FTSE 100 slumps 2.5% on rising interest rate fears

The FTSE 100 endured its worst day this month on Friday, gaining little relief from a stablisation in bond markets, as the sell-off spread into commodities and investors grew concerned about the prospect of higher interest rates. 

The blue chip index dropped 169 points, or 2.5%, to 6,483 . That wiped out out most of February’s gains while leaving the index only just in positive territory for the year. 

After subdued losses in early trading, downward momentum gathered throughout the day, leaving only a handful of stocks not in the red. 

Spreadex analyst Connor Campbell put the severe losses down to growing concerns over whether interest rates would rise in response to climbing inflation, pointing to comments made today by monetary policymakers at the Bank of England.

‘While deputy governor Dave Ramsden has said that inflation risks are “broadly balanced”, chief economist Andy Haldane went both barrels with his hyperbolic speech on the difficulties of taming the inflationary “tiger”,’ said Campbell. 

Those comments seem to have ignited fear of rising rates, which could kneecap stock market valuations as well as crimping the pace of the economic recovery. 

In bond markets, yields continued to fall from yesterday’s highs, while US stock market indices also staged a bit of a recovery. The S&P 500 rose 0.3% to 3,840, while the Nasdaq Composite enjoyed a bigger bounce, gaining 1.3%. 

CMC Markets analyst Michael Hewson noted names in the basic resources sector had been the biggest decliners in the UK, as weaker oil and copper prices prompted end-of-week profit-taking on the likes of BP (BP) and Anglo American (AAL). 

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(09:23) FTSE slips after bond rout

The FTSE 100 slipped on Friday morning, as a wider sell-off in bonds sparked a global equity market sell-off.

The UK blue-chip index fell 8 points, or 0.1%, to 6,646, recovering from heavier losses in volatile early trading.

That drop was more mild than expected, with futures markets having pointed to a 1.2% decline after the bell, after heavy selling in the US yesterday spilled over into Asian markets overnight. 

The 10-year US Treasury yield hit a one-year high of 1.614% on Thursday, driving fears the heavy losses could trigger distressed selling in other assets, Reuters reported.

Rising bond yields indicates the market’s concerns about the possibility of inflation and rising interest rates, which leads investors to shift out of riskier, higher valued stocks.

‘The after effects of the sharp spike in bond yields in the last 24 hours, continues to be felt as we head towards the end of the week and the month, as investors adopt a risk-off approach, with the US dollar rising across the board, with the exception of the Japanese yen, which is also acting as a haven,’ said CMC Markets’ Michael Hewson.

‘One thing the sharp move higher in bond yields has done, is prompt some buyers back into the market, with US Treasuries embarking on a bit of a rebound, as yields start to fall back a touch from their recent highs.’

The analyst added that sterling was taking ‘a bit of a kicking this morning’ following recent gains.

The pound weakened 0.6% against the dollar, to $1.1393, providing some support for the FTSE 100. Blue chips make the majority of their money overseas, meaning a depreciating pound translates into higher profits.

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Scottish Mortgage (SMT) was the biggest faller, following the 3.5% slide for the US Nasdaq Composite yesterday. The tech-heavy investment trust slid 3.6% to £11.53, putting its shares nearly 15% down in a tumultuous week.

Materials and energy companies were also hit. Miner Anglo American (AAL) fell 2.4% to £28.84, while BP (BP) declined 2.1% to 298p.

British Airways owner International Consolidated Airways (IAG) rose 2.9% to 192p, despite reporting a record full-year loss, after tax and exceptional items, of €6.9bn, or just over £6bn.

The mid-cap FTSE 250 index fell 92 points, or 0.4%, to 21,107, as Aston Martin (AML) dropped 4.5% to £20.42.

Other Baillie Gifford trusts with a heavy weighting to US tech continued to slide. Baillie Gifford US Growth (USA) fell 5% to 325p while Edinburgh Worldwide (EWI) slumped 4.7% to 356p.



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