The FTSE 100 tanked Wednesday as UK inflation data came in hotter than expected, sparking a selloff in bonds and equities.

Although inflation fell materially in the year to April, the 8.7% increase in prices was significantly higher than economists’ estimates of 8.2%.

The Bank of England will likely have to hike rates more than once if inflation remains elevated. Markets are now pricing that UK interest rates will rise to 5.5%.

Early signs markets were piling pressure on the Bank of England came from bond markets where yields on short-dated UK government bonds jumped over 20 bps in early trade on Wednesday.

“Bond markets took one look at the latest inflation figures and took the view that interest rates are going to keep going up. The UK 10-year Gilt rate jumped to 4.3% on the news, the highest level since last October and significantly ahead of the 3% level seen only three months ago,” said Russ Mould, investment director at AJ Bell.

“Sticky inflationary pressures, particularly in food, will strengthen the argument for the Bank of England to raise rates again. That will bring more pain to companies and consumers as the cost of servicing borrowings becomes more expensive.”

The pound soared to 1.24721 against the dollar before falling back. The hot inflation read sparked a selloff in UK-facing equities, and very few FTSE 100 stocks were gaining on Wednesday.

The FTSE 100 was down 2.1% at the time of writing.

FTSE 100 Movers

In recent months, stocks highly exposed to interest rates and consumer spending have made steady gains on hopes the BoE were nearly finished hiking rates.

These hopes were dashed today, and sectors reliant on the UK economy were heavily hit.

Persimmon led the housebuilding sector lower with sharp losses in Taylor Wimpey, Barratt Developments and Berkeley Group Holdings. Persimmon was the FTSE 100’s worst performer at the time of writing, down over 5% and approaching the lowest levels of 2023.

Gyrations in the bond market served as a reminder of the volatility after Truss’s doomed budget last, and asset managers and insurance companies fell heavily on Wednesday.

Aviva, Legal & General, Prudential and Pheonix Group Holding were among the top fallers.

Ocado was the FTSE 100’s top riser, up over 7%, despite indications the food retail and technology company would be demoted to the FTSE 250. According to data from the FCA, Ocado is one of the most heavily shorted stocks by funds, and today’s move may be a round of short covering.

Tekcapital’s Guident will co-host the National Autonomous Vehicle Day event on May 31 at the Jacksonville Transportation Authority’s Test & Learn Facility.

The event will bring together investors, officials and industry leaders to discuss, debate and showcase the latest in autonomous vehicle technology.

Key themes for the event will be increased safety, reduced traffic congestion and improved accessibility.

“Guident takes great pride in co-sponsoring this year’s National Autonomous Vehicle Day alongside JTA in Jacksonville,” saidHarald J. Braun, Guident’s Executive Chairman.

“The convergence of industry leaders at this event holds immense significance as we collaborate to forge an ecosystem that revolutionizes public transportation for the better. Together, we are spearheading the creation of a transformative industry, paving the way for an enhanced future of autonomous urban mobility.”

Guident will soon deploy its Remote Monitoring and Control Center solution with the Jacksonville Transportation Authority for a closed route shuttle service. Guident is developing a similar solution for the Boca Raton Innovation Campus in Florida.

SSE reaped the rewards of changes to household energy price caps as underlying operating profits soared 65% to £2.5bn in the year to 2023.

Changes to the price cap due to surging energy prices meant energy suppliers were given the opportunity to hike prices during the last year.

Clearly conscious of the optics of benefitting at the expense of UK consumers, SSE said they had invested more in CAPEX to help energy security than they made in profits. 

Carefully positioned on the first line of the report, SSE confirmed they had allocated £2.8bn to CAPEX and investment during the period – more than the £2.5bn operating profits generated.

SSE’s existing investors will be pleased that even after the significant levels of investment, there was still cash left over to increase the dividend for the 2023FY. However, income-seeking investors may be perturbed that the company is rebasing the dividend to 60p next year to allocate further funds to investment.

The slashing of the dividend signals SSE may soon be viewed as a growth proposition instead of an income play.

SSE shares were 1.2% higher at the time of writing.

“SSE’s networks deliver electricity across Scotland and Southern England. This is classic utility territory – with revenues and profits closely regulated,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

“SSE’s announced it’s staying the course with its pivot towards renewable energy. Turbo-charging efforts to renewables is a bold and admirable move. But the shift to renewables comes with a hefty dose of risk – they’re not always reliable. To some degree, it’s at the mercy of mother nature. That reality hit home last year as unseasonably calm and dry weather left the group’s renewable output lower than planned, meaning flexible gas-fired plants had to plug the energy shortfall. Fortunately, these are still part of SSE’s offering and helped to majorly boost profits – allowing the group to surpass its recently upgraded earnings per share (EPS) guidance.

“However, in a bid to free up cash to fund the renewables investment, SSE reiterated its plans to slash its dividend down from 96.7 to 60p next year. Investors reacted positively, with the shares showing small gains in early trading. As we move towards a net-zero world, the need for investment in renewables and networks is clear, and SSE’s ahead of the pack in this regard. But the transition will be costly, and it’ll likely be a long road until renewables can generate cash more reliably, which adds a layer of risk to SSE in the near-to-medium term.”

The FTSE 100 was broadly flat on Tuesday as debt ceiling talks progressed, but economic data signalled slowdowns in major economies.

The FTSE 100 swung between gains and losses on Tuesday. The index opened lower before improving through the session to trade positively. The US open coincided with London’s leading index giving up gains to trade flat at the time of writing. The S&P 500 opened up down around 0.5% before buyers stepped in.

Helping improve sentiment, debt ceiling talks in the US were showing signs of progress.

“Experience tells investors that these stand-offs always end with a last-minute deal so the market is mostly taking this saga in its stride, particularly given commentary from both sides seems to be increasingly conciliatory,” said AJ Bell investment director Russ Mould.

“Just how close Washington must push for there to be a genuine fear of default is an open question, but right up to the eleventh hour, or in other words the end of this month, the expectation is likely to remain that a deal will be done.”

The FTSE 100 outperformed other major European indices after a string of poor economic data released on Tuesday hit stocks on the continent.

The German and US manufacturing sectors have contracted faster than expected, raising fears the global economy was starting to slow. Services data was better than expected and suggested there were still areas of strength in the economy.

FTSE 100 movers

RS Group was the FTSE 100’s top faller after the electronics company said they ‘are mindful of near-term external challenges.’ RS Group’s operating adjusted profit grew 18%, and its operating margin expanded in 2023, but investors were clearly more concerned about performance in the year to come.

RS Group was down over 7% at the time of writing.

The IMF raised its forecasts for UK growth on Tuesday and now thinks the UK will avoid a recession this year. However, it suggested that rates would remain higher for longer than many thought.

The impact this may have was evident in FTSE 100 consumer stocks which were among the top fallers.

B&M, Frasers Group, JD Sports and Next were all down on Tuesday. Housebuilders were also suffering.

The FTSE 100’s top risers were dominated by stocks with substantial dividend yield suggesting investors were seeking income-bearing assets that could compensate for any potential downside in stock prices.

British Land, Vodafone, British American Tobacco and Kingfisher were the top risers on Tuesday.