The FTSE 100 reversed very respectable early gains on Wednesday after the US CPI came in hotter than expected, sending equity investors running for the hills.

The US CPI release is one of two major events this week which have the potential to move markets as tensions around interest rates increase. A Year-on-Year US CPI reading of 3.5%, hotter than the estimated 3.4%, was not the outcome equity bulls would have hoped for.

“Every headline measure for the March CPI report came in ahead of economists’ expectations — which is exactly what stock bulls didn’t want to see,” said Bret Kenwell, US analyst at investment platform eToro.

“Month-over-month, year-over-year and Core CPI all came in hot, putting the Fed in a tough spot after they’ve recently reiterated an expectation for three rate cuts this year.”

The FTSE 100 was knocking on 8,000’s door going into US CPI and looked like it could break through the key psychological level. However, as the CPI numbers hit the wires at 1.30pm UK time, the FTSE 100’s gains of around 0.8% very quickly evaporated, and London’s leading index was trading negatively within the hour.

Having touched highs of 7,999 earlier in the session, the FTSE 100 was trading down 0.1% at 7,930. US equities opened the day in the red, and the S&P 500 was down over 1% at the time of writing.

US bond yields soared, adding to equity investor concerns.

US CPI promised to send waves through financial markets, and it delivered. Equity markets have melted higher despite central banks choosing not to cut rates in March. Today’s data suggests it could now be much later in the year before the Federal Reserve, Bank of England, and even the ECB will cut rates.

The ECB will decide on rates tomorrow, which is the other potentially market-moving event of the week.

A rate cut later in the year would be a major disappointment for investors, given that the earnings outlook for US equities is fairly flat for the rest of this year and that higher borrowing costs will not help improve the outlook.

Indeed, the number of US rate cuts this year will be an increasing concern. Coming into 2024, markets were pricing as many as 7 US rate cuts this year. That has dropped to one single rate cut.

Ultimately, many investors will have to rethink their view of the world.

Tesco

Tesco shares perked up on Wednesday after Britain’s largest supermarket said it increased market shares by balancing increasing premium sales and bolstering its efforts to fight off budget competition. Group sales grew 7.4% in 2023/24, driving a 10.9% increase in retail operating profit.

Tesco shares started the day with a steady increase and were over 5% higher before the US CPI reading. Unlike the rest of the market, Tesco held their own, and shares were trading 5.9% higher at the time of writing.

“Tesco is reaping the benefits of putting the customer first. For some time, it has been lowering prices on core lines in recognition that consumers are under financial pressure. That’s helped it to maintain appeal to a large number of shoppers and retain their loyalty while also helping it better compete against Aldi and Lidl. The results are clear to see – profit is going up; the business is in great shape; and it is growing market share,” said Russ Mould, investment director at AJ Bell.

“It’s helped that Tesco has benefitted from people trading down from higher end retailers. Accepting that a high interest rate environment means more careful monitoring of how money is spent, even wealthier individuals have taken steps to shift their spending habits.

“Whereas once they might have been happy to spend big at Waitrose or Ocado, some of these consumers have shifted to Tesco and found that its Finest range still offers the higher quality products they desire, but at a cheaper price point.”

Cyclical sectors suffered the worst losses after the CPI release, with miners and housebuilders feeling the pinch. Antofagasta was the worst hit, down 4%.

Ocado dropped 3%.

MicroSalt shares were higher on Wednesday after the low-sodium salt technology company announced entry into the premium foodservice market.

MicroSalt has again demonstrated its burgeoning addressable market by inking a deal with Canadian Carma Hospitality Group. Carma will use MicroSalt in its 12 restaurants across Montreal.

Although MicroSalt’s growth strategy is largely in the B2B market and assists food manufacturers in reformulating their products to reduce sodium content, today’s announcement endorses the company’s product in that it illustrates the broad range of end customers.

Rick Guiney, CEO of MicroSalt said:

“Inclusion of our low sodium solution with the Carma Hospitality Group is a great endorsement of our ability to provide a low sodium yet tasty solution. It demonstrates the wide appeal of Microsalt and offers a real-world example of our potential in the foodservice channel. The restaurants within the Carma Hospitality Group represent some of the best food establishments in Montreal and we are extremely proud to be affiliated with their culinary team. We also expect that this [relationship with/endorsement by] Carma will result in other restauranteurs embracing our critically needed product.”

Carma’s co-founder was equally upbeat about the relationship and was pleased to adopt MicroSalt’s innovations.

“Our use of Microsalt underscores our commitment to excellence, and innovation. We are proud of our ability to use leading technology applications in our kitchens to ensure the absolute best and unforgettable dining experiences,” said Co-founder of Carma, Mike Zaki.

MicroSalt shares were 7% higher at the time of writing.

Tesco released Preliminary 2023/24 results on Wednesday, revealing a solid year of revenue and profit growth as the company successfully fights off pressure from the discounters.

The group noted improving consumer conditions as market share increased 28bps to 27.6% during the period. All important UK & ROI retail operating margins increased 42bps to 4.2%.

“We have strong momentum in our business, and are encouraged by signs of improving consumer sentiment.  We’re excited about the opportunities ahead, with the right plans to keep winning with customers,” said Ken Murphy, Chief Executive.

Britain’s largest supermarket has successfully navigated the tightrope of balancing budget and premium offerings—no mean feat in the current competitive environment.

For the first time, the Tesco Finest range generated more than £2bn in sales in the full year. At the same time, Tesco has aggressively challenged discounters Lidl and Aldi by price-matching 4,000 products.

The result is a 7.4% jump in group sales driving a 10.9% increase in retail operating profit.

“Tesco has continued to deliver following their strong update at the turn of the year with more of the same and the outlook is good. Profits are up and are expected to rise further in the coming year as inflationary cost pressures, which have haunted the sector in recent years, are easing substantially and will ease further,” said Adam Vettese, analyst at investment platform eToro.

“Britain’s largest retailer has used its size to its advantage by being able to ride out these pressures and also deliver value to cost-conscious shoppers in the meantime, even price-matching heavy discounters, which has been key to their market share ascendancy.”

Commenting on the sale of Tesco Bank, Tesco said the sale is likely to be completed in H2 2024, generating £1bn cash, of which £250m will be returned to shareholders as a special dividend.

“Disposals within the banking arm and share buybacks on the horizon will please investors as they look to see the price kick on through the rest of the year, with the aim of surpassing the troublesome 300p level which once again provided resistance last month,” Vettese said.