European stocks edge lower; U.K. inflation shock weighs ahead of Fed decision

© Reuters.

By Peter Nurse 

Investing.com - European stock markets edged lower Wednesday, weighed by a sharp increase in U.K. inflation ahead of the latest Federal Reserve decision on interest rates.

At 04:40 ET (08:40 GMT), the DAX index in Germany traded 0.1% lower, the CAC 40 in France dropped 0.3% and the FTSE 100 in the U.K. fell 0.2%.

Data released earlier Wednesday showed that inflation accelerated again in the U.K. in February, increasing the pressure on the Bank of England to keep raising interest rates despite the financial turbulence.

The consumer price index rose 1.1% on the month, well above the 0.6% rise expected, taking the headline annual rate back up to 10.4% from 10.1%. Analysts had expected it to fall below 10% for the first time since August.

The Bank of England is set to announce its latest policy decision on Thursday, and is likely to authorize its 11th consecutive rise, even after Governor Andrew Bailey had hinted that the rate-hiking cycle may be coming to an end at his last press conference.

All the policy-makers at the major central banks are having to make judgments about the balance between fighting inflation and banking sector stability.

Bundesbank President Joachim Nagel is on the hawkish side, stating Wednesday in an interview in the Financial Times, that more hikes were needed to combat inflation.

"Our fight against inflation is not over," Nagel told the newspaper, adding that he certainly felt "price pressures are strong and broad-based across the economy."

The focus now turns to the Federal Reserve’s interest rate decision later in the day as it concludes its two-day policy-setting meeting.

Investors still widely expect the Fed to hike interest rates by 25 basis points, but there is a great deal of uncertainty over future monetary policy.

In corporate news, Fevertree (LON:FEVR) stock rose 7% after the tonic maker announced plans to hike product prices even as revenues grew and ramp up its U.S. production to help cushion the pressures faced from high costs of manufacturing glass.

Oil prices fell Tuesday after industry data unexpectedly pointed to another week of rising U.S. inventories, a sign fuel demand may be weakening in the world’s largest consumer.

Data from the American Petroleum Institute, released late Tuesday, showed U.S. crude stocks rose by about 3.3 million barrels last week, defying expectations for a drawdown of about 1.6 million barrels.

Confirmation of a rise by the official inventory data, due from the U.S. Energy Information Administration later this session, would see inventories growing for 12 of the past 13 weeks. 

By 04:40 ET, U.S. crude futures traded 0.6% lower at $69.26 a barrel, while the Brent contract dropped 0.5% to $74.95. 

Additionally, gold futures rose 0.2% to $1,944.85/oz, while EUR/USD traded 0.1% higher at 1.0779.