LONDON MARKET OPEN: FTSE 100 plunges as inflation fears rock markets

(Alliance News) - London stocks were suffering on Tuesday at midday after inflation fears caused a shaky session in New York overnight, giving growth stocks a particularly rough ride.

Technology investors were amongst the losers in London on Tuesday, while futures pointed towards another session in the red for Wall Street.

The FTSE 100 dived 168.07 points, or 2.4%, to 6,955.61 midday Tuesday - taking the blue-chip index below the 7,000 mark for the first time in a week.

The mid-cap FTSE 250 index dropped 469.63 points, or 2.1%, to 22,227.56. The AIM All-Share index slid 1.7% to 1,236.62.

The Cboe UK 100 index was down 2.4% at 693.71. The Cboe 250 was down 2.0% at 20,019.37 and the Cboe Small Companies down 0.7% at 15,039.22.

In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt sank 2.2% and 2.3% respectively on Tuesday.

"European stocks are tanking lower after a weak handover from Wall Street. Inflation concerns sent tech stocks tumbling overnight," said Sophie Griffiths, market analyst at Oanda.

She explained: "The overriding fear is that pandemic stimulus combined with reopening economies will spark a sharp drive high in inflation, forcing central banks to take action, tightening policy and potentially slowing down economic recovery."

Overnight, data showed Chinese factory prices grew at their fastest rate in nearly four years in April. 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.

All eyes now turn to the US consumer price index due on Wednesday at 1330 BST. The annual inflation rate is expected to tick up sharply to 3.6% in April, according to FXStreet, from 2.6% in March. However, the month-on-month rate is set to ease to 0.2% from 0.6%.

Wall Street is set for a further slide after Monday's downbeat session. The Dow Jones is called 0.6% lower on Tuesday and the S&P 500 down 0.8%. The tech-heavy Nasdaq Composite was bearing the brunt of the losses, pointed down 1.4% after a 2.6% dive on Monday.

"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," said AJ Bell investment director Russ Mould.

"However, one UK technology-orientated name which is doing very nicely indeed is sports and health products online platform The Hut Group or THG for short."

THG shares jumped 13% in London on Tuesday after raising USD1.05 billion via an upsized share placing, together with a share subscription by a SoftBank subsidiary.

Due to strong demand in the bookbuild, THG said its placing was bumped up to USD320 million from USD270 million. Further, SBM, a subsidiary of Tokyo-based technology investor SoftBank, subscribed for USD730 million.

THG late Monday said it has inked a financial and trading partnership with SBM under which they will explore potential commercial arrangements with each other. The collaboration includes the USD730 million subscription by SBM in THG shares, plus an option to subscribe for a 20% interest in THG Ingenuity.

In addition, THG has agreed to acquire New Jersey-based skincare and haircare products Bentley Technologies from its founder and the Riverside Co for USD255 million.

While THG shares rose, companies exposed to US tech stocks slipped.

Scottish Mortgage Investment Trust fell 4.6%. Scottish Mortgage holds investments in tech stocks such as Amazon.com and Tesla - which closed down 3.1% and 6.4% respectively on Monday in New York.

FTSE 250-listed Allianz Technology trust - an investor in Google owner Alphabet, Facebook and Microsoft amongst other technology stocks - fell 6.4%, the worst performer in the London mid-cap index at midday Tuesday.

Elsewhere in London, Renishaw shares fell 6.3% after Bloomberg reported the engineering firm is struggling to attract takeover interest due to a high price tag. Bloomberg cited people familiar with the matter who said bidders have been put off by a high valuation.

International Consolidated Airlines fell 4.6% after launching a large convertible bond offering amid ongoing uncertainty over air travel.

The British Airways parent is offering EUR800.0 million of senior unsecured bonds, due 2028 and convertible into shares.

"Given the continuing uncertainty in respect of air travel, the net proceeds from the offering will be used by IAG to strengthen the group's balance sheet and increase the group's overall liquidity position and provide the group with increased operational and strategic flexibility to take advantage of a recovery in demand," the company said.

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.

Industry leaders said the government's approach represented an "excess of caution" and demanded greater clarity over the formation of the green list.

The dollar edged back from morning gains as Tuesday progressed.

The euro traded at USD1.2161 on Tuesday in London, up on USD1.2156 late Monday after Mannheim-based research institute ZEW said German economic confidence hit a post-pandemic high in May.

The ZEW economic sentiment indicator rose to 84.4 in May from 70.7 in April, breezing past expectations, according to FXStreet, for the index to creep up to 71.0.

The institute noted that, not only was this the highest level so far since the pandemic struck, but it was the best result since February 2000.

Sterling firmed to USD1.4135 at midday from USD1.4130 at the London equities close on Monday. Against the yen, the dollar softened to JPY108.71 versus JPY108.75.

Safe-haven gold was quoted at USD1,840.77 an ounce on Tuesday, edging up from USD1,837.81 on Monday. Brent oil was trading at USD67.87 a barrel, firm on USD67.71 late Monday.

By Lucy Heming; lucyheming@alliancenews.com

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