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Global markets sell off on inflation fears

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Stocks were trading lower off the back of fears about inflation. Photo: Reuters
Stocks were trading lower off the back of fears about inflation. Photo: Reuters

European markets faced a dramatic selloff after Asian and US markets were rocked overnight.

Investors are digesting inflationary worries following China's consumer price index (CPI) falling short of expectations alongside volatile commodity prices.

The FTSE 100 (^FTSE) moved 2.6% lower by the closing bell in London despite prime minister Boris Johnson's announcement that the UK would move to further ease coronavirus restrictions. This represented a one-week low.

The German DAX (^GDAXI) was down 2% and the French CAC (^FCHI) also fell around 2.1%.

Michael Hewson, chief market analyst at CMC markets noted that in the short term, it is probably too early to know whether investor worries about inflation are correct. "But we do expect to see a big rise in US headline CPI later this week, however that also has to be put into the context of where prices where a year ago when US oil prices went negative, to -$37 [-$52] and Brent which went as low as $16," he said.

US stocks were lower across the board by the close in London following a rough day in equities stateside yesterday. The S&P 500 (^GSPC) was trading 1% lower. The Dow (^DJI) was also 1.3% lower.

The Nasdaq (^IXIC) dipped a further 0.4% continuing the slide in tech-led stocks which saw the index suffer a 2.6% blow by the closing bell on Monday.

The late retreat was mirrored in riskier assets in the commodities market such as oil and copper, which had risen to all-time highs on Monday.

Watch: European markets drop after US tech stocks sink overnight

Read more: Shops 'not out of the woods' as people return to UK high streets

Worries about inflation had also knocked the dollar (USDGBP=X) to a 10-week low.

"Markets find themselves caught between Chinese PPI figures which confirmed the inflationary trend (even if it is ‘transitory’) and US CPI numbers tomorrow that could well do the same," say ING analysts.

"This could be enough to cancel out any remaining positive feeling from last Friday’s US job numbers, which for a brief while seemed likely to slay concerns about inflation, rate hikes and QE tapering."

Cryptocurrency markets slumped alongside more traditional equities as volatility reigned across the board. Bitcoin (BTC-USD), the most popular cryptocurrency, moved 5.4% lower. Ethereum (ETH-USD) fell 3.9%, following a rally that had seen its price break through $4,000 for the first time on Monday.

Joke token dogecoin (DOGE-USD), which had seen a hammering following Tesla (TSLA) CEO Elon Musk's appearance on Saturday Night Live continued its decent, sinking 14.3% in early trade. It floated back up following a tweet by Musk to trade 2.2% lower by mid-morning.

Watch: What is inflation and why does it matter?

Asian stocks fell overnight as fears of inflation ramped up. Hong Kong's Hang Seng (^HSI) closed down 1.8%, and Japan's Nikkei (^N225) slipped 3.1%. The Shanghai Composite (000001.SS) bucked the trend, rising down 0.4%.

China's inflation data for April released earlier in the day showed the CPI had retreated 0.3% month-on-month, with a 0.9% growth year-on-year. Both missed expectations.

The producer price index (PPI) outperformed, however, growing 6.8% year-on-year.

Data released on Tuesday also showed that the Chinese population is growing at its slowest pace in decades. A plunge in births and an ageing workforce could spell tough socioeconomic challenges ahead.

Figures for a census conducted last year and released on Tuesday showed the country’s population at 1.41 billion people, about 72 million more than those counted in 2010. This was the narrowest increase recorded since the Communist Party conducted its first census, in 1953.

Watch: What are SPACs?

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