European stock markets were slightly lower on Wednesday as global markets took a downturn after a sell-off on Wall Street on Tuesday.

The FTSE 100 (^FTSE) fell 0.5% after opening, while the CAC (^FCHI) tumbled 0.3% and the DAX (^GDAXI) was 0.9% lower.

London's benchmark index lost ground at the open after fresh figures showed inflation surged to a 30-year high last month, fuelling bets on a Bank of England (BoE) interest rate rise.

 

Consumer price inflation (CPI) rose to 5.4% from 5.1% in November, coming in above consensus expectations of 5.2%. It marks the fastest pace of price rises since March 1992, when it was 7.1%.

Alpesh Paleja, lead economist at the CBI, said: “We’ve not seen the end of rising inflation yet. We expect it to peak in the months ahead, not least if, as expected, the energy price cap is raised."

Capital Economics said: "It's no secret that inflation is going to rise even further. The increases in producer prices already seen have yet to fully filter through into consumer prices. And the surge in wholesale gas and electricity prices could result in an increase in utility prices on 1 April in the region of 50%. 

"Those effects would be enough to push up CPI inflation to 7.0% in April. That would be higher than the peak of 6% that the Bank of England was forecasting when it raised rates in December."

The prime minister is also expected to declare the end of coronavirus restrictions later on Wednesday as officials step up plans for a post-pandemic UK.

Working from home guidance and COVID passes are due to be scrapped from next week, but people will still be told to wear facemasks.

S&P 500 futures (ES=F) were down 0.7%, Dow futures (YM=F) shed 0.6%, and Nasdaq futures (NQ=F) were 0.84% lower as trade began in Europe.

Across the pond on Tuesday, Wall Street ended deep in the red on return from a long weekend, with the Dow Jones (^DJI) shedding 543 points or, 1.5%, after Goldman Sachs (GS) shares sold off as the investment bank missed analysts’ expectations for earnings. The S&P 500 (^GSPC) dipped 1.8%, and the tech-heavy Nasdaq (^IXIC) fell 2.6%.

US treasury yields pushed higher with the 2- and 10-year yields reaching levels last seen 2 years ago as markets move to price in a swifter pace of tightening by the Federal Reserve. This is also adding to headwinds for the tech sector, which typically suffers most from higher yields.

“While we see 10-year yields climbing modestly higher, from 1.88% at present to around 2% by June and 2.1% by year-end, we do not forecast a sharper rise. The 2-year Treasury, meanwhile, has moved too aggressively in pricing in Fed tightening, in our view, and we expect the yield curve to steepen.

“This steepening should further improve the positive backdrop for financial services companies,” Mark Haefele, chief investment officer, UBS Global Wealth Management, said.

Asian markets are lower overnight as Chinese and Hong Kong shares fall. The Shanghai Composite (000001.SS) is off 0.4% while the Hang Seng (^HSI) is down 0.4%. The Nikkei (^N225) is not trading.

Meanwhile, gold (GC=F) was quoted at $1,814.04 an ounce early Wednesday, higher than $1,812.88 on Tuesday. Brent crude oil (BZ=F) was trading at $88.39 a barrel, higher than $87.22 late Tuesday as ebbing concerns over the Omicron variant and tensions in Europe and the Middle East are helping to drive the rally.

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