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FTSE 100 set to fall as inflation fears add to the Euros football hangover

·3-min read
England goalkeeper Jordan Pickford fails to stop a penalty from Leonardo Bonucci (PA Wire)
England goalkeeper Jordan Pickford fails to stop a penalty from Leonardo Bonucci (PA Wire)

The FTSE 100 Index was set to fall today in an echo of England’s gloomy mood after its Euro 2020 final defeat despite strong gains in Asianshare prices.

Japanese and Chinesestocks raced up more than 2% this morning, leading a charge that spread across the Asia-Pacific region.

Bitcoin reversed some of its recent losses with a 2% leap in the past 24 hours to $34,216.

Spirits were lifted in Asian markets by China’s central bank’s decision on Friday to allow banks to set aside less money in reserves to cover their lending. The move should effectively boost the amount they will lend to companies and households.

Analysts said the move should work like an interest rate cut, releasing perhaps $154 billion into the Chinese economy.

The move boosted moods in the region which is being battered in parts by a new wave of Covid infections. Tokyo goes under a new state of emergency for the pandemic today and Seoul is also braced for new restrictions as cases rise.

Chinese GDP data out later this week will give investors more of an insight into how to trade the region, with experts predicting an 8% jump in the economy in the second quarter compared with a year ago as the nation recovered from the pandemic. The previous quarter’s GDP shot up 18.3%.

London shares were expected to slide, however, as investors started the week jittery about the threat of inflation and the potential need for the Bank of England to curb it.

The majority feel the current rise in prices is just a temporary blip caused by one-off factors such as global microchip shortages and the surge in demand to shop and go out as Britain exits lockdowns.

Others feel many of the factors such as labour shortages and Brexit red tape are here to stay, and will be exacerbated as the economy opens up further on “Freedom Day” on July 19.

Wednesday sees the UK consumer price index released by the Office for National Statistics with expectations of a June rise of 2.2% from 2.1% in May. The May number came in well above City forecasts of 1.8% - a reminder that this week’s CPI data could contain some shocks.

The Bank of England has predicted that inflation could exceed 3% but would fall back later.

The debate on that will rage but today saw oil prices dip, denting some of the oil company-heavy FTSE-100’s lustre.

Shares were set to fall 21.5 points to 7095 according to futures markets.

Brokers at Liberum are in the minority of those anticipating inflation will remain “higher for longer” and will only drop some time next year. As a result, in a note to clients today, it advises sticking with “quality” rather than “value” stocks, meaning picking those with high profit margins and bigger overall profit.

That means fashion and retail, industrials and technology in the UK, it advises.

Separately, Liberum says its climate portfolio of green stocks in the FTSE 350 has continued to outperform the market, albeit with a dip in the past month.

As companies prepare to announce their second quarter profits, investors are braced for a strong set of earnings, but stockbroker Jefferies today says it reckons they’re not optimistic enough.

Recoveries in western Europe and North America will be strong as vaccine rollouts gather pace, it says, although it acknowledges recent concerns in Israel about the efficacy of vaccines against new variants. It also notes from Google mobility data that emerging markets are showing more people moving around as lockdowns ease - a sign of improving economic activity.

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