Global stock markets fall as US inflation higher than expected

US stock markets fell as US inflation data came in higher than expected. Photo: Andrew Kelly/Reuters

Global stock markets were shaken on Tuesday after US inflation data came in higher than expected.

In London, the FTSE 100 (^FTSE) was down 0.9% in afternoon trading, having risen more than 7,500 before the news, while the CAC (^FCHI) lost 1.1% in Paris, and the Frankfurt DAX (^GDAXI) was also 1.1% lower.

It came as the US consumer price index rose 8.3% in the year to August, down from 8.5% in July. However, this fell short of forecasts for an 8.1% drop.

On a monthly basis, prices rose 0.1%, above forecasts for a slight 0.1% drop.

In the meantime, Unemployment in the UK falls to its lowest level in almost 50 years, according to new data from the Office for National Statistics (ONS). Some 3.6% of adults were out of work and looking for work in the three months to the end of July, the lowest rate since 1974.

More Britons were classified as economically inactive or stopped looking for work in the latest quarter, while increases in long-term illness and changes to education meant 194,000 people dropped out of the workforce.

The data also showed real wages fell to their lowest level in nearly two decades as inflation continued to outpace wage increases.

The number of vacant positions from June to August fell by 34,000 to 1,266,000, the largest quarterly drop from June to August 2020.

“There is little doubt that the current cost of living crisis it’s focusing minds and people are looking at every means possible to make ends meet and for a record number of over 65s that means a return to the workplace,” said Danni Hewson, financial analyst at AJ Bell.

“Most choose to work part-time and many are self-employed, helping with childcare, working in the arts, education and recreation.”

He added: “There are big questions about what will happen to the labor market in the next six to twelve months. How will the continued difficulties in finding staff affect the ability of companies to grow? How will the demand for higher wages affect their ability to invest in the future? And will the recession stop growth dead in its tracks and turn the job market around as companies move from hiring to firing?

Read more: The queen’s death could push the UK into a recession

Across the pond, the S&P 500 (^GSPC) dipped 2% on inflation news, and the tech-heavy Nasdaq (^IXIC) fell 2.9%. The Dow Jones (^ DJI) was down 1.8% at the open.

Investors are anticipating that the US Federal Reserve will now push with sharp increases in interest rates to control inflation. The US central bank is expected to raise interest rates by another 75 basis points at its next meeting.

It came after Wall Street indices posted a fourth straight session of overnight gains, with bullish momentum fueled by energy as well as consumer discretionary.

Meanwhile, the US dollar rose on the latest figures, snapping previous gains in the pound.

Watch: How Does Inflation Affect Interest Rates?

Seema Shah, Chief Global Strategist at Principal Global Investors, said: “At Jackson Hole last month, Fed Chairman Powell clearly signaled the need to see a series of slower inflation data before the Fed can trust prospects. So far, they’ve a great account of one.

“We continue to expect policy rates to rise to 4.25 percent as the Fed works to control inflation, but maybe it’s time to consider a higher top rate?”

The US food index also rose 11.4% in the past year, the biggest 12-month increase since May 1979.

Read more: House prices: UK property market soaks up £84bn of new home loans

Foods to eat at home cost 13.5% more than in August 2021, including a 16.4% increase in cereals and baked goods, a 16.2% increase in dairy prices and a 9.4% increase in fruits and vegetables.

Elsewhere, Twitter (TWTR) shareholders are voting on the $44 billion acquisition of Elon Musk, with the expectation that a majority will vote in favor of the deal. However, the Tesla (TSLAThe boss of ) has said it will not proceed with the acquisition, prompting a high-profile court battle scheduled for next month.

Asian stocks rose on Tuesday as traders in Korea returned from the holidays wanting to catch up on a global rebound, with the Kospi jumping 2% (^KS11) index.

In Japan, the Nikkei (^N225) rose almost 0.3% while the Hang Seng (^HSI) rose 0.1% in Hong Kong, and the Shanghai Composite (000001.SS) was up just 0.05%.

See: What are SPACs?

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