European stock markets were fairly muted on Wednesday, with the FTSE lagging behind its peers amid a new inflation warning from UK retailers.
On Tuesday, Europe ended a broadly positive month on the back foot as record inflation levels and oil prices at two-month highs acted as a drag on wider sentiment.
"By the time investors have returned after the [Royal Jubilee Bank Holiday] festivities they could be facing a big hangover depending on the turn Wall Street takes over the next few days," AJ Bell investment director Russ Mould said.
It also came as UK retailers warned that shelf food prices are increasing at the fastest pace in a decade as shops pass on higher costs to customers.
According to the British Retail Consortium (BRC), shop food price inflation rose to 4.3% in May, the highest since 2012.
Helen Dickinson, the BRC’s chief executive, said the increase in prices will “get worse before it gets better”.
She said: “With little sign that the cost burden on retailers will ease any time soon, they will be left with little room for manoeuvre, especially those whose supply chains are affected by lockdowns in China and the war in Ukraine.”
It came as demand for US mortgages continued to slow last week, as borrowers anticipated sharp rises in interest rates.
The Mortgage Bankers Association (MBA) reported on Wednesday that applications for a loan to purchase a home fell 1% last week compared with the previous week, and were 14% lower than a year ago when the market was buoyant.
Purchase activity is the lowest since May 2020, tut a shortage of houses continues to keep prices higher.
"Demand is high at the upper end of the market, and the supply and affordability challenges are not as detrimental to these borrowers as they are to first-time buyers," Joel Kan, an MBA economist, said.
US markets finished May broadly weaker, and more or less flat on the month, while yields jumped sharply higher after Federal Reserve governor Christopher Waller said he wants to go down the route of several 50bps rate hikes in order to be certain that inflation is brought under control.
Overnight, Asian stocks mostly fell at the beginning of trade on Wednesday morning, with the Hang Seng (^HSI) falling 0.4% in Hong Kong, and the Shanghai Composite (000001.SS) dipping 0.1% on the day.
In Tokyo, the Nikkei (^N225) managed to overperform and shrug off falls on Wall Street, climbing almost 0.7% while other key markets lagged.