Europe close: Stocks knocked off their perch by hotter-than-expected US CPI reading

European shares were knocked off their perch by a hotter-than-expected reading for US consumer prices in August, falling energy prices notwithstanding.

“Today’s above-expectations CPI figure has dashed hopes of a more dovish Fed, and seems to have brought the rally of the past few sessions to an end," said IG chief market analyst Chris Beauchamp.

"Dip-buying momentum had been gathering pace, but with prices back on an upward trajectory the mood has turned decidedly sour. A 75bps hike is back on the cards as the most likely outcome at the next FOMC get-together, and as a result the market is back to selling equities and buying the dollar."

According to the US Department of Labor, US core consumer price gains picked up to reach an annual rate of 6.3% for August (Consensus: 6.1%).

The pan-European Stoxx 600 gave back 1.55% to 421.13 with all major bourses lower by a similar amount.

In the background, Dutch TTF natural gas prices added 11.7% to €202.33MWh.

Euro/dollar meanwhile dropped 1.14% to 1.0007 as US Fed funds futures moved back to pricing in 20% odds of a 100 basis point interest rate hike by the US central bank at its 20-21 September policy meeting.

In the UK, data released by the Office for National Statistics showed that real wages continued to fall in July, while the jobless rate dipped to its lowest level since 1974 as more people dropped out of the workforce.

The unemployment rate fell to 3.6% in the three months to July from 3.8% in the previous quarter. Economists had expected the rate to be unchanged.

In Germany, investor sentiment continued to deteriorate in September amid worries about the energy crisis and a slowdown in China, according to a survey by the ZEW Center for European Economic Research in Mannheim.

The headline ZEW investor expectations index fell by 6.6 points from August to -61.9. Meanwhile, the current situation index slid to -60.5 in September from -47.6 the month before.

The gauge of economic sentiment regarding the eurozone fell 5.8 points to -60.7 points in September.

August inflation in Europe's largest economy was also confirmed at 7.9%, up from 7.5% in July, according to statistics office Destatis.

Consumer price inflation had declined slightly both in June and July due to temporary government measures.

In August, consumer prices rose 8.8% on year by European Union harmonised standards, Destatis said on Tuesday.

The figure was driven by further increases in food and energy inflation. Food inflation climbed to 16.6%, from 14.8% in July, while household energy inflation increased to 46.4%, from 42.9% in the month before.

In equity news, media company Future topped the Stoxx 600 leaderboard as its said full-year adjusted operating profits were projected to be at the "top end" of market expectations of £266.4m to £270.7m after a return to organic audience growth in the second half, with Covid comparators fully lapped.

Aveva shares advanced 3.1%, while Schneider Electric slipped 2.3%. Sky News reported late on Monday a takeover worth £3.5bn was close for the 40% the French firm does not already own.

Shares in UK online supermarket Ocado plunged 14.6% as the company said it expected a small fall in annual sales as customers started to tighten their belts amid the cost-of-living crisis.

The supermarket, a joint venture between Ocado Group and retailer Marks & Spencer, also said it now expected close to break-even core earnings. It had previously forecast low single digit revenue growth and a low single digit profit margin.