LONDON MARKET CLOSE: Stocks plunge as global inflation fears return

(Alliance News) - Stocks in London ended sharply lower on Tuesday amid worries over a sharp rise in global inflation which could force central banks to wind back ultra-loose monetary policies earlier than anticipated.

China's factory prices grew at their fastest rate in nearly four years in April, data showed, in a sign of the strength of the country's recovery from the Covid-19 pandemic.

Having largely contained the coronavirus crisis early last year, the world's second-biggest economy has enjoyed months of improvement, and was the only major economy to expand in 2020.

China's producer price index, which measures the cost of goods at the factory gate, expanded a forecast-beating 6.8% on-year last month, the National Bureau of Statistics said. This is the highest recorded since October 2017, and a leap from the 4.4% registered the previous month.

Official data on Tuesday also showed China's consumer price index rose 0.9% on-year in April - slightly lower than expected.

The FTSE 100 index closed down 175.69 points, or 2.5%, at 6,947.99. The FTSE 250 ended down 530.05 points, or 2.3%, at 22,167.14, and the AIM All-Share closed down 21.93 points, or 1.7%, at 1,235.97.

The Cboe UK 100 ended down 2.6% at 692.10, the Cboe UK 250 closed down 2.3% at 19,961.60, and the Cboe Small Companies ended down 1.2% at 14,972.50.

In Paris the CAC 40 ended down 1.9%, while the DAX 30 in Frankfurt ended down 1.8%.

"European stock markets have taken a beating today over concerns about rising inflation expectations, even though bond markets aren't exhibiting that much in the way of distress. This morning's latest Chinese factory gate prices appear to have reinforced these concerns after coming in at 6.8%, a rise of over 7% since the end of last year, and the highest level since November 2017," said CMC Markets analyst Michael Hewson.

In the FTSE 100, all but one stock ended in the red, with International Consolidated Airlines the worst performer, down 7.4%. IAG launched EUR825.0 million convertible bond offering amid ongoing uncertainty over air travel.

The British Airways parent is offering senior unsecured bonds due 2028, which will carry a fixed rate of interest of 1.125% payable semi-annually in arrears.

The conversion price of the bonds has been set at EUR3.3694 per share, which represents a premium of 45% over the volume weighted average price of IAG shares.

The offering comes after disappointment over the UK government's plans to reopen the travel industry. On Friday evening, Westminster revealed that Portugal, Gibraltar and Israel are among just 12 destinations on England's new 'green list' for travel, meaning visitors do not need to self-isolate on their return home.

Aftermarket service providers Rolls-Royce and Melrose Industries ended down 4.7% and 6.3% respectively.

Renishaw closed down 6.7% after Bloomberg reported late Monday that the precision instruments maker is struggling to attract takeover interest due to a steep price tag and list of ownership demands.

Rival engineering companies Hexagon, Schneider Electric and Siemens all decided going after Renishaw, Bloomberg reported, citing people familiar with the matter. The people said bidders have been put off by a high valuation.

Further, Renishaw could struggle to seal a sale at a premium to its current share price, the sources added.

NatWest Group ended 3.4% lower at 190.40 pence. The UK government raised GBP1.10 billion from the sale of 580.0 million shares in the state-backed lender. The placing price was 190.00p, a 3.6% discount to Monday's closing price of 197.05p.

The sale means the UK government now holds a 54.8% stake in NatWest, down from 59.8% previously. UK Government Investments - which was set up by former chancellor George Osborne to offload UK government-owned companies - first announced its intention to cut its NatWest stake below 55% after the market close on Monday. In mid-March, the UK government sold 590.7 million shares at a price of GBP1.12 billion, reducing its stake to 59.8% from 61.7%.

The UK government first began building its majority stake in the bank from October 2008 during the financial crisis as it looked to inject funds into the banking system.

AstraZeneca ended 1.1% lower even as a requisite majority of its shareholders gave their blessing to the drugmaker's acquisition of Massachusetts-based drug developer Alexion Pharmaceuticals.

The move came as the EU executive is suing AstraZeneca to force it to deliver 90 million more doses of its Covid-19 vaccine before July, a spokesman said.

The demand stems from a row between Brussels and AstraZeneca over a shortfall of tens of millions of vaccine doses the company was meant to have delivered to the EU since the beginning of the year.

AstraZeneca has responded that it is bound only by a "best reasonable efforts" to meet that target.

In the FTSE 250, Wm Morrison Supermarkets closed down 0.4%. The grocer reported a strong start to its financial year amid a supermarket "renaissance".

Against volatile trading a year ago during the onset of the Covid-19 pandemic, Morrisons said it sustained a "roust" sales performance throughout the first quarter of its 2022 financial year. Total sales rose 5.3% including fuel in the 14 weeks to May 9, while like-for-likes were up 4.7%, with fuel volumes "almost back" to pre-pandemic levels by the end of the period.

Excluding fuel, like-for-like sales were up 2.7% year-on-year and two-year sales - being a comparison against a pre-pandemic period - were up 8.7%.

Morrisons highlighted that key seasonal events such as Mother's Day and Easter were particularly successful, and there has been a strong recent improvement in food-to-go sales.

The pound was quoted at USD1.4150 at the London equities close, up from USD1.4130 at the close Monday and continued to hold gains as the UK edges closer to a full unlocking of the economy in June.

People in England will be able to eat and drink in indoor venues from next week, UK Prime Minister Boris Johnson said Monday, as the country reported no coronavirus deaths for the first time in over a year.

Johnson confirmed the government will continue with the latest step in its roadmap out of lockdown, after reviewing various tests including infection rates and the success of the vaccination drive.

In addition, Queen Elizabeth II outlined her government's post-pandemic legislative agenda as she opened a new session of the UK parliament on Tuesday, in her first public appearance since the funeral of her late husband Prince Philip.

Johnson's government, after rolling out a successful coronavirus vaccination drive, is intent on reopening the economy and "levelling up" prosperity across Britain following its Brexit withdrawal from the EU.

The PM said separately that countering Covid-19 remained the "number one priority" but insisted the recovery provided a "historic opportunity to change things for the better".

Johnson said current data indicated it might be possible to scrap the one-metre plus rule, which would greatly increase flexibility for businesses to increase capacity.

"The pound rose by over 1% against the dollar over the course of yesterday, the highest level since February. There could still be more demand for GBP because the Bank of England is expected to reduce monetary stimulus earlier than the Federal Reserve, which is another positive case for GBP gains," said analysts at OFX.

The euro stood at USD1.2165 at the European equities close, up from USD1.2156 late Monday. Against the yen, the dollar was trading at JPY108.50, down from JPY108.75 late Monday.

Stocks in New York were firmly in the red at the London equities close, adding to Monday's retreat due to worries about excess valuation and inflation.

The DJIA was down 1.7%, the S&P 500 index down 1.4% and the Nasdaq Composite down 1.0%.

Tech stocks, which surged during much of the coronavirus pandemic, continued to endure pressure as investor interest rotates into sectors expected to thrive in a reopened economy.

Brent oil was quoted at USD68.08 a barrel at the equities close, up from USD67.71 at the close Monday.

Gold was quoted at USD1,829.77 an ounce at the London equities close, lower against USD1,837.81 late Monday.

The economic events calendar on Wednesday has UK economic growth and trade figures at 0700 BST. In the afternoon, US inflation readings are on deck for 1330 BST.

The UK corporate calendar on Wednesday has interim results from tour operator Tui, contract caterer Compass Group and distiller Stock Spirits. There are also trading statements from TI Fluid Systems and National Express.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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