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AFP

Business

Data drags stocks in divergent directions

Inflation Russ Mould London United States

Traders' hopes that the Federal Reserve will be able to cut interest rates by the end of the year have been dashed by a recent run of data showing the US economy remains robust. ©AFP

London (AFP) - European stock markets climbed Wednesday, with London's FTSE 100 index popping above 8,000 points for the first time, but Wall Street mostly slid as investors contemplated how economic data will impact future interest rate hikes.

The dollar jumped on reinforced expectations of more rises to US interest rates as the pace of the drop in price rises was less than hoped and retail sales data showed the world's biggest economy remains robust.

Analysts said a bigger-than-expected fall in UK inflation could see the Bank of England pause its rate-tightening cycle, which helped push the pound 1.5 percent lower against the dollar to under $1.20.

"After a US inflation number which proved a mild disappointment to the market..., the UK's own inflation reading came in lower than expected," noted AJ Bell investment director Russ Mould.

The much-anticipated US inflation update Tuesday showed a slight slowdown in January from the previous month -- but the 6.4-percent reading was higher than forecast.

On Wednesday, official data showed UK annual inflation has eased to 10.1 percent last month from 10.5 percent to December.

The lower pound helped the FTSE 100 stock index briefly break through the symbolic 8,000-point level for the first time, reaching 8,003.65 points.

"The pound being crushed, as it is today, is often a bullish factor for the index due to the vast bulk of revenue for FTSE 100 companies being generated outside of the UK," Oanda analyst Craig Erlam told AFP.

The FTSE 100 closed up 0.6 percent at 7,997.83 points.

Frankfurt added 0.8 percent and Paris rose 1.2 percent.

Central banks have massively hiked interest rates over the past year in a bid to cool decades-high inflation.

"Investors are trying to work out how the US Federal Reserve might react as they desperately look towards the milestone of the final rate hike in this cycle," said Mould.

"For now, markets are retaining some confidence that this pivot isn't too far away."

But that confidence was shaken by data released ahead of trading on Wednesday showing that retail sales rebounded by three percent month-on-month, outpacing expectations.

Another indicator showed that manufacturing in the northeast was still contracting, but at a slower pace.

Briefing.com market analyst Patrick O'Hare said the retail sales data will ease concerns that the US economy is already headed towards recession.

"But at the same time it will contribute to the burgeoning concern that the Fed will raise rates more than expected, leave them at a high level for longer than expected, and potentially trigger a hard landing later," he said.

Wall Street stocks fell at the open of trading, but clawed back losses as the morning wore on.The Dow and S&P 500 were still down marginally but the Nasdaq Composite edged into positive territory.

In Asia, Hong Kong led losses with a drop of 1.4 percent -- the recent boost from China's reopening from zero-Covid running out of steam.

In equities trading, shares in Barclays slumped as much as 10 percent after the British bank missed its earnings target in the final quarter of last year due to higher provisions for loans it expects to turn sour on fallout from high inflation.

Dutch brewer Heineken reported a jump in 2022 sales after it passed increased costs onto consumers.Net profit fell and its shares rose 2.8 percent.