Stocks in London went into reverse on Wednesday, putting a halt to the positive start to the week, despite a decent start to the US session on Wall Street.
Federal Reserve Chair Jerome Powell was speaking to US lawmakers on Wednesday afternoon, with investors seeking for clarification on the US central bank's plans to tackle soaring inflation.
Powell told US lawmakers it is possible that chunky rate hikes, meant to cool demand and bring inflation down, could trigger a US recession.
‘It's not our intended outcome at all, but it's certainly a possibility,’ Powell said in testimony before the US Senate Banking Committee.
The FTSE 100 index closed down 62.83 points, or 0.9%, at 7,089.22. The FTSE 250 ended down 57.83 points, or 0.3%, at 18,891.22, and the AIM All-Share closed down 4.53 points, or 0.5%, at 893.87.
The Cboe UK 100 ended down 0.7% at 707.50, the Cboe UK 250 fell 0.4% to 16,599.45, and the Cboe Small Companies lost 0.8% at 13,610.97.
In European equities, the CAC 40 stock index in Paris ended 0.8% lower, while the DAX 40 in Frankfurt closed down 1.1%.
US equities overcame a slow start and nudged higher, however. The Dow Jones Industrial Average was 0.4% higher at the time of the London close. The S&P 500 was up 0.5% and the Nasdaq Composite added 0.8%.
Powell said the US economy is strong, but faces an ‘uncertain’ global environment and could see further inflation ‘surprises’.
In the first of two closely-watched days of testimony to Congress, Powell again stressed that the Fed understands the hardship caused by rising prices and is committed to bringing down inflation, which has reached a 40-year high.
The US central bank last week announced the most aggressive interest rate increase in nearly 30 years and promised more action to come to combat the price surge, with gas and food costs soaring and millions of Americans struggling to make ends meet.
Prior to Powell's date with the Senate Banking Committee, markets were already tetchy.
Traders were already fretting about inflation before the Fed chair fired another warning shot about accelerating price pressures.
Data early Wednesday showed the UK annual consumer price growth accelerated to 9.1% in May from 9.0% in April. This was in line with market consensus, according to FXStreet.
It was the highest 12-month inflation rate in the National Statistic series, which began in January 1997, the Office for National Statistics said. Indicative modelled consumer price index inflation estimates suggest that it would last have been higher around 1982, the ONS said.
With energy prices set for another sharp rise in the autumn after regulator Ofgem's review of household rates and the Bank of England recently warning inflation will breach the 11% threshold in October, prices are expected to remain elevated in the short-term.
Producer input prices rose by 22% in the year to May, accelerating from 21% in April to hit the highest rate since records began in 1985.
The dollar initially got a boost from safe haven flows earlier on Wednesday, but weakened after Powell's testimony.
The pound was quoted at $1.2303 late Wednesday, up from $1.2276 at the London equities close on Tuesday. The euro traded at $1.0592 on Wednesday in London, up from $1.0568 late Tuesday. Against the yen, the dollar was quoted at JP¥135.89, up versus JP¥136.18.
Oil prices struggled, amid concern about global energy demand.
Brent oil was trading at $111.14 a barrel at the time of the London equities close, dropping from $114.71 late Tuesday. Gold was quoted at $1,841.20 an ounce, up from $1,839.99 on Tuesday.
In London, JD Sports surged 6.6% as it released its delayed annual results which showed the athleisure retailer booked a record performance in its recently ended financial year but warned that further growth would be held back by global volatility.
For the year ended January 29, the FTSE 100 listed firm doubled pretax profit to £654.7 million from £324.0 million the year prior. Pretax profit before exceptional items more than doubled to £947.2 million from £421.3 million.
The record profit came on revenue that grew 39% to £8.56 billion from £6.17 billion.
BT and Vodafone fell 2.1% and 0.4%, respectively.
British telecommunication companies will be pressed to address the cost of living crisis in talks with UK Culture Secretary Nadine Dorries, according to a Sky News report from late Tuesday.
Telecoms leaders have been invited to meet with Dorries in the weeks to come, Sky reported, with the agenda and attendee list still to be finalised.
Citing a source, Sky News reported Dorries could press the sector for relief measures such as holiday payment provisions or social tariffs for consumers struggling with soaring inflation.
Among mid-caps, Micro Focus tumbled 16% as it narrowed its half-year loss, though posted a fall in revenue and reduced its dividend.
For the year ended April 30, sales slid 8.7% to $1.27 billion from $1.39 billion a year before.
Its pretax loss narrowed to $42.9 million from $280.0 million on reduced costs, but adjusted earnings before interest, tax, depreciation and amortisation fell 12% to $449 million from a constant-currency year-earlier figure of $510.7 million.
As a result, Micro Focus cut its interim dividend to 8 cents per share from 8.8 cents.
Learning Technologies rose 6.1%. The digital learning and talent management services provider said strong momentum continued in the first half of 2022.
‘While mindful of the current macro environment, strong business momentum has continued into the first half of 2022 and we have a robust balance sheet that will support further strategic acquisitions in due course, underpinning the board's confidence of significant progress,’ said Chair Andrew Brode.
Thursday's economic calendar has a slew of flash PMI figures, including the eurozone at 0900 BST, the UK at 0930 and the US at 1445 BST.
The local corporate calendar has a trading statement from outsourcer Serco Group. Wine retailer Naked Wines releases annual results.
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