FTSE 100 shares fall sharply amid US inflation fears

US tech sell-off and report of rising prices for goods leaving China’s factories spook stock markets

Last modified on Tue 11 May 2021 07.36 EDT

Shares in the City have fallen sharply after fears of rising inflation in the world’s two biggest economies sent shudders through global stock markets.

Every one of the major companies featured in the FTSE 100 index was down in early trading after a sell-off in the US tech sector and an overnight report showed rising prices for goods leaving China’s factories.

With financial markets already concerned about rising inflationary pressure in the US, a fall in share prices on Wall Street on Monday spread first to Asia and then to European bourses.

In London, the FTSE 100 was down more than 2% – falling 160 points to drop back below the 7,000 level – and on course for its weakest performance in two months.

Data released by Beijing showed rising global commodity prices feeding through into more expensive manufactured goods. China’s producer prices index rose at an annual rate of 6.8% in April – up from 4.4% in March – and stood at its highest level in three years.

Rising producer prices are an early indication of mounting inflationary pressure, and consumer prices in China were 0.9% higher in April than year earlier, up from 0.4% in March.

Neil Wilson, the chief market analyst at Markets.com, said: “If you are looking for inflation signals, China’s factory gate prices are a pretty good leading indicator. So today’s report could be of concern. Tomorrow’s US inflation numbers are going to be closely watched.”

Stock markets have been rising amid optimism that vaccine programmes will allow the reopening of the global economy, with technology shares leading the way.

Investors have been assuming that central banks will allow their economies to grow strongly without raising interest rates or withdrawing other forms of stimulus such as bond-buying programmes.

The US Federal Reserve, the European Central Bank and the Bank of England have said in recent weeks they are in no hurry to tighten policy but equity traders fear the mood could change if inflationary pressures increase.

“With inflation resurging, it’s expected that the increase in interest rates will come sooner rather than later,” said Susannah Streeter, the senior investment and market analyst at Hargreaves Lansdown.

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