US: Stocks lose ground as London sapped by rate rise fears

[LONDON] US stocks gave up ground on Wednesday but remained near record highs, while London fell out of step with Europe on fears spiking inflation would prompt the Bank of England to raise interest rates.

The FTSE 100 index of top British shares was firmly in the red by close of trading, in contrast with Paris and Frankfurt which booked small gains.

On Wall Street, the Dow Jones Industrial Average, S&P and tech-heavy Nasdaq all dropped.

"US stocks are slipping but remain near record high territory with the markets digesting some divergent data on retail earnings and housing," Charles Schwab analysts wrote.

Major American retailer Target beat forecasts in third-quarter earnings published Wednesday, following strong data Tuesday from Walmart and upbeat consumer sentiment.

But statistics released Wednesday also showed falls in housing starts and mortgage applications in the world's biggest economy.

Oil prices sank further even though data showed US commercial crude stocks fell back, as traders eyed the possibility of Washington and Beijing releasing part of their reserves - a possibility discussed by presidents Joe Biden and Xi Jinping in a video summit on Monday.

Across the Atlantic, data released early Wednesday showed UK annual inflation rose to a near decade-high of 4.2 per cent in October on higher energy bills.

The news sent the pound jumping as traders priced in a December interest rate hike from the Bank of England, emboldened also by Tuesday's upbeat UK jobless data.

DIVERGING ON INFLATION

Inflation and retail data have also stoked calls for the US Federal Reserve to act sooner to prevent overheating and make sure prices do not run out of control.

Top Fed official James Bullard said the bank should take a "more hawkish" shift and that the tapering of its vast bond-buying programme - which has helped support an extended global equity rally - "could move faster".

In the eurozone, European Central Bank chief Christine Lagarde has pushed back on talks of rate rises even as far out as 2023.

Her deputy Luis de Guindos told Bloomberg TV Wednesday that "the reality check is going to be the evolution of inflation next year".

"If you look at the drivers, the transitory nature of these drivers of inflation are quite clear," he added - suggesting no shift in monetary policy for the single currency for now.

Separately, ECB board member Isabel Schnabel said the bank expected inflation to peak in November before gradually falling back in 2022.

Meanwhile Turkey's lira fell to a new record low against the greenback as President Recep Tayyip Erdogan promised to "lift the interest rate burden from citizens" - even as inflation runs close to 20 per cent.

There was positive news for Russia, as the economy booked a second quarter in a row with a strong rebound from the impact of the coronavirus, growing 4.3 per cent in July-September compared to last year.

Moscow is also struggling with inflation, which reached 8.1 per cent year-on-year in October.

AFP