FTSE plunges as fears rise of second wave of inflation
THE FTSE 100 rally came to an abrupt halt yesterday as the oil price surged on Middle East tensions while hopes of an early interest rate cut fell back.
Stock markets in the US, Europe and Asia fell as the oil price jumped past $90 a barrel, sparking fears of a second wave of inflation.
Crude is up almost 20% so far this year and may climb higher still as Israel and Iran risk coming into direct conflict, according to Joshua Mahony, chief market analyst at Scope Markets.
He said the “downbeat” mood was aggravated by growing fears that the US Federal Reserve was now less likely to cut interest rates. “Markets continue to price a June rate cut but those expectations are gradually fading.”
Global shares sold off as “storm clouds circled equity markets”, said AJ Bell investment director Russ Mould. “Wall Street was not in a good mood on Thursday night and that spread to Europe on Friday morning.”
The FTSE 100 fell 1% in early trading to 7,893, with 97 out of 100 companies in the red. “The only ones in positive territory were weapons maker BAE Systems and energy companies Centrica and Shell.” Investors were further spooked by comments from US Federal Reserve official Neel Kashkari, who questioned whether the American central bank needed to cut rates at all this year with “inflation moving sideways”.
Kashkari had previously pencilled in two rate cuts and Mould said: “Investors don’t want to hear such comments but they aren’t blind to what’s going on.”
Mould warned the stock market could “wobble” if the Fed decides against cutting rates in June. “It’s enjoyed quite a run since last October and a shift in the narrative could cause investors to lock in some of those gains.”
George Lagarias, chief economist at Mazars, said the US economy was “firing on all cylinders... and a stronger economy does not make the case for monetary easing”.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said global stock markets were suffering a “widespread mood problem”.
Yesterday’s negativity was compounded by news that UK house prices fell 1% in March, according to Halifax.