European shares slide as US inflation heats up

European shares tripped 1.6 per cent on Tuesday, retreating from two-week highs hit earlier in the session, as hotter-than-expected US inflation data cemented bets for another large interest rate hike by the Federal Reserve. Interest rate-sensitive tech stocks weighed the most, down 3.2 per cent, while real-estate names lost 3.9 per cent. The defensive utility sector was the sole gainer among major subsectors in Europe.

US headline inflation came in at 8.3 per cent in August, rising more than expected, and underlying inflation picked up amid rising costs for rents and healthcare, giving the Fed ammunition to deliver a third 75 basis points interest rate hike next Wednesday.

The pan-European Stoxx 600 index snapped a three-session winning streak, while Germany’s Dax dropped 1.6 per cent, giving up gains that had taken it to near four-week highs earlier on Tuesday.

Dublin

Homebuilders were among the worst-performing stocks across Europe amid worries over affordability and weakness in labour markets. On Dublin’s Iseq, Cairn Homes shed nearly 7 per cent to close at 96 cent, while Glenveagh, which reports results on Wednesday, was down 1 per cent at €1.05.

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The worsening outlook also hit Ryanair, which fell 2.5 per cent to €12.49. The worse-than-expected inflation numbers in the US triggered modest declines for AIB and Bank of Ireland, which fell by 0.7 per cent and 1.4 per cent. While the higher interest rates that go with inflation typically benefit banks’ net interest income, Tuesday’s bearish consumer price index in the US also caused more uncertainty among banks that hold large bond portfolios, as prices of bonds fell. Hotel group Dalata fell 3.74 per cent to €3.35.

Europe

Last week, the European Central Bank delivered a surprisingly large 75 basis points rate hike, in the clearest sign yet that it will not budge in its fight against inflation. Tech stocks have lost almost 30 per cent so far this year — among the sharpest sectoral decliners in Europe after real estate and retail names — as investors positioned for a high interest rate environment amid a post pandemic inflation surge.

Among gainers on Tuesday were shares of British software maker Aveva Group, which climbed 3.1 per cent after reports that French industrial group Schneider Electric was nearing a deal to take full control of Aveva for about £3.5 billion. UBS Group rose 0.7 per cent on plans to increase its dividend by 10 per cent to $0.55 per share.

London

UK’s main equity indexes fell on Tuesday, echoing weak sentiment on Wall Street, as hotter-than-expected US inflation data raised fears of larger interest rate increases to offset surging prices.

The blue-chip FTSE 100 dropped 1.2 per cent to snap a three-session gaining streak, while the domestically focused FTSE 250 index slid 1.8 per cent. The indexes had already been on shaky ground after data on Tuesday signalled a weakening UK job market even as the unemployment rate fell to its lowest since 1974.

Ocado Group and Marks & Spencer fell 14.6 per cent and 3.8 per cent, respectively, after their joint venture Ocado Retail downgraded its full-year outlook, saying customers are trying to navigate the cost of living crisis by buying fewer products or cheaper items. Retailers were also a weak spot on Tuesday, falling 3.5 per cent. Grocery inflation hit 12.4 per cent in the four weeks to September 4th, another record, adding £571 to the average annual grocery bill, according to market researcher Kantar.

New York

US stock indexes fell sharply on Tuesday, snapping a four-day winning streak, after data showed monthly US consumer prices unexpectedly rose in August, cementing bets of a third straight 75-basis-point rate hike from the Federal Reserve next week. All of the 11 S&P sectors declined in early trading, led by a 3.3 per cent slump in the communication services sector. The small-cap Russell 2000 index dropped 2.5 per cent. Mega-cap technology stocks Apple and Microsoft fell more than 2.3 per cent each, while Tesla, Alphabet, Amazon and Meta Platforms dropped between 2.7 per cent and 5.6 per cent to weigh the most on the S&P 500 and the Nasdaq.

The US labour department’s consumer price index report showed monthly CPI gained 0.1 per cent in August from July, against expectation of a 0.1 per cent dip. On a year-on-year basis it increased by 8.3 per cent, while economists were anticipating a rise of 8.1 per cent, according to a Reuters poll. — Additional reporting: Reuters