London close: Stocks join global rout on inflation concerns

The FTSE 100 ended the session down 2.47% at 6,947.99, and the FTSE 250 was 2.34% weaker at 22,167.14.

Sterling was in a mixed state, last trading 0.21% stronger on the dollar at $1.4148, while weakening 0.11% against the euro to change hands at €1.1627.

“Inflation fears have hurt market sentiment today, as European markets maintained the pessimistic tone established in the US yesterday,” said IG senior market analyst Joshua Mahony.

"An overnight jump in Chinese PPI data highlighted how commodity prices are lifting factory costs, with traders worried that input costs will feed into consumer prices which could result in a more hawkish central bank approach.”

Mahony said that, despite Fed chair Jerome Powell attempting to quell fears of an inflation-fuelled rate hike on a number of occasions, Tuesday’s selling pressure highlighted ongoing fears that a spike in prices could force the central bank’s hand.

“Despite promises that they would willingly let inflation run beyond the 2% threshold for some time, there is undoubtedly a limit to that tolerance which many fear could be tested this year.”

Inflation concerns deepened early in the session after fresh data out of China overnight showed factory prices continuing to rise, reaching their fastest rate since October 2017.

According to Beijing’s National Bureau of Statistics, the country;s producer price index rose 6.8% in April year-on-year - a significant increase on March’s 4.4% jump and marginally above forecast.

Most analysts were looking for growth of around 6.5%.

It was also the fourth straight month of increases, as China continued to experience a surge in demand, on the back of the wider global economy’s recovery from the Covid-19 pandemic.

“The contribution from oil, chemicals and processing of metals all picked up,” said Freya Beamish, chief Asia economist at Pantheon Macroeconomics.

“The main non-processing manufacturing goods prices available at this stage remained in deflation, but only mildly so.”

Beamish said survey data, combined with the lead from commodities prices, strongly suggested inflation would pick up “robustly” in the coming months.

“We think PPI headline inflation will continue to rise faster than implied, purely by base effects in coming months, as the increase in sport prices feeds through.”

Russ Mould, investment director at AJ Bell, said earlier that it was not one of the days on which investors appeared “relaxed” about inflation risks and the possibility of central banks lifting rates and withdrawing stimulus.

“After last night’s big sell-off on Nasdaq, the FTSE 100 finds itself undoing much of its recent progress and trading below 7,000,” he said.

“Surging commodity prices are acting as a canary in the coal mine for inflation - with the huge infrastructure and stimulus packages in the US a key contributing factor.

“The valuations of the tech-based growth companies in the US are harder to justify in an inflationary and rising interest rate environment - where lower risk assets typically offer higher returns - hence the big fall in the Nasdaq yesterday.”

In equity markets, engineer Renishaw - which put itself up for sale in March - was down 6.72% following a report the company was struggling to attract takeover interest due to a high valuation and list of ownership demands.

According to Bloomberg, rival engineering firms Hexagon, Schneider Electric and Siemens have all decided against pursuing Renishaw.

Stocks with exposure to the travel industry were also down amid lingering disappointment over the government’s ‘green list’, which did not include popular destinations such as France, Spain, Italy or Greece.

British Airways and Iberia parent IAG was down 7.4%, GKN owner Melrose Industries lost 6.31%, and engine maker Rolls-Royce was 4.87% weaker, while low-cost carriers easyJet and Wizz Air descended 3.5% and 3.62%, respectively.

UK supermarket Morrisons reversed earlier gains to slip 0.38%, even after it reported a rise in first-quarter sales and reiterated guidance for higher full-year profits and reduced debt as the economy rebounded from the Covid-19 pandemic.

Market Movers

FTSE 100 (UKX) 6,947.99 -2.47%
FTSE 250 (MCX) 22,167.14 -2.34%
techMARK (TASX) 4,243.13 -2.16%

FTSE 100 - Risers

London Stock Exchange Group (LSEG) 7,080.00p 0.06%
RSA Insurance Group (RSA) 683.80p -0.03%
Anglo American (AAL) 3,394.50p -0.41%
Polymetal International (POLY) 1,603.00p -0.53%
Pearson (PSON) 837.60p -0.55%
Sainsbury (J) (SBRY) 254.20p -0.74%
Antofagasta (ANTO) 1,868.50p -0.80%
Johnson Matthey (JMAT) 3,214.00p -0.80%
Just Eat Takeaway.Com N.V. (CDI) (JET) 6,814.00p -0.87%
Rentokil Initial (RTO) 470.90p -0.99%

FTSE 100 - Fallers

International Consolidated Airlines Group SA (CDI) (IAG) 194.62p -7.26%
Renishaw (RSW) 5,640.00p -6.47%
Melrose Industries (MRO) 156.00p -6.31%
Flutter Entertainment (CDI) (FLTR) 13,355.00p -4.88%
Rolls-Royce Holdings (RR.) 104.34p -4.87%
Compass Group (CPG) 1,523.00p -4.84%
Scottish Mortgage Inv Trust (SMT) 1,085.00p -4.78%
Next (NXT) 7,932.00p -4.66%
Burberry Group (BRBY) 2,088.00p -4.66%
Prudential (PRU) 1,516.50p -4.35%

FTSE 250 - Risers

Greencore Group (CDI) (GNC) 165.50p 2.16%
Premier Foods (PFD) 99.80p 1.84%
Vivo Energy (VVO) 108.40p 1.50%
Hilton Food Group (HFG) 1,228.00p 1.32%
FDM Group (Holdings) (FDM) 1,004.00p 0.90%
FirstGroup (FGP) 73.90p 0.61%
Helios Towers (HTWS) 171.00p 0.59%
Royal Mail (RMG) 519.80p 0.15%
Signature Aviation (SIG) 395.60p 0.03%
Aggreko (AGK) 861.00p 0.00%

FTSE 250 - Fallers

Playtech (PTEC) 442.20p -7.10%
WH Smith (SMWH) 1,750.00p -6.42%
Dr. Martens (DOCS) 450.00p -6.33%
Mitchells & Butlers (MAB) 311.40p -6.26%
Network International Holdings (NETW) 382.20p -6.23%
Apax Global Alpha Limited (APAX) 193.00p -6.08%
Watches of Switzerland Group (WOSG) 678.00p -5.70%
Coats Group (COA) 57.10p -4.83%
Unite Group (UTG) 1,123.50p -4.63%
SSP Group (SSPG) 318.30p -4.61%