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Wall Street stocks tumbled on Wednesday as the US government shutdown became the second-longest in history and corporate earnings continued to flow in. Meanwhile, the FTSE 100 (^FTSE) jumped, outperforming against its European peers, as UK inflation remained unchanged at a lower-than-expected 3.8% in September.
Although inflation is still almost double the Bank of England’s (BoE) 2% target, and has been for 12 consecutive months, it provides a slight reprieve for Threadneedle Street as it faces tough decisions over when to reduce interest rates.
The figure from the Office for National Statistics (ONS) was below the 4% forecast by both the BoE and economists polled by Reuters. It marked no change from the 3.8% readings in August and July.
The core rate of inflation, which strips out volatile food and energy costs, dipped to 3.5% from 3.6% in August.
Financial markets are betting that the next interest rate cut will come sooner than previously thought. Another reduction is now fully priced in by February, compared with March before the inflation figures were published, according to interest rate futures.
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Markets also expect more easing next year than they had previously forecast, pricing in 64 basis points of rate cuts versus 57 bps before the inflation data was released.
Paul Dales, chief UK economist at Capital Economics, said: “We doubt this will prompt the Bank of England to cut interest rates from 4% in November. But it increases the chances of the next cut happening by February in line with our forecast and it supports our view that interest rates will be reduced to 3% next year.”
It comes as investors are looking to earnings to lift their spirits after upbeat blue-chip results on Tuesday helped propel the Dow Jones (^DJI) to a new all-time closing high.
Tesla’s (TSLA) quarterly report is due after the closing bell in New York, kicking off a round of Magnificent 7 updates that could test the resilience of the recent stock rally.
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London’s benchmark index (^FTSE) was 1.2% higher by the end of the session.
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Germany’s DAX (^GDAXI) dipped 0.5% and the CAC (^FCHI) in Paris also headed 0.5% into the red.
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The pan-European STOXX 600 (^STOXX) was treading water.
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The Dow Jones Industrial Average (^DJI) fell 0.3%, while the S&P 500 (^GSPC) lost 0.4%. The tech-heavy Nasdaq Composite (^IXIC) led losses, down around 0.8%.
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The pound was 0.2% lower against the US dollar (GBPUSD=X) at 1.3337, hitting a two week low.
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