Yahoo Finance US stocks slip and FTSE erodes gains following inflation surprise
The FTSE 100 and European stocks finished higher this Tuesday as the UK’s blue-chip share index was headed towards a new record high before taking a hit from the US inflation data.
The FTSE 100 (^FTSE) rose 0.27% to close at 7,968 points, falling slightly from a record high. The CAC 40 (^FCHI) in Paris jumped 0.41% to 7,238 points. In Germany, the DAX (^GDAXI) gained 0.23% to 15,433.
Across the pond, Wall Street was in the red after data showed consumer prices accelerated in January, even as the pace of annual increase slowed, likely keeping the Federal Reserve on a path of moderate interest rate increases.
The S&P 500 (^GSPC) lost 0.28%, while the Dow Jones Industrial Average (^DJI) retreated 0.53% to 34,064. The tech-heavy Nasdaq Composite (^IXIC) slipped 0.10%.
US consumer prices accelerated in January, but the annual increase was the smallest since late 2021, pointing to a continued slowdown in inflation.
The consumer price index increased 0.5% last month after gaining 0.1% in December, the Labor Department said on Tuesday.
Monthly inflation was boosted in part by rising gasoline prices, which increased 3.6% in January, according to data from the US Energy Information Administration. In the 12 months through to January, the CPI increased 6.4%.
🔥Heart ache for the Fed on Valentine’s Day. Inflation still sizzling hot in Jan.
CPI up 0.5% for the month, 6.4% from a year ago, a whisker from the 6.5% pace of Dec.
Eggs up a whopping 70% from a year ago. Gains were surprisingly broad based, despite bloated inventories.— Diane Swonk (@DianeSwonk) February 14, 2023
Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, said: “The latest slightly above consensus CPI release showed inflation momentum remaining strong as the pace of decline in the speed of disinflation slowed.
“Core services ex shelter inflation (the Fed’s new preferred measure) was affected by an outsized drag from medical care services, but other categories remain firmly above target and not yet responding meaningfully to the tightening the Fed has delivered so far.
“With a super-hot labour market leading to the risk that inflation becomes sticky again, we think Fed is likely to up its hawkishness to bring inflation down towards the target.”
Back in London, the FTSE has gained 7% so far this year, as markets have been lifted by hope that inflation may have peaked. The index is also closing in on the 8,000 point mark for first time.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: "There is a great deal of attention going on US and UK inflation data this week, with hopes that the Federal Reserve is going to stick to the hymn sheet when it comes to the expected 25 basis point increase in interest rates expected in March.
Read more: UK pay rises at fastest rate in 20 years but fails to keep up with inflation
"Although the economy’s holding up well for now, there are still question marks hanging over corporate margins and consumer spending power, which the forward-looking FTSE may not have correctly priced in."
Vodafone (VOD.L) was the top FTSE 100 riser, up 3.51%, after US telecoms group Liberty Global (LBTYK) announced it had taken a 5% stake in the mobile operator in a bet on the UK company’s revival — but has ruled out making a takeover bid.
Richard Hunter, head of markets at Interactive Investor, said: "The index continues to attract investment interest with its exposure to banks and energy companies still seeing the benefits of rising interest rates and a recovering Chinese economy respectively. At the same time, its proliferation of defensive, and in some cases somewhat inflation-proof stocks, along with an average dividend yield of 3.5% all add to its attractions as a potential investment destination of choice. Perhaps most importantly, the index is not an accurate barometer of the UK economy.
"An estimated 75% of company earnings come from overseas which, coupled with the more recent weakness in sterling, means that these earnings become more valuable on repatriation.These combined factors resulted in a strong outperformance compared to many other global indices last year.
"In 2022, for example, the main indices in the US plummeted — the Dow Jones was down by 8.8%, the S&P500 by 19.5% and the technology-heavy Nasdaq by 33.1%. The FTSE 100 eked out a gain of 0.9% (excluding dividends) and is now ahead by over 7% in the year to date."
FTSE 100 is on course to reach 8K after breaking all-time highs. Medium-term there is upside potential to 8,450
FTSE 250 uptrend is still intact but weakening and it could be a struggle to move higher#stocks #FTSE100 #FTSE250 #UK100 #technicalanalysis https://t.co/w72d23sxKG pic.twitter.com/76dmylKAXH— Kim Cramer Larsson (@Cramers_Corner) February 14, 2023
The pound (GBPUSD=X) jumped 0.22% against the dollar after Tuesday morning's data showing record wage growth in the UK outside the pandemic.
AJ Bell investment director Russ Mould, said: “All eyes will be fixed on Washington later as the US Bureau of Labor Statistics posts inflation numbers for January.“The expectation is for another modest easing of inflationary pressures and anything more than this could provide a real boost to sentiment — though conversely a renewed move higher in the inflation rate could prompt heavy selling.
“In the UK record wage growth raised concerns the UK’s own inflation problems might prove stickier than feared ahead of the UK posting its own CPI numbers on Wednesday.
“However, the Bank of England will likely be hoping the lagged impact of a series of rate increases is yet to fully come through amid growing expectations a rate hike in March will be the last.”
Read more: Wahed CEO on gold-backed debit card and the appeal of interest-free finance
Meanwhile, Brent crude (BZ=F) slipped and was trading at around $85 per barrel after the US said it would release more crude from its Strategic Petroleum Reserve (SPR), even as concerns continue about sluggish demand due to slowing global economic growth.
In Asia, Tokyo’s Nikkei 225 (^N225) closed higher, climbing 0.64% to 27,602 points, while the Hang Seng (^HSI) in Hong Kong lost 0.24% to 21,113. The Shanghai Composite (000001.SS) also edged higher, rising 0.28% to 3,293 points.
Watch: 'Stocks are confused' — wealth advisor ahead of CPI
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