FTSE and European markets close in red as EU inflation hits 9.1%

·4-min read
Tourists walk in front of the Eiffel tower during the 20th campaign of painting and stripping in Paris, France, July 5, 2022. REUTERS/Benoit Tessier
The euro area’s annual inflation rate came in as expected at 9.1% in August, up from 8.9% in July. Photo: Benoit Tessier/Reuters

European stock markets tumbled into the red on Friday as traders digested the latest inflation data in the euro area.

In London, the FTSE 100 (^FTSE) was down 0.6% by the end of day, with most stocks down except oil majors, while the CAC (^FCHI) tumbled 1.2% in Paris, and the Frankfurt DAX (^GDAXI) was 1.6% down.

It came as the euro area’s annual inflation rate came in as expected at 9.1% in August, up from 8.9% in July. This is more than three times the rate in August 2021.

According to Eurostat, the statistical office of the European Union, the lowest annual rates were registered in France (6.6%), Malta (7.0%) and Finland (7.9%), while the highest were recorded in Estonia (25.2%), Latvia (21.4%) and Lithuania (21.1%).

The highest contribution to the eurozone inflation rate came from energy, up 3.95 percentage points during the period, followed by food, alcohol & tobacco, services, and non-energy industrial goods.

It also follows a week that has been overshadowed by Britain mourning the passing of Queen Elizabeth II, while economic data has shown that inflation might be showing signs of nearing a short-term peak, even as unemployment fell close to a record low.

“We’ve seen yet another record high for EU CPI, in the recent flash numbers, pushing up to 9.1%, while core prices rose by 4.3%.” Michael Hewson, chief market analyst at CMC Markets UK, said.

“This prompted the ECB to implement their second successive rate hike last week, this time raising rates by 75bps, pushing all three headline rates into positive territory for the first time since 2014.

“The rise in prices in the last two months has been quite startling when you consider we were at 8.1% in May.”

Read more: Interest rates: Inflation data makes another steep rise by Bank of England more likely

Meanwhile, UK retail sales dropped at the fastest pace in eight months in August. The quantity of goods sold in-store and online fell 1.6% from July, according to the ONS.

The fall was three times bigger than forecast, with sales declining across all categories for the first time since July 2021. Economists had expected a 0.5% drop.

“The sombre atmosphere in the UK this week and news of slow economic growth will be adding to the sense of concern among retailers as the weather gets colder,” Lynda Petherick, retail lead at Accenture, said.

Rising costs remain front of mind, and brands will be doing all they can to minimise outgoings and protect their margins for the months ahead.”

The pound (GBPUSD=X) fell 0.8% against the dollar on the back of the news to $1.137, its lowest level since 1985.

The currency has declined 15% against the greenback so far this year, and lost further ground as it marks the 30th anniversary of Black Wednesday — when the UK crashed out of the Exchange Rate Mechanism in 1992.

Across the pond, the S&P 500 (^GSPC) dipped 1% and the tech-heavy Nasdaq (^IXIC) fell 1.6% by the time of the European close. The Dow Jones (^DJI) edged 1% lower.

Investors are bracing for a US interest rate hike next week amid growing concerns of a global recession following warnings from the World Bank and the International Monetary Fund.

According to the World Bank, the world’s three largest economies — the United States, China and the eurozone — have been slowing sharply, and a “moderate hit to the global economy over the next year could tip it into recession”.

Meanwhile, after a profit warning from FedEx (FDX) also spooked investors already worried about aggressive rate hikes tipping the economy into a recession.

It plunged 23% at the opening bell after the company said a global demand slowdown accelerated at the end of August and predicted that it would worsen in the November quarter.

Watch: What is a recession and how do we spot one?

Asian markets were weaker on Friday morning after US stocks ended the previous session with mild losses.

The Nikkei (^N225) fell 1.1% in Japan, while the Hang Seng (^HSI) declined 0.8% in Hong Kong, and the Shanghai Composite (000001.SS) slipped 2.3% on the day.

Victoria Scholar, head of investment at Interactive Investor, said: “Overnight China’s August industrial output, fixed asset investment and retail sales data all topped analysts’ expectations.

“Although industrial output grew at its fastest pace since March and retail sales enjoyed their best growth in six months, last year’s weakness when COVID weighed heavily on economic activity has flattered today’s year-on-year comparisons, inflating today’s percentage growth figures.

“That is partly why markets have failed to get excited by the data, with all major indices in Asia in the red while the safe-haven US dollar strengthened past seven against China’s onshore yuan.”

Watch: How does inflation affect interest rates?