London's leading index had looked impressive up until release of the newest stats on US inflation. Here's what happened next.
US inflation figures gave another jolt to global markets today as the FTSE 100 index briefly wobbled on heightened expectations for more steep interest rate rises.
The annual CPI rate of 8.3% for April was better than the previous month’s 41-year high of 8.5%, but the improvement was smaller than the 8.1% that Wall Street had been forecasting. Energy prices jumped by 30.3% and food by 9.4%, which is the highest rate since 1981.
But any glimmer of hope from US inflation appearing to be at its peak was more than offset by a closer look at the figures, particularly the CPI index excluding food and energy.
- Warren Buffett: stocks I’m buying and AGM comments
- Want to buy and sell international shares? It’s easy to do. Here’s how
- Four of America’s most famous companies: buy, hold or sell?
The 0.6% month-on-month rise, which compared with 0.3% in March and market expectations of 0.4%, will add to concerns that inflation is becoming entrenched and will take a lot longer to get back towards the Federal Reserve’s 2% target.
Having raised interest rates by half a percentage point for the first time in two decades last week, today’s figures for April will fuel expectations for a series of similar moves by the Fed at its remaining policy meetings during this year.
Some traders believe a 0.75% hike is still on the cards for June, even though Fed chairman Jerome Powell sought to downplay these expectations last week.
Wall Street is currently looking for around 270 basis points of tightening overall, a pace that investors fear will slam the brakes on growth and make it harder for the US economy to avoid a hard landing.
- Top 10 things you need to know about investing in the US
- Tech crash: three big stocks to buy, hold and sell
- Nasdaq vs AIM: key trends, performance and income
US futures reversed initial gains after today’s release, while the FTSE 100 index briefly touched negative territory from being 1% higher a few moments earlier. The top flight, which was earlier boosted by hopes of an easing in China’s Covid lockdown restrictions, later rebounded 82 points to 7324.
Base effects should soon start to bring inflation lower, given that the data no longer compares a normal economy to one suppressed by the pandemic. But the Ukraine war and supply chain pressures created by China lockdowns are creating additional price pressures, while a tight labour market has added to the wage momentum in the US economy.
Unemployment currently remains at a low rate of 3.6%, while recent figures showed a 5.5% increase in average hourly earnings.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.