While still easing, US consumer price inflation data came in hotter than expected on Tuesday, sending stock prices in London into the red on Tuesday.
The FTSE 100 index closed down 61.41 points, 0.8%, at 7,512.28. The FTSE 250 ended down 280.10 points, 1.5%, at 18,923.83, and the AIM All-Share closed down 2.85 points, 0.4%, at 747.33.
The Cboe UK 100 ended down 0.9% at 750.56, the Cboe UK 250 closed down 1.7% at 16,341.91, and the Cboe Small Companies ended down 0.2% at 14,364.40.
In European equities on Tuesday, the CAC 40 in Paris closed down 0.8% and the DAX 40 in Frankfurt closed down 0.9%.
Stocks in New York were lower at the London equities close, with the DJIA down 1.1%, the S&P 500 index down 1.0%, and the Nasdaq Composite down 1.2%.
The US inflation rate cooled but at a slower pace than expected last month, key figures on Tuesday showed.
According to the Bureau of Labor Statistics, the nation’s consumer price inflation rate eased to 3.1% in January, from 3.4% in December. It had been expected to ebb to 2.9%, according to FXStreet cited consensus, so the latest reading topped expectations.
Annual core inflation, so excluding food and energy, was steady at 3.9% in January, defying expectations of a slowdown to 3.7%.
‘US inflation failed to moderate as hoped with housing costs, air fares, medical care and recreation all keeping the run rate for month-on-month inflation hot. Their favoured measure of inflation, the core PCE deflator, may be cooling nicely, but the mixed messages means the Fed can’t relax, with little inclination for imminent rate cuts,’ said ING’s James Knightley.
The reading all but ensures that any tiny thread of hope that the Federal Reserve will cut interest rates next month were extinguished. Investors are looking to May for the first Fed cut of the year, though Tuesday’s data could dampen that hope.
Ebury’s Matthew Ryan said that a May cut is now ‘in serious jeopardy.’
Ryan added: ‘We stand by our call for a start to the Fed’s cutting cycle in June, albeit this would also be thrown in doubt should US inflation continue to surprise to the upside, while the labour market shows no signs of slowing down.’
The dollar was mostly stronger on the back of the reading.
The pound was quoted at $1.2596 at the London equities close Tuesday, down compared to $1.2621 at the close on Monday. The euro stood at $1.0716 at the European equities close Tuesday, down against $1.0769 at the same time on Monday.
Against the yen, the dollar was trading at JP¥150.66, higher compared to JP¥149.44 late Monday.
Meanwhile, in the UK, there was also some key economic data for investors to digest.
According to the Office for National Statistics, the jobless rate faded to 3.8% in the three months to the end of December from 4.2% in the period from September to November.
Unemployment had been expected to ease slightly less, to 4.0%, according to FXStreet-cited market consensus.
Annual growth in regular earnings, so excluding bonuses, amounted to 6.2% in the three months to December. Including bonuses, earnings rose 5.8% on-year.
Pay growth was hotter than expected by both measures. Earnings including bonuses had been expected to rise by 5.6%, according to FXStreet, while excluding bonuses, a rise of 6.0% was forecast.
‘Stronger than expected labour data from the UK didn’t help matters as it effectively gives the Bank of England another reason to keep rates steady and not rush to cut them,’ AJ Bell’s Russ Mould explained.
The BoE’s next decision is on March 21.
On Wednesday, the ONS reports UK inflation data for January. Annual consumer price inflation is expected to have picked up to 4.2% last month from 4.0% in December, according to FXStreet.
In London, property firms were among the worst large-cap performers following the red-hot UK data.
Property portal Rightmove fell 3.0%, while housebuilders Taylor Wimpey, Persimmon, and Barratt Developments fell 4.4%, 4.1% and 4.6%.
There were just eight FTSE 100 companies in the green. Amogst them, pharmaceutical firms AstraZeneca and GSK were up 1.0% and 1.1%, respectively.
In the FTSE 250, Tui shares closed up 0.8%.
Tui’s pretax loss narrowed to €103.1 million in the three months that ended December 31 from €272.6 million a year before, as revenue rose by 15% to a ‘record’ €4.30 billion from €3.75 billion.
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On London’s AIM, Saietta plummeted 54%.
The Towcester, England-based manufacturer said it would be selling a redundant production line after missing out on a potentially lucrative manufacturing contract.
The company has received a proposal of £600,000 from an unnamed buyer for the purchase of a redundant production line at its Sunderland manufacturing site.
Saietta said that the sale is the result of the company being unable to reach a commercial agreement for a contract to product electrical steering pumps at the Sunderland plant.
Brent oil was quoted at $82.93 a barrel at the London equities close Tuesday, up from $81.69 late Monday.
Gold was quoted at $1,995.88 an ounce at the London equities close Tuesday, lower against $2,013.55 at the close on Monday.
In Wednesday’s UK corporate calendar, there are full year results from Coca-Cola HBC. There are also trading statements from Severn Trent and United Utilities.
The economic calendar for Wednesday has a gross domestic product reading for the eurozone at 1000 GMT, as well as employment data.
For the UK, there are CPI and PPI readings at 0700 GMT. Further at 1500 GMT, Bank of England Governor Andrew Bailey will speak.
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