Wall Street and FTSE 100 drop as inflation worries mount
Wall Street opened lower this afternoon as rising inflation sparked fears of scaled back support ahead of a key meeting of the US Federal Reserve.
The Dow Jones dropped 0.3 per cent and the S&P 500 was down 0.7 per cent, while the tech-heavy Nasdaq dropped 1.7 per cent.
It followed losses for the FTSE 100, which slipped this morning as a jump in inflation prompted fears that the Bank of England may tighten its monetary policy earlier than expected.
The blue-chip index was down 1.75 per cent by mid-afternoon, with miners declining 2.7 per cent on lower metal prices.
Official figures showed British inflation more than doubled in April to 1.5 per cent, helped by a rise in electricity and gas bills. Economists had forecast a 1.4 per cent increase.
“A successful vaccine rollout has paved the way for the reopening of the economy, and now consumers are eager to make up for lost time,” said Ambrose Crofton, global market strategist at JP Morgan Asset Management.
“Surging demand and supply bottlenecks were always going to lead to a jump in prices. The big question is how persistent these forces prove to be and judging by economists’ forecasts, the jury is still out.”
AJ Bell investment director Russ Mould said: “Even a reading of 1.5 per cent inflation in the UK’s consumer price index is giving stock markets the jitters, although that it still a very, very, very long way below the sort of levels which gave investors terrible trouble in the 1970s and early 1980s.
“Nor is inflation a certainty either, as it can still be argued that deflation or stagflation could yet result from the combination of a decade of unorthodox monetary policy, rampant government debt accumulation, the pandemic and the apparent turning of the tide against globalisation.”
Meanwhile, the domestically focused mid-cap FTSE 250 also fell by 0.9 per cent, despite John Laing Group surging more than 11 per cent.
This came after private equity firm KKR agreed to buy the British investor in a deal valued at around £2bn.
Market movers
The morning’s biggest winner was property developer Segro, who rose 1.1 per cent, followed by Imperial Brands, up by 0.8 per cent.
AstraZeneca and Hargreaves Lansdown also rose 0.4 per cent and 0.3 per cent respectively, as morning gains were few and far between.
Miner Fresnillo was the morning’s biggest faller, dropping by 6.8 per cent, followed by Antofagasta’s 5.1 per cent hit.
Meanwhile, steel maker Evraz and Royal Dutch Shell both dipped by three per cent and 2.8 per cent respectively.
Around the world
Wall Street’s main indexes were all in the red this afternoon amid ongoing inflation fears.
Investors will have a keen eye on minutes from the Fed’s April policy meeting, with a statement due this evening.
The yield on 10-year Treasury bonds hit a one-week high, driving down major tech stocks such as Apple, Microsoft and Facebook.
High-growth stocks such as tech are more sensitive to yields as their value rests heavily on future earnings, which could be impacted by an interest rates hike.
“Inflation fears and concerns surrounding the timing of the Fed’s next move have been stalking the markets for weeks,” said Sophie Griffiths, market analyst at Oanda.
“While Fed speakers have been out in droves reiterating its dovish stance, the market looks undecided. Some days, the markets are prepared to take the Fed at their word. Today is not one of those days.”
Global stocks slipped today as a threat of unwanted inflation had investors shy away from assets seen as vulnerable to any removal of monetary stimulus.
Asia-Pacific shares outside Japan dropped 0.3 per cent, while China’s CSI300 also slipped 0.3 per cent.