Equities in London were on the back foot heading into Wednesday afternoon, with markets still digesting Tuesday's hotter-than-forecast US inflation reading, and what it could mean for monetary policy.
Focus will turn US producer inflation figures out later this afternoon. Factory prices are expected to grow 8.8% year-on-year in August, according to FXStreet consensus, slowing from July's growth of 9.8%.
The FTSE 100 index was down 70.43 points, or 1.0% at 7,315.36 at midday on Wednesday. The mid-cap FTSE 250 index was down 155.24 points, or 0.8%, at 19,012.01. The AIM All-Share index was down 11.02 points, or 1.3%, at 869.63.
The Cboe UK 100 index was down 1.1% at 730.62. The Cboe 250 was down 1.2% at 16,375.65, and the Cboe Small Companies down 0.3% at 13,658.92.
In mainland Europe, the CAC 40 in Paris was down 0.2% while the DAX 40 in Frankfurt was 0.5% lower.
The mood in Europe remained downbeat as Wednesday's progressed, as traders took stock following Tuesday's shock US inflation print.
US consumer price inflation did not slow as much as had been hoped, coming in at an annual rate of 8.3% in August, compared to expectations of 8.1%. It still eased off July's rate of 8.5%, however.
Further, core inflation ticked up to 6.3% annually, from 5.9% in July. It had been expected at 6.1%. This prompted fears that inflation is becoming entrenched in the economy, especially as the Bureau of Labor Statistics reported price growth was ‘broad-based’ in August.
Markets are now pricing the risk of a full percentage point rate hike from the Federal Reserve next week, but the majority of analysts still expect a 75 basis point increase.
‘Just as there was talk of a soft landing, the danger is that hitting the inflation nut hard enough for it to crack breaks the table it's sitting on,’ commented Societe Generale analyst Kit Juckes.
While US inflation figures offered an upside surprise, UK consumer price data undershot forecasts.
The UK consumer price index rose 9.9% year-on-year in August, unexpectedly slowing from 10.1% in July. Consensus, according to FXStreet, was for the rate reading to tick up to 10.2%.
However, annual core CPI - so excluding energy, food, alcohol and tobacco - inched up as forecast, to 6.3% from 6.2%.
‘Whilst the headline CPI number fell, services and core inflation stubbornly tracked higher, something members of the Bank of England's monetary policy committee will be eyeing intently,’ said AJ Bell's Danni Hewson.
The Bank of England unveils its latest interest rate decision on Thursday next week, just a day after the Fed reveals its own interest rate move. The BoE decision was postponed by a week following the death of Queen Elizabeth II.
Sterling was quoted at $1.1563 midday Wednesday, up from $1.1524 at the London equities close on Tuesday and off an intraday low below the $1.15 level.
The euro traded at $1.0022 on Wednesday, up against $0.9992 late Tuesday. Against the yen, the dollar was quoted at JP¥143.02, down against JP¥144.23.
Gold was quoted at $1,704.72 an ounce, down slightly against $1,704.90 on Tuesday. Brent oil was trading at $93.43 a barrel, higher from $93.12 late Tuesday.
In the FTSE 100, asset manager abrdn was down 3.6%, after Deutsche Bank cut the stock to 'sell' from 'hold'.
‘We have been cautious on abrdn's earnings for a while, as evidenced by our sell catalyst call in June. Since then, we've reflected further on the numbers and see further downside risk to the shares from both an earnings and capital perspective,’ Deutsche Bank commented.
Ocado was down 3.5%. The online retailer was extending losses after a 15% fall on Tuesday, following a downgrade to its sales outlook for joint venture Ocado Retail. Further compounding woes, Credit Suisse downgraded the stock to 'underperform' from 'neutral' on Wednesday morning.
In the mid-caps, Aston Martin was the worst performer, down 8.5%. The luxury car maker is facing a £150 million lawsuit from two former car dealers, the Financial Times reported.
easyJet shed 3.9% after a downgrade from Stifel, which cut the stock to 'sell' from 'buy'. Stifel also downgraded British Airways parent International Consolidated Airlines to 'sell' from 'hold', with shares down 2.0% at midday, while Ryanair was downgraded to 'sell' from 'hold'.
On AIM, Naked Wines tumbled 35%, after the online wine seller said late on Tuesday it is mulling plans to improve profit and keep a lid on costs as it grapples with slower sales progress due to pandemic tailwinds unwinding.
It also said Pratham Ravi, a non-executive director, stepped down effective immediately. Ravi was appointed in August and is an analyst at Punch Card Capital LP, one of the online wine retailer's largest shareholders.
In New York, stocks were set to stage a recovery after Tuesday's losses. The Dow Jones Industrial Average was called up 0.4%, the S&P 500 called up 0.5%, and the Nasdaq Composite called up 0.6%.
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