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FTSE 100 plunges as US inflation shock batters global markets

·3-min read
 (Evening Standard / eyevine)
(Evening Standard / eyevine)

The FTSE 100 and other global stock markets endured another bruising today amid fears inflation could start galloping away in the US.

The FTSE-100 tumbled more than 2%, losing 169.11 to 6835.23, with markets in Europe suffering similar pain.

Investors are increasingly worried central banks will increase interest rates or rein back on quantitative easing if prices continue to overheat. Wall Street fell sharply after Europe closed last night following data showing US inflation jumped to 4.2%.

UK inflation expectations are currently at their highest levels since 2008.

Stock markets are spooked because if interest rates rise, investors will shift from shares to less risky assets like bonds which have hitherto been bearing hardly any interest.

Calmer heads say inflation is temporary and the Federal Reserve will not move until it sees more proof the job market has recovered.

Asian markets were down this morning, with the Japanese Nikkei 225 off nearly 2% and the Hang Seng and Shanghai Composite both down almost 1% in Hong Kong and China.

As one banker told a canny hedge fund client shorting bonds: “inflation here we come.”

US bonds plunged on rising interest rate expectations, driving yields to six week highs.

Bitcoin was also down, but not for inflationary reasons. Elon Musk blew a hole through its waterline by saying Tesla was suspending allowing the cryptocurrency for car purchases. “We are increasingly concerned about rapidly increasing use of fossil fuels for bitcoin mining and transaction,” he said.

Bitcoin mining is where powerful, energy intensive, computers solve complex mathematical puzzles to create new coins. The system mimics the scarcity and expense of extracting minerals like gold and copper.

The crypto was down 12% over the past 24 hours, at $50,919.

Markets will again today be scrutinising US data as April factory gate prices are issued later . These show how producers are pricing their goods to retailer and other consumer-facing businesses and tend to be a good forward indicator of inflation. 

Watch: FTSE 100 'milestone' as it tops 7,000 mark for first time in more than a year

In March the US PPI came in at 4.2% - the highest since 2011 and April numbers are expected to come in at 5.8% after big rises in the cost of raw materials like copper.

Shares in Burberry crashed 8% on fears that profit margins will be hit as it starts investing again now Covid is past its worst phase.

Bunzl, the packaging giant, fell 2% after the Financial Times revealed that the boss of the Tulchan City PR company, Lord Feldman, lobbied a Cabinet official for it to win PPE contracts while also advising health minister Lord James Bethell last Spring. FTSE 100-listed Bunzl is an important client of Tulchan.

An email chain allegedly proving Feldman’s lobbying was obtained by the Good Law Project, which has issued legal challenges over governmnet PPE procurement and the lack of proper tenders.

Lord Feldman said he was simply trying to support the government in finding PPE for the NHS at a time of crisis. His emails to the civil servant said Bunzl was under pressure to send PPE elsewhere, suggesting the UK would lose out on precious supplies.

On an ordinary day, NatWest shares could have risen after an upgrade from Sell to Hold from Investec’s respected analyst Ian Gordon. Instead, it was pulled down by the general market meltdown.

Shares in the bank have increased 7% in the past fortnight, but Gordon says that’s not enough to correct its underperformance relative to its peers.

NatWest disappointed investors by not upgrading its profit guidance and missing City expectations with its first quarter results but Gordon reckons those shorting the stock should change tack.

That said, he still prefers Barclays as a Buy in the banking sector.

Biggest fallers of the day were Burberry, while Hargreaves Lansdown, Prudential and Anglo American all fell 5%.

Risers were 3i, Pershing Square and Aveva which all managed a 1% rise. 3i was boosted by figures showing its investee companies put in a decent performance during the Covid chaos.

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