US inflation data sparks panic on global stock markets

A bigger-than-expected rise in US inflation is a worry for investors, although there are winners here, too. 

Hot US inflation figures today delivered a sting in the tail for investors after they had earlier piled into Lloyds Banking Group (LSE:LLOY) and other battered UK stocks on hopes of a mini-budget U-turn.

In a rollercoaster couple of hours of trading, the mid-cap FTSE 250 index surged 2.5% to above 17,000 only to lose all the gains and more after the annual US CPI print of 8.2% following a monthly increase of 0.4%.

It was a similar story in the FTSE 100 index, where Lloyds had been 7% higher as investors eyed potential respite from upward pressure on UK bond yields. The lender held on above 40p, but the wider top flight swung 130 points lower after the latest big setback to hopes for an easing in the pace of Federal Reserve interest rate rises.

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The US headline CPI rate showed a third consecutive decline, but the level came in above the 8.1% forecast following a rise in core inflation to a cyclical high of 6.6% in September.

A fourth consecutive 0.75% increase in the Fed funds rates now appears nailed on in November, with potentially another one of similar size to come in December.

The increased chances that this will mean a hard landing for the US economy triggered falls of more than 2% for leading US indices. The S&P 500 last night closed at its lowest level since November 2020 and a further decline today will mean a seventh consecutive session in the red for the first time since the early days of the Covid pandemic.

Capital Economics pointed out today there were clear signs of disinflation “everywhere we look”, but until that shows up in the consumer prices data, the Federal Reserve will continue to sound hawkish, and press ahead with rapid rate hikes.

UK stocks: risers and fallers

The 10-year US bond yield topped 4% after the CPI update, putting more pressure on London-listed tech sector backer Scottish Mortgage Ord (LSE:SMT) investment trust as it fell 28.2p to its lowest level since June at 704.6p. Credit checking firm Experian (LSE:EXPN) also lost 101p to 2,540p.

The weaker economic outlook and rising debt costs meant big falls for shares in internationally-focused Diageo (LSE:DGE), Unilever (LSE:ULVR) and Reckitt Benckiser Group (LSE:RKT), as well as mining giants Rio Tinto (LSE:RIO) and Anglo American (LSE:AAL).

UK-focused stocks dominated the risers board after it was reported that a meeting had taken place at Downing Street to consider a possible U-turn on the mini-budget.

The biggest beneficiaries were in the banking sector amid hopes for a cooling in the mortgage market volatility that has fuelled fears of a property slump and rising defaults.

Lloyds later stood 1.9p higher at 40.95p, while NatWest Group (LSE:NWG) rose 14.2p to 226.6p and Barclays (LSE:BARC) cheered 3.8p to 139.5p. There was also a recovery for heavily-sold house building stocks as Barratt Developments (LSE:BDEV) lifted 12.8p to 338.2p and Persimmon (LSE:PSN) rose 35.5p to 1174p.

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British Airways owner International Consolidated Airlines Group SA (LSE:IAG) was among other big risers after a surprise update posted just after noon said that third quarter trading had been better than expected due to passenger revenue strength.

Chief financial officer Nicholas Cadbury added: “Forward bookings remain at expected levels for the time of year, with no indication of weakness, and accordingly our fourth quarter expectations remain unchanged as of today.”

IAG shares were 5.95p higher at 106.7p, while engines giant Rolls-Royce Holdings (LSE:RR.) also benefited with a rise of 1.65p to 67.89p. In the FTSE 250 index, big risers included Virgin Money UK (LSE:VMUK), electricals chain Currys (LSE:CURY) and the housebuilders Redrow (LSE:RDW) and Bellway (LSE:BWY).