London close: Stocks weaker as US consumer inflation cools

London markets closed in the red on Wednesday, as investors digested the latest consumer inflation reading from the United States.

The FTSE 100 was down 0.41% at 7,732.09, while the FTSE 250 ended the day 0.15% lower at 19,248.30.

Data released earlier in the afternoon showed the US consumer price index rising in April, as expected, though at the slowest pace in two years.

In currency markets, sterling was in a mixed state, last rising 0.02% on the dollar to trade at $1.2624, while it weakened 0.07% against the euro to change hands at €1.1505.

“It was Mary Poppins who told her bewildered charges that ‘well begun is half done’, and half done is pretty much where the Fed is when it comes to getting a grip on inflation in the US,” quipped Danni Hewson, head of financial analysis at AJ Bell.

“Today’s numbers might have come in cooler than had been expected, and the headline number might have fallen below 5% for the first time in two years, but there is still a yawning gulf between where we are and where US central bankers want to be.

“Core inflation has held steady from last month coming in at 5.5%, despite 10 consecutive interest rate hikes taking borrowing costs to a 16-year high.”

US inflation cools to slowest pace in two years

In economic news, the cost of living in the US rose 0.4% in April, meeting expectations but hitting a two-year low in the process, according to the US Department of Labor.

That slowed the annual rate of increase to 4.9% from 5.0%.

At the core level, which excludes food and energy, inflation also rose 0.4% on the month and 5.5% year-on-year, down from 5.6% in the prior month.

Food prices remained flat, while energy prices rose 0.6%, and shelter prices increased by 0.4%, but at a slower rate than the 0.6% increase in March.

Transportation services and medical care services decreased by 0.2% and 0.1%, respectively, and the price of new vehicles fell by 0.2%, while used car and truck prices rose by 4.4%.

Ian Shepherdson at Pantheon Macroeconomics judged that core inflation using the Federal Reserve's preferred price gauge appeared to be breaking lower.

“Core services prices ex-rent rose only 0.11% in April, the smallest increase since July last year,” he said.

“This means the equivalent measure in the core PCE deflator, which the Fed is now watching very closely, is set for a third straight relatively benign reading.

“The trend appears to be breaking to the downside, and if that continues - as we expect - and the labour market softens, as implied by all the leading indicators, the Fed’s line of no rate cuts this year will soon become indefensible.”

Elsewhere, official data from Germany’s official statistics office Destatis confirmed that inflation in Europe’s largest economy edged lower in April, with the consumer price index rising 7.2% year-on-year, down from 7.4% in March.

The harmonised index of consumer prices was 7.6%, a 0.2 percentage point decline on March, with both figures in line with consensus estimates.

ASOS slides as losses widen, Melrose Industries up on new guidance

On London’s equity markets, fast fashion retailer ASOS tumbled 23.34% after it reported a widening of interim losses, although it expressed confidence in a return to profit in the second half.

Holiday organiser TUI fell 5.19% despite reporting narrower losses and an increase in revenue due to a Covid-19 travel rebound.

Admiral Group was off 2.12% as its losses following Direct Line's announcement of rising motor claims continued.

On the upside, Melrose Industries rose 4.78% after it announced new guidance for the year and significant growth in revenue, profit, and margin.

Caterer Compass Group was ahead 1.26% after posting a jump in first-half revenue and operating profit and raising its full-year guidance.

Pub chain JD Wetherspoon also rose by 5.24%, with anticipated record sales in 2023, while Just Group was ahead 5.52% after JPMorgan lifted its price target on the shares.

Elsewhere, Marshalls was ahead 4.78% after Berenberg cut its price target to 330p from 350p due to a 14% fall in like-for-like sales, which led to a cut in annual guidance.

Engine maker Rolls-Royce Holdings was 3.07% firmer ahead of a trading update on Thursday.

Reporting by Josh White for Sharecast.com.

FTSE 100 -32 (-0.41%) 7,732.09

RISERS
Melrose Industries +4.78% 444.7p
Rolls-Royce Holdings +3.07% 156.3p
Johnson Matthey +2.33% 1,954p
RS Group +2.09% 880.2p
Unite Group +1.6% 923p
Berkeley Group Holdings +1.53% 4,435p
Standard Chartered +1.52% 613.8p
Barratt Developments +1.34% 500p
DCC +1.29% 4,775p
Compass Group +1.26% 2,091p

FALLERS
Ocado Group -4.21% 455p
Pearson -3.56% 797.2p
InterContinental Hotels Group -3.17% 5,318p
Tesco -2.35% 277.9p
Admiral Group -2.12% 2.175p
Intertek Group -1.8% 4,152p
Unilever -1.74% 4,292.5p
B&M European Value Retail -1.7% 479.3p
British American Tobacco -1.66% 2,754p
Vodafone Group -1.62% 92.75p

FTSE 250 -28.74 (-0.15%) 19,248.30

RISERS
Just Group +5.52% 89.9p
JD Wetherspoon +5.24% 783.5p
Mitchells & Butlers +4.81% 189.5p
Marshalls +4.78% 285p
Telecom Plus +3.99% 1,772p
WAG Payment Solutions +3.53% 99.8p
Baltic Classifieds Group +3.28% 163.8p
Diversified Energy Company +2.84% 92.2p
Ithaca Energy +2.22% 156.4p
Oxford Instruments +2.15% 2,885p

FALLERS
ASOS -23.34% 487.4p
TUI -5.19% 533.2p
International Distributions Services -4.37% 234p
Tullow Oil -4.29% 24.98p
IWG -4.25% 159.9p
Ninety One -4.25% 175.8p
Ibstock -3.17% 170.8p
Currys -3.16% 55.15p
IMI -3.06% 1,613p
Vanquis Banking Group -3.06% 221.5p