For a brief moment UK stocks were on the march amid reports of a U-turn on key elements of the mini-Budget (23 September). This fiscal event had spooked the markets, sent the pound to all-time lows against the dollar and seen gilt yields soar.
However, the relief was short-lived as a higher-than-expected reading of US inflation put markets into a panic and led to speculation the US Federal Reserve will take a more aggressive stance on interest rates.
Source: Shares, Morningstar
The FTSE 250 was briefly sitting on gains of more than 2% just before 1pm but had surrendered all of those gains and more within less than an hour as the inflation print came through. Similarly, the pound was close to a one-week high against the dollar before coming back down again.
HANGING ON TO GAINS
Some domestic-facing names like Next (NXT), Lloyds (LLOY) and Barratt Developments (BDEV) were hanging on to gains of between 2% and 4% as investors hoped a U-turn might help address some of the turmoil in the mortgage market.
Source: Shares, Morningstar
The CPI measure of inflation in the US was always going to be closely watched and the market didn’t like news of an 8.2% annual rise in inflation, compared with a 8.1% forecast, nor was it keen on a 0.4% monthly rise against the 0.2% pencilled in and crucially core inflation up 0.6% month-on-month was uncomfortably higher than the previously estimated 0.4%.
