European stocks weaken; U.K. inflation points to further interest rate hikes

Investing.com – European stock markets traded sharply lower Wednesday as sticky U.K. inflation suggested more monetary tightening ahead while negotiations to raise the U.S. debt ceiling made little progress.

At 03:30 ET (07:30 GMT), the DAX index in Germany traded 1.3% lower, the FTSE 100 in the U.K. dropped 1.4% and the CAC 40 in France fell 1.6%.

Data released earlier Wednesday showed that the U.K.’s fell by less than expected in April, dropping to 8.7% from 10.1% the prior month, while , which excludes volatile food and energy prices, surged to 6.8%, a 31-year high.

Inflation is proving very hard to tame in the U.K., with these figures emerging despite a prolonged tightening cycle by the Bank of England, which resulted in another increase earlier this month. The looks set to raise interest rates once more next month, most likely to 4.75% from 4.50% to 4.75%.

Bank of England Governor is set to speak later Wednesday, while ECB President is also scheduled to lead the celebrations of the central bank’s 25th anniversary. 

Germany’s survey of current business conditions, due later in the session, will also be closely watched for clues of sentiment in the region’s largest economy, as both businesses and consumers cope with inflation at elevated levels.

Also weighing on sentiment was the lack of progress in the talks between both U.S. political parties over raising the U.S. government’s $31.4 trillion debt ceiling.

There is now just over a week before a possible first-ever U.S. government default with U.S. Treasury Secretary Janet Yellen warning that it’s now “highly likely” that the U.S. government will run out of sufficient cash as soon as June 1. 

Turning to the corporate sector, Marks & Spencer (LON:) stock soared 7% after the retailer posted a strong increase in full-year sales and profits as its turn-around strategy bears fruit, promising to restore a dividend to its shareholders by November.

SSE (LON:) stock rose 1.5% after higher energy prices helped the company post a rise of 89% in annual profits, with the renewable energy giant announcing plans to increase spending on net zero projects by over 40%.

On the flip side, Kingfisher (LON:) stock fell 2.9% after the home improvement giant reported a fall in like-for-like sales, citing bad weather for the drop.

Oil prices rose Wednesday after industry data registered a sharp drop in U.S. inventories, pointing to tighter supplies as the U.S. driving season draws nearer.

Data from the American Petroleum Institute showed that fell by about 6.8 million barrels in the week ended May 19, while gasoline inventories dropped by about 6.4 million. 

If confirmed by official data later in the session, gasoline stocks would have declined for the third consecutive week to their lowest pre-Memorial Day levels since 2014.

By 03:30 ET, futures traded 1% higher at $73.64 a barrel, while the contract climbed 0.8% to $77.45. 

Both benchmarks gained on Tuesday after Saudi Arabia’s energy minister warned short sellers to “watch out”, raising the possibility that a group of top producers will cut production once more when they meet in early June.

Additionally, traded largely flat at $1,974.25/oz, while edged higher to 1.0772.