Wednesday, November 29

UK stocks close lower, hit by Wall St selloff on inflation data

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UK’s main equity indexes fell on Tuesday, echoing weak sentiment on Wall Street, as hotter-than-expected US inflation data raised fears of larger interest rate increases to offset surging prices.

The blue-chip FTSE 100 dropped 1.2% to snap a three-session gaining streak, while the domestically focussed FTSE 250 index slid 1.8%.

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The indexes had already been on shaky ground after data on Tuesday signaled a weakening UK job market even as the unemployment rate fell to its lowest since 1974.

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The selloff gathered momentum in afternoon trading, with Wall Street’s main indexes plunging over 3% as data showed US consumer prices unexpectedly rose in August, giving cover for the Federal Reserve to deliver another hefty rate hike next Wednesday.

“The weaker pound has given a bit of support to the FTSE 100, but the higher bond yields and weaker global growth that typically result from tighter Fed policy are a difficult mix for UK equities too,” said Oliver Allen, market economist at Capital Economics .

Homebuilders were among the worst performers on the day, down 3.6% amid worries over affordability and weakness in labor market.

“Given the sensitivity of housing markets to higher interest rates, it makes some sense that homebuilders’ shares have underperformed,” Allen added.

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The British central bank raised interest rates the most since 1995 last month. It is expected to increase them again on Sept. 22, with traders placing an 86% chance of a 75 basis-point hike.

Ocado Group and Marks & Spencer fell 14.6% and 3.8%, respectively, after their joint venture Ocado Retail downgraded its full-year outlook, saying customers are trying to navigate the cost of living crisis by buying fewer products or cheaper items.

Retailers were also a weak spot on Tuesday, falling 3.5%.

Grocery inflation hit 12.4% in the four weeks to Sept. 4, another record, adding 571 pounds ($670) to the average annual grocery bill, according to market researcher Kantar. (Reporting by Johann M Cherian, Bansari Mayur Kamdar and Aniruddha Ghosh in Bengaluru; Editing by Sriraj Kalluvila and Bernadete Baum)