share lost 1.42 points, 0.2%, at 723.91.
The Cboe UK 100 closed marginally lower at 753.57, the Cboe UK 250 closed down 0.5% at 16,174.97, though the Cboe Small Companies rose 0.4% to 14,069.14.
In European equities on Tuesday, the CAC 40 in Paris ended down 0.1%, despite hitting a record high earlier, while the DAX 40 in Frankfurt closed a touch lower.
Stocks in New York were higher at the time of the European close. The Dow Jones Industrial Average was up 0.3%, the S&P 500 added 0.1%, while the Nasdaq Composite climbed 0.2%.
European equities were on edge ahead of two key days of central banking action. The Federal Reserve announces its latest interest rate decision at 1900 GMT on Wednesday. A press conference with Fed Chair Jerome Powell follows half an hour later.
Elsewhere, Wednesday’s economic calendar has the UK gross domestic product reading at 0700 GMT and a eurozone industrial production reading follows at 1000 GMT.
For now, the market sees roughly a 98% chance the Fed maintains rates at the 5.25% to 5.50% range on Wednesday, according to the CME FedWatch Tool.
Expectations were reinforced after the latest US inflation data landed in line with expectations.
According to the Bureau of Labor Statistics, the nation’s yearly inflation rate faded to 3.1% in November, in line with consensus, from 3.2% in October.
On a monthly basis, consumer prices were 0.1% higher in November from October, an outcome that was also in line with expectations, according to FXStreet. Some had expected consumer prices to tread water in November, as they did in October.
The annual core inflation rate, so not including food and energy, was unmoved at 4.0% in November, also in line with consensus. The core rate of inflation spiked as high as 6.6% in September 2022, but has steadily ebbed since.
Oxford Economics analyst Michael Pearce predicted that the ‘slow grind to lower inflation will keep the Fed hawkish’.
‘With underlying inflation set to trend lower only gradually next year, we expect Fed officials to push back hard on market expectations that rate cuts could come as soon as spring,’ the analyst commented.
The pound was quoted at $1.2549 at the time of the London equities close on Tuesday, up slightly compared to $1.2545 on Monday. The euro stood at $1.0789, higher against $1.0746. Against the yen, the dollar was trading at JP¥145.60, lower compared to JP¥146.52.
UK unemployment was steady in the three months to October, figures from the Office for National Statistics showed on Tuesday.
The unemployment rate for the period from August to October was 4.2%, unchanged from the July to September period. The unemployment rate came in line with FXStreet-cited market consensus.
In the three months to September, annual growth in average total pay, excluding bonuses, was 7.3%. This was slightly lower than market consensus of 7.4%. Growth in the previous three-month period was 7.8%.
Including bonuses, average pay growth was 7.2%, much lower than market expectations of 7.7%. It was 8.0% in the three months to September.
AJ Bell analyst Danni Hewson commented: ‘The big question was whether there’d be anything in this latest set of jobs figures to trouble Bank of England rate-setters when they meet later this week. The answer is a resounding no and taking a look at market expectation another no-change decision looks almost nailed on.’
The BoE announces its latest interest rate decision on Thursday at midday, with the European Central Bank following roughly an hour later.
In London, share price falls of 1.4% and 5.2% for heavyweights BP and Anglo American put pressure on the FTSE 100.
Oil major BP tracked Brent prices lower. A barrel of the North Sea benchmark bought $73.61 late Tuesday, down from $75.41 on Monday. Brent fell below the $73.50 threshold for the first time since June earlier on Tuesday afternoon.
Shares in miner Anglo American suffered a third-successive decline. It had showed signs of a bounce back at the start of the week, but closed 0.8% lower on Monday. It slumped 19% on Friday after outlining an underwhelming outlook.
BT, Vodafone and Hargreaves Lansdown were also among the worst-performing large-caps, after coming under regulatory cross-hairs.
Telecommunications firm BT and Vodafone fell 3.9% and 2.1% after the UK industry regulator said it wants to ban price hikes linked to inflation from customer contracts.
The Office of Communications said most major phone, broadband and pay TV companies in the UK currently include mid-contract price rises linked to future inflation rates. These and other percentage-based increases create uncertainty for customers, and it wants to ban the practice.
Instead, Ofcom wants the telecom firms to tell customers upfront in ‘pounds and pence’ about any price rises included in their contract.
Hargreaves Lansdown fell 6.7% after the UK Financial Conduct Authority set out concerns on the treatment of retained interest on customer cash balances.
The UK financial watchdog noted that the amount of interest earned by some investment platforms and self-invested personal pensions operators has increased in line with rising interest rates.
It found that the majority of 42 firms surveyed retain some of the interest earned on these cash balances, which ‘may not reasonably reflect the cost to firms of managing the cash’.
Many also charge a fee to customers for the cash they hold, known as ‘double dipping’, the FCA said.
CMC Markets lost 3.7%, while abrdn fell 4.7%.
International Distribution Services, the parent of Royal Mail, shot up 11%. Bank of America lifted the stock to ’buy’ from ’neutral’.
Elsewhere in London, Eneraqua Technologies plunged 32%. The energy and water efficiency solutions provider said two local authority clients have announced delays to projects, with start dates deferred to after April 2024.
It means the deferred projects will now come to fruition in the next financial year and not the current one. It now expects full-year results to be ‘materially below current market expectations’.
Wednesday’s local corporate calendar has half-year results from defence and security technology firm Cohort.
Gold was quoted at $1,982.30 an ounce late Tuesday, largely unmoved from $1,981.92 on Monday.
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