Must read: US tech sell-off, defence stocks, UK inflation

GLOBAL MARKETS 

European markets have opened lower following declines in Japan and on Wall Street overnight. 

Defence stocks are under pressure, extending losses after their worst day in over a month on Tuesday. BAE Systems (LSE:BA.) and Melrose Industries (LSE:MRO) are trading near the bottom of the FTSE 100 while Rheinmetall AG (XETRA:RHM) and Hensoldt AG Ordinary Shares (XETRA:HAG) are under pressure in Germany as Ukraine peace talks continue.

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In terms of other movers, ConvaTec Group (LSE:CTEC) is at the top of the FTSE 100 after announcing a $300 million (£222 million) share buyback.

US futures are pointing lower as the major Wall Street indices look set to extend losses after yesterday’s tech driven sell-off.

Palantir Technologies Inc Ordinary Shares - Class A (NASDAQ:PLTR) led the declines, shedding over 9%, while NVIDIA Corp (NASDAQ:NVDA) and ARM Holdings ADR (NASDAQ:ARM) were also lower, sparked by concerns about overexcitement and overvaluations in AI stocks. A report from MIT and comments from OpenAI’s CEO Sam Altman fuelled those concerns as well an aggressive rebound in tech stocks since the April trough. 

US investors await the latest Federal Reserve minutes and Fed Chair Jay Powell’s address at Jackson Hole this week for clues into the central bank’s stance on inflation and the outlook for interest rates.

UK INFLATION 

UK inflation hit an 18-month high - July’s consumer price index (CPI) reached 3.8%, above expectations for 3.7% and rising from 3.6% and 3.4% in June and May respectively. The monthly figure rose by 0.1%, despite expectations for -0.1%. Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.8% year-on-year and 0.2% month-on-month, both above expectations. 

Air fares surged by 30.2% between June and July, up from 13.3% month-on-month, partly due to the timing of school holidays which influenced flight prices. Food prices rose at their fastest rate since February 2024, up 4.9% in July, accelerating from 4.5% in June with increases on items including coffee, beef, chocolate and honey. And the average price of petrol rose by 2p per litre between June and July versus a drop of 1.4p in the same period last year. 

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Inflation is running much hotter than the UK government and the Bank of England would like and there are growing concerns about persistent price pressures in the economy. Although inflation has retreated significantly from the Covid-era peak of 11% in 2022, inflation has resurfaced lately with the Bank of England projecting that CPI will rise further to 4% in the months ahead. It also expects that it will only return to the 2% target by the second quarter of 2027. 

While the Bank of England is expected to cut rates again by year end, it is becoming less certain, and there are growing concerns about the risk of a higher-for-longer interest rate environment. Policymakers are weighing up the prospect of higher prices on food and other goods versus downside pressure from a weakening labour market and sluggish growth.