A downbeat trading update from pub chain JD Wetherspoon offset a better-than-expected UK GDP reading, leaving London share prices lower at midday on Wednesday.
Market focus now turns squarely to a key US inflation report, due before the New York market open.
Should consumer price rises exceed consensus forecast, it would make a second-successive 75 basis point interest rate hike by the US Federal Reserve all but certain. This in turn could spell trouble for the euro, which is sitting just above parity, having fallen briefly below $1 on Tuesday.
Similarly, the beleaguered pound attempted to rally Wednesday morning but gave its entire gain back by midday.
The FTSE 100 was down 52.40 points, or 0.7%, at 7,157.46. The FTSE 250 index was down 45.90 points, or 0.2%, at 18,809.06. The AIM All-Share index was down 2.42 points, or 0.3%, at 879.66.
The Cboe UK 100 index was down 0.8% at 713.45. The Cboe 250 was down 0.3% at 16,371.92, and the Cboe Small Companies was 1.0% lower at 13,098.67.
In mainland Europe, the CAC 40 stock index in Paris was down 0.8%, while the DAX 40 in Frankfurt was 0.9% lower.
The US consumer price index for June is released at 1330 BST. Inflation is expected to have ticked up to 8.8% from 8.6% in May.
The euro ebbed to $1.0060 midday Wednesday London time from $1.0068 at the European equities close on Tuesday. Against the yen, the dollar was quoted at JP¥137.04, up from JP¥136.66.
The euro had fallen to parity with the dollar on Tuesday. A dollar-boosting strong US inflation print could mean it returns below the $1.000 mark.
‘EUR/USD continues to flirt with parity, without getting anywhere,’ said Kit Juckes of Societe Generale. ‘It's just a number, but it has temporarily halted the dollar's advance. Neither the rivers of dollar strength (inflation, the Fed, global risk aversion) or of euro weakness (energy dependence on Russia and nagging worries that the Eurozone's structural fragility will get in the way of monetary policy normalisation) are diminishing.’
The pound quoted at $1.1909 midday Wednesday in London, unchanged from $1.1906 late Tuesday, after sterling's earlier momentum faded.
Cable hit an intraday high of $1.1931 on Wednesday morning, on the back of a surprising strong reading of UK gross domestic product.
According to the Office for National Statistics, UK GDP grew 0.5% monthly in May, following a 0.2% decline in April.
The figure for May topped FXStreet-cited consensus, which had forecast the economy to register no monthly growth at all.
Consumer-facing sectors struggled, however, the ONS said.
A downbeat update from JD Wetherspoon also provided evidence of the difficulties the UK leisure sector faces, as consumer incomes are squeezed by inflation.
The pub chain lowered annual guidance, warning that a boom in pub sales following the easing of Covid curbs has not quite materialised, while labour costs are rising.
For the financial year ending July 31, Wetherspoon now expects a loss of £30 million on an IFRS 16 basis. It had previously guided a ‘break-even outcome for profits’.
Wetherspoon shares were down 10% at midday.
Clarkson rose 12% as it expects to top expectations for 2022.
The shipping services firm expects underlying pretax profit of £42 million for the six months ended June 30, up 53% from £27.5 million a year earlier.
Clarkson added: ‘Performance has been strong across all divisions, with the Broking division, which has a market-leading position in nearly all the key shipping sectors, performing particularly well. While mindful of macroeconomic conditions, the board nevertheless remains confident in the outlook for the business and expects results for the year ending 31 December 2022 to be materially ahead of its previous expectations.’
Elsewhere in London, ship repair, conversion and offshore construction firm Harland & Wolff rose 18% as it won its first contract in the defence sector.
It is delivering a vessel to the Lithuanian Navy after winning a contract from the UK's defence equipment sales authority, part of the Ministry of Defence.
The contract, worth £55 million, is part of the M55 Regeneration Project between the UK and Lithuania, started in June 2020. This aims to expand the military might of Lithuania.
It is Harland's maiden contract in the defence sector. The company is perhaps most recognisable for its eponymous shipyard in Belfast, Northern Ireland, which it agreed to rescue from closure back in 2019.
The Harland & Wolff shipyard was where the Titantic cruise liner was built.
Brent oil was trading at $100.04 a barrel midday Wednesday - a hair above the $100 level, below which it had slipped overnight - but down from $100.37 late Tuesday. Oil prices on Tuesday succumbed to recession fears and worries related to demand due to Covid-19 lockdowns in China.
Gold stood at $1,728.88 an ounce midday Wednesday, down from $1,732.30.
Stocks in New York are called higher. The Dow Jones Industrial Average and S&P 500 are called up 0.2%. The Nasdaq Composite is called 0.3% higher.
Eyes will be on Twitter shares, which are up 1.7% in pre-market dealings.
Twitter sued Elon Musk for breaching the $44 billion contract he signed to buy the tech firm, calling his exit strategy ‘a model of hypocrisy’, court documents showed.
The suit filed in the US state of Delaware urges the court to order the billionaire to complete his deal to buy Twitter, arguing that no financial penalty could repair the damage he has caused.
‘Musk's conduct simply confirms that he wants to escape the binding contract he freely signed, and to damage Twitter in the process,’ the lawsuit contended. ‘Twitter has suffered and will continue to suffer irreparable harm as a result of defendants' breaches.’
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