The FTSE 100 was firmly lower again on Wednesday amid inflation fears and ongoing concerns about the Chinese property sector.
The FTSE 100 was down 0.4% to 7,360 at the time of writing.
Despite UK inflation falling to 6.8% in July, record wage growth released yesterday suggests further downside in UK CPI could be limited. Sterling rose against the dollar as traders priced additional rate hikes by the Bank of England in their fight against inflation.
“The record wage growth revealed on Tuesday created fears that inflation is becoming increasingly entrenched in the UK economy and beyond the headline number there were signs rising prices are getting quite sticky in this latest CPI print,” said AJ Bell investment director Russ Mould.
“The Bank of England may be glad of the breathing space provided by the scheduling of its next meeting which does not come until late September. This will allow it to look at a few more data points before deciding its next move on interest rates. One thing is absolutely certain – the battle against inflation is far from over.
“Overnight US stocks were lower thanks to concerns about the banking sector, while Asian indices continued to suffer in the fall-out from a Chinese property market crisis.”
According to reports by Bloomberg, Chinese authorities have asked some asset managers to avoid being net sellers of Chinese equities to help contain volatility. Such a move highlights the concern China has about its equity market but begs the question of why they haven’t gone further to stimulate the economy.
Yesterday’s 15bps Chinese interest rate cut did nothing to boost sentiment, and investors continued to dump China-focused stocks on Wednesday.
The FTSE 100 has made a series of lower higher and, on a technical basis looks set to test support around 7,300.
FTSE 100 movers
Miners were again weaker on Wednesday but the most pronounced selling was in UK-focused sectors such as the banks and housebuilders.
With today’s inflation more or less nailing on another rate hike by the Bank of England, fears of higher mortgage rates for an extended period knocked the housebuilders. Barratt Developments, Taylor Wimpey and Persimmon were down between 0.6%-2%.
Admiral was the FTSE 100’s top riser on Wednesday after the insurer said it has successfully implemented price hikes to offset inflationary pressures. Admiral shares were over 4% higher at the time of writing.
“It’s a tough time to be a UK motor insurer as claims cost inflation continues to run hot. To its credit though, Admiral is managing the challenging backdrop well with some pretty serious price hikes now starting to feed through to improved performance,” said Matt Britzman, equity analyst at Hargreaves Lansdown.
“The bad news for consumers is that car insurance is now another inflated cost to try and manage as part of the ever-increasing pressures on income. Some customers have had enough, and Admiral saw a 7% dip in customer numbers over the quarter. But for Admiral, that’s a loss worth taking as maintaining profitable insurance contracts is key, even if it means losing a few customers along the way.”