Wall Street stocks retreated from a higher open on Wednesday, muted by the European close, as investors awaited earnings from Nvidia (NVDA) that will set the tone for the next leg of the AI trade. Meanwhile, the FTSE 100 (^FTSE) was down and European stocks advanced as fresh data showed UK inflation had eased in October, providing a boost for chancellor Rachel Reeves as she prepares for her budget next week.
Investors are bracing for Nvidia’s third-quarter earnings due after the bell in New York on Wednesday, which are expected to swing the stock by as much as 7% in either direction. More broadly, the chipmaking giant’s results could prove a make-or-break moment for this year’s strong S&P 500 (^GSPC) rally, which has been spurred by optimism about AI-fuelled growth.
In the UK, the Office for National Statistics said consumer price index inflation had cooled to 3.6% from the 3.8% rate recorded in July, August and September, with a slower increase in gas and electricity prices the biggest factor weighing on the overall inflation rate.
Core inflation, which measures price rises minus volatile food and energy costs, fell from 3.5% to 3.4%.
Economists have pointed out that the data strengthens the case for an interest rate cut from the Bank of England.
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Lindsay James, an investment strategist at Quilter, said: “With the budget now seemingly at risk of missing already low expectations, economic growth seems likely to come under further pressure.
“The flipside to this is that persistently above-target inflation may come down earlier than expected, ushering in larger rate cuts in its wake.
“Markets had already been pricing a strong 80% likelihood of an interest rate cut in December. Today’s data reinforces the view that inflation is now on a clearer downward trajectory and that the Bank of England will have scope to continue easing policy.”
Meanwhile, Paul Dales, chief UK economist at Capital Economics, said: “The fall in CPI inflation from 3.8% in September to 3.6% in October is the second softish inflation release in a row and could well prompt the governor of the Bank of England to put on a red suit and white beard and cut interest rates from 4% to 3.7% on 18 December.”
On the back of the news, the yield on 10-year UK gilts, a benchmark for what the government promises to pay buyers of its debt, rose as much as four basis points to 4.6%.
Elsewhere, Federal Reserve minutes set for release later on Wednesday will be put under the microscope for insight into the economy and future policy. While that meeting delivered a rate cut despite division at the Fed, traders are now evenly split on whether the central bank will ease again in December.