Europe close: Stocks slump amid debt ceiling impasse, core UK CPI surprise
By Alexander Bueso
Date: Wednesday 24 May 2023
(Sharecast News) - European shares slumped on Wednesday as US debt ceiling talks dragged on and UK inflation fell by less than expected, raising the prospect of yet another increase in British interest rates next month as soaring food prices led to a rise in the country's core CPI.
The pan-regional Stoxx 600 was down 1.87% at 457.37, alongside a 1.92% decline for the German Dax to 15,842.13 while Italy's FTSE Mib gave back 2.39% to 26,524.54.
Front-dated Brent crude oil futures were up by 1.51% to $78.35 a barrel alongside.
In parallel, the yield on the benchmark 10-year Bund was roughly flat at 2.472%.
UK consumer price inflation declined to 8.7% from 10.1% in March, versus expectations for a fall to 8.2%. It was the first time consumer price inflation came in below 10% since August last year, as energy prices eased off their highs. However, a surge in core inflation to 6.8% fuelled major concerns.
The latest CPI figures prompted economists at BofA to pencil in three more 25 basis point interest rate hikes from Bank for over 2023.
Meanwhile the US debt ceiling saga continued to weigh on sentiment as negotiations continue without agreement.
"A wait and see mood is also set to prevail before the minutes of the Federal Open Market Committee's May meeting are published, with investors eager to assess the latest thinking of policymakers when it comes to interest rates, and whether a pause or another hike is more likely," said Susannah Streeter at Hargreaves Lansdown.
"While the door is clearly open to a pause, it's by no means locked in and Tuesday's PMI showing a more buoyant private sector than forecast, is raising some concerns that another hike could be in store in the months to come."
In equity news, UK retailer Marks & Spencer surged after profits smashed expectations.
LondonMetric Property slumped on results and a plans to buy a smaller rival.
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