U.K. Inflation Hits 10-Year High, Stirring Expectations of Rate Rise
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Annual inflation in the U.K. accelerated to its fastest rate in a decade, strengthening expectations the Bank of England will be the first major central bank to lift interest rates from pandemic lows as worries over global inflation intensify. Consumer prices increased 4.2% on the year in October following a 3.1% rise in September, the U.K.’s Office for National Statistics said Wednesday, the fastest rate of inflation since December 2011 and more than twice the BOE’s 2% target. Economists and investors believe the BOE could act as soon as next month to tame price growth, moving in front of the U.S. Federal Reserve and the European Central Bank in the gradual process of withdrawing stimulus from recovering economies even as supply-chain snarl-ups slow growth. “I am very uneasy about the inflation situation,” BOE Gov. Andrew Bailey said in testimony to U.K. lawmakers on Monday. A rate rise would come at a risky moment, with the U.K. economy losing momentum as the reopening rebound from the Covid-19 lockdown fades and supply-chain snarl-ups crimp growth. At the end of the third quarter, the U.K. economy was still 2.1% smaller than it was at the end of 2019. Economists don’t expect the country to recover the lost ground until early next year.
Once again, the stock market in Switzerland went on record course this Wednesday. The SMI gained 0.3 percent to 12,600 points. Among the 20 SMI stocks, there were 16 price gainers and four losers. 33.1 (previously: 32.23) million shares were traded. ABB shares continued their rally, gaining a further 1.2 percent. Since the low in the last week of October, the stock has edged a good 11 percent higher. Year-to-date, the gain is 35 percent. But even a laggard like Credit Suisse advanced strongly, up 2.8 percent. The stock has been cruising in double-digit losses since the start of the year, while rival UBS has made up 38 percent, rising 0.8 percent on Wednesday. Insurers trended unremarkably, despite Swiss Re forecasting significant growth for the industry. Swiss Re (-0.1%), Zurich Insurance (unchanged) or Swiss Life (-0.2%) were unimpressed. In contrast, Lonza (+0.3%) reacted slightly positively to encouraging news. The U.S. biotechnology company Bluejay Therapeutics has contracted the Swiss company to produce a heaptitis B drug. The strongest SMI stock was Swisscom, up 2.5%.
The Stoxx Europe 600 index gained 0.1 percent to 489.95 points. In Paris, the CAC 40 gained nearly 0.1% to 7,156.85 points, while the SBF 120 remained stable. In Frankfurt, the DAX 40 finished almost unchanged (+0.02%). The FTSE 100 in London, on the other hand, fell 0.5%, underperforming other European indexes after U.K. consumer-price index data showed year-over-year inflation at 4.2%-above both expectations and the Bank of England's target. Gucci's parent company, Kering, gained 1.4%. Vinci (-1%) announced that traffic at its airport subsidiary Vinci Airports rose 116% last month compared to October 2020, but fell 48.3% compared to the corresponding period in 2019. CFM International, the joint venture of aircraft engine and equipment maker Safran (-2.8%) and U.S. conglomerate General Electric (-0.7%), announced Wednesday that it had signed an agreement with new Indian carrier Akasa Air to supply LEAP 1-B engines, among other things. The steelmaker ArcelorMittal (+1.3%) announced on Wednesday that it had completed a share buyback program for an amount of 2.2 billion dollars and launched a new program for an amount of 1 billion dollars. U.K. enterprise software group Sage jumped 9.7% despite posting a 10% drop in operating profit as its cloud business squeezed margins. But the company said its cloud business had grown 19% so far this year. Siemens Healthineers surged 5.6% in Frankfurt, after the health-technology company set upbeat revenue and earnings targets for fiscal years 2023 to 2025. The company expects revenue growth of 6% to 8% annually.
U.S. stocks fell Wednesday. The S&P 500 slipped 0.3%, or 12.23 points, to 4688.67, a reversal from Tuesday’s gains. The tech-focused Nasdaq Composite Index was down 0.3%, or 52.28 points, to 15921.57, and the Dow Jones Industrial Average slipped 0.6%, or 211.17 points, to 35931.05. Visa Inc. shares fell 4.7%, or $10.12, to $205.06 after Amazon.com Inc. said it would stop accepting Visa’s U.K. credit cards because of their high fees. The move marks a major escalation in the e-commerce giant’s yearslong battle with the card network. A strong earnings season had propelled stocks to fresh highs in recent weeks, with investors shaking off concerns that supply-chain issues might weigh on profits or that higher prices might keep people from spending. Lowe’s shares added 0.4%, or $0.95, to $245.73 after the company boosted its full-year sales guidance. TJX gained 5.8%, or $4.05, to $73.55 after the retailer posted earnings that exceeded analysts’ expectations. But the market momentum has cooled over the past week, after news that U.S. inflation is at a three-decade high. Target shares fell 4.7%, or $12.59, to $253.80 even though the retailer posted revenue and earnings that topped Wall Street’s expectations. Shares of Tesla rose 3.3%, or $34.28, to $1,089.01. Chief Executive Elon Musk sold another 934,000 shares Tuesday for roughly $973 million, continuing a recent selling spree, according to regulatory filings.
In Asia, major indexes broadly closed with losses. Day loser in the region is Hong Kong (-1.2%), where the real estate sector struggling with liquidity problems. In Shanghai and Seoul, on the other hand, the trend is narrowly maintained, in Tokyo, the Nikkei index gives up 0.7 percent to 29,476 points. In addition to real estate stocks, technology stocks were primarily responsible for the significant decline in Hong Kong. Tencent and Meituan each lost over 2 percent. Alibaba slipped as much as 4.7 percent. The company will present business figures later in the day. In the real estate sector, Country Garden loses 3.7 and Sunac 2.0 percent. China Evergrande are down nearly 4 percent. In Tokyo, Eisai buckles 8 percent after the chances of the company's Alzheimer's drug being approved in the EU dimmed.
Long-dated U.S. government debt yields slipped on Wednesday. The 10-year U.S. Treasury yield eased 5 basis points to 1.589%.
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