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(Alliance News) - A blowout US consumer price index reading for April sent London stocks off course on Thursday, as inflation worries continued to toss markets.
The FTSE 100 plunged 145.72 points, or 2.1%, to 6,858.91 at midday. The blue-chip index hit an intraday low of 6,823.60 Thursday morning, its worst level in around five weeks.
The mid-cap FTSE 250 index was down 285.74 points, or 1.5%, at 21,822.10 at midday and the AIM All-Share index was down 1.5% at 1,213.98.
The Cboe UK 100 index was down 2.0% at 685.17. The Cboe 250 was down 1.4% at 19,638.98, and the Cboe Small Companies down 0.8% at 14,881.42.
In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were down 1.2% and 1.5% respectively on Thursday.
"Yesterday's US inflation shock fuelled the growing belief that central banks will have to take action sooner rather than later when it comes to raising interest rates. The world wanted economic recovery, but it appears to be happening too fast and the actions required to cool it down aren't favourable to stock markets," said Russ Mould, investment director at AJ Bell.
After weeks of jitters over the prospect of growing inflationary pressures as the US economy recovers from the pandemic, markets came undone after Wednesday's substantial inflation beat.
The US annual inflation rate roared ahead to 4.2% in April from March's consumer price growth of 2.6%. It also topped consensus estimates, according to FXStreet, of an uptick to 3.6%.
US Federal Reserve Chair Jerome Powell and others have tried to calm concern about inflation, saying price increases in the short term are due to the rebound from the unprecedented impact of Covid-19, as well as temporary supply issues as economic activity resumes.
However, Wednesday's inflation print made for uncomfortable reading for markets already worried over the prospect of monetary policy tightening faster than expected.
Looking to the New York market open,stocks are set for a fourth day of decline. The Dow Jones is called down 0.7% and the S&P 500 and Nasdaq Composite both down 0.4%. On Wednesday, all three indices suffered losses in excess of 2%.
Markets face a further inflationary test as US producer prices are due to be released on Thursday at 1330 BST. The year-on-year rate is expected to accelerate to 5.9% for April from 4.2% in March, according to FXStreet.
"After struggling to hold their ground following US CPI data yesterday, markets are bracing themselves for PPI data this afternoon," said Chris Beauchamp, chief market analyst at IG.
"For stocks this might be an even tougher moment, given that companies may find themselves struggling to pass on price increases to customers, hitting profitability and putting the year-long earnings recovery in jeopardy."
Due at the same time are the latest US initial weekly jobless claims numbers, expected to fall to 490,000 from 498,000.
With market participants speculating that US interest rates will have to rise sooner than previously expected, the dollar strengthened ahead of the data.
Sterling was quoted at USD1.4016 on Thursday, down from USD1.4104 at the London equities close on Wednesday.
The euro traded at USD1.2064 at midday London time, soft against USD1.2075 late Wednesday. Against the yen, the dollar rose to JPY109.66 versus JPY109.45.
Gold was quoted at USD1,810.95 an ounce on Thursday, lower than USD1,825.25 on Wednesday as the stronger greenback weighed.
Investors were dumping shares in oil producers and miners in London on Thursday, AJ Bell's Mould said, "perhaps taking profit in areas that have done well this year and locking in gains in case markets get even worse from here."
Anglo American shares were down 5.3%, BHP Group down 4.7% and Rio Tinto fell 4.7%.
Additionally, a decline in oil prices prompted shares in London-listed energy majors to slip, with BP down 2.9% and Royal Dutch Shell 'A' and 'B' shares trading 3.2% and 2.0% lower respectively at midday.
Brent oil was trading at USD67.56 a barrel, falling from USD69.77 late Wednesday.
The major US pipeline network forced offline by a cyber attack began to reopen Wednesday, its operator said, after a five-day shutdown prompted motorists to frantically stock up on gasoline and some gas stations on the US east coast to close.
But Colonial Pipeline warned that it will take "several days" before supplies return to normal.
US average gasoline prices topped USD3 a gallon for the first time since November 2014, according to the American Automobile Association.
The worst performer in the FTSE 100 was luxury goods firm Burberry, falling 7.9% as it warned on margins.
Revenue for the year to March 27 fell 11% to GBP2.34 billion, in line with market consensus, from GBP2.63 billion the year before. The fall in revenue, which was down 10% at constant exchange rates, was due to store closures and reduced tourism, Burberry said, though with a strong recovery in the second half.
Adjusted operating profit, meanwhile, slipped by 9% year-on-year to GBP396 million. According to company-compiled consensus, adjusted operating profit was predicted to have fallen 13% to GBP378 million from GBP433 million.
Looking ahead, Burberry said it expects revenue to grow at a high single-digit percentage compound annual growth rate at current constant exchange rates in the medium term. The company, however, warned that it expects adjusted operating margin progression to be held back by operating expense normalisation and increased investment to accelerate growth, with more meaningful margin improvement thereafter.
Hargreaves Lansdown shares fell 5.3% after the direct-to-consumer investing platform said it saw a period of "very strong growth", though sounded caution over post-lockdown life.
Net new business in the four months to April 30 was GBP4.6 billion, with assets under administration of GBP132.9 billion at the end of the period, up 28% in the year-to-date. Revenue for the period was GBP233.2 million, bringing the year-to-date total to GBP532.7 million, up 19% on a year before.
"Where daily share dealing volumes settle, as we ease out of lockdown and life returns to more normal, is difficult to say. Similar to when previous lockdowns have been lifted, we have begun to see a reduction in share dealing volumes in both UK and overseas trades. However...we are confident that we will see a higher base level of dealing volumes than we did pre Covid-19," the company said.
Prudential was 4.9% lower at midday as it delayed the expected completion of the demerger of its US unit to the second half of 2021 from the second quarter.
The London-based insurance firm is spinning off the unit, Jackson National Life Insurance, into a separate listed company as it switches its strategy towards Asia and Africa. The move was originally expected to complete in the second quarter of 2021, according to previous announcements. But that's now expected to happen in the second half, as the company has to update regulatory filings to include Jackson's first-quarter financial information, Prudential said.
By Lucy Heming; lucyheming@alliancenews.com
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