Positive news about price inflation in the UK and US was not enough to give share prices a positive start in London on Wednesday, as market participants stay wary of an interest rate decision by the US Federal Reserve later in the day.
The FTSE 100 index opened down 28.45 points, or 0.4%, at 7,474.44. The FTSE 250 was down 106.16 points, or 0.6%, at 18,980.13, and the AIM All-Share was down 3.76 points, or 0.5%, at 834.83.
The Cboe UK 100 was down 0.3% at 747.51, the Cboe UK 250 closed down 0.6% at 16,364.22, and the Cboe Small Companies ended down 0.4% at 13,089.08.
Inflation in the UK cooled off from last month’s record annual high, according to data from the Office of National Statistics.
The consumer price index rose by 0.4% in November against the previous month. Annually, CPI grew by 10.7%. Both the annual and the monthly increases undershot FXStreet-cited market consensus of 0.6% and 10.9% rises, respectively.
In October, prices rose by 11.1% against the previous year, the highest annual inflation rate since the National Statistics series began in January 1997.
The pound was quoted at $1.2355 at early on Wednesday in London, lower compared to $1.2378 at the equities close on Tuesday.
‘The pound’s reaction to the data has been quite muted, which is not surprising given the wait-and-see approach ahead of today’s [US Federal Open Market Committee] risk event and since the inflation figures do not suggest a different outcome for tomorrow’s Bank of England meeting,’ commented Francesco Pesole at ING.
The Bank of England announces its interest rate decision on Thursday at midday, with market expecting a 50 basis point hike.
Until then, markets will be focused on the US Federal Reserve which will conclude the two-day meeting of the policy-making FOMC on Wednesday and announce its decision at 1900 GMT. This will be followed by a press conference with Fed Chair Jerome Powell at 1930 GMT.
According to the CME FedWatch Tool, there is a 79% chance of a 50 basis point hike from the Fed, and a 21% chance a bigger hike of 75 basis points. The US central bank lifted rates by 75 basis points at its last four meetings.
Should the Fed raise rates by half a percent, as expected on Wednesday, this would take the federal funds rate range to 4.45% to 4.50%.
For ING’s Pesole, the announcement will also tell us whether the Fed ‘can still offer some support to the dollar’.
The euro stood at $1.0626, down against $1.0643. Against the yen, the dollar was trading at JP¥135.58, higher compared to JP¥135.10.
In the US on Tuesday, Wall Street ended higher, with the Dow Jones Industrial Average up 0.3%, the S&P 500 up 0.7% and the Nasdaq Composite up 1.0%.
On Tuesday, data from the Bureau of Labor Statistics data revealed that inflation in the US slowed by more than expected in November.
Annually, the consumer price index rose 7.1% in November from a year before, slowing from the 7.7% annual rise recorded in October. Market consensus, according to FXStreet, had predicted inflation would be 7.3% in November.
Capital Economics Paul Ashworth said: ‘The Fed could dismiss the better-than-expected October as just one month’s data, but the further slowdown in November makes this new disinflationary trend harder to dismiss.’
In London, Vodafone was up 0.2%. Late Tuesday, the telecommunications firm said its subsidiary Oak Holdings launched a voluntary takeover offer for mobile towers business Vantage Towers.
Vodafone said the price of the takeover offer is €32.00 per share, representing a 19% premium to the three-month volume-weighted average share price of €26.89.
It added that Oak will hold a minimum of 88.2% of the outstanding share capital of Germany-based Vantage Towers, which includes the 81.7% stake held by Vodafone prior to the announcement of the offer.
Taylor Wimpey fell 2.2% after JPMorgan cut the housebuilder to ’neutral’ from ’overweight’.
In the FTSE 250, Tui was down 5.8% after it reported a narrowed pretax Ioss In the financial year that ended September 30.
The travel firm’s loss narrowed to €146 million from €2.46 billion, as revenue multiplied to €16.55 billion from €4.73 billion after Covid-19 travel restrictions were lifted.
Tui added it expects to operate its Winter 2022-23 programme at close to pre-pandemic levels. The Winter programme is 54% sold, which means bookings are at 134% of last year and 84% of 2018-19 levels.
Watches of Switzerland was down 3.2%, despite posting double-digit rises in both interim profit and revenue.
In the six months ended October 30, the watch retailer reported revenue of £765 million, up 31% from £586 million the previous year. Pretax profit rose 28% to £83 million from £65 million.
The company also noted that trading in the holiday period so far has been in-line with its expectations. As a result, it kept its full-year guidance unchanged which expects revenue to be between £1.50 billion and £1.55 billion.
In European equities on Wednesday, the CAC 40 in Paris and the DAX 40 in Frankfurt were both down 0.3%.
On Thursday, the European Central Bank announces its latest monetary policy decision at 1415 CET on Thursday. This will be followed by a press conference with ECB President Christine Lagarde at 1445 CET.
The Frankfurt-based bank is expected to ease the pace of interest hikes, with a 50 basis point raise priced in by markets.
In Asia on Wednesday, the Japanese Nikkei 225 index closed up 0.7%. In China, the Shanghai Composite closed flat, while the Hang Seng index in Hong Kong ended up 0.4%. The S&P/ASX 200 in Sydney closed up 0.7%.
China’s top health body said Wednesday the true scale of coronavirus infections in the country is now ‘impossible’ to track, with officials warning cases are rising rapidly in Beijing after the government abruptly abandoned its zero-Covid policy last week.
With testing no longer required for much of the country, China’s National Health Commission on Wednesday admitted its numbers no longer reflected reality.
Brent oil was quoted at $80.64 a barrel at early in London on Wednesday, down from $81.03 late Tuesday. Gold was quoted at $1,806.88 an ounce, lower against $1,813.25.
Still to come on Wednesday economic calendar, there’s EU industrial production at 1000 GMT, shortly before the UK house price index will be published.
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