The FTSE 100 dropped 1% in afternoon trading on Wednesday after the new tax year brought a wave of caution from investors in light of inflation worries from the US Fed.
Despite the market benefiting from subsiding concerns that the Ukraine conflict could be the start of World War Three, investors remained slightly cautious due to uncertainty around the Fed.
Federal Reserve Governor Lael Brainard warned on Tuesday that the central bank must work quickly to reduce its balance sheet and simultaneously increase interest rates to control inflation before it spikes out of control.
“There remain significant headwinds for equities and the latest trouble spot is what the Federal Reserve might do to curb inflation,” said AJ Bell investment director Russ Mould.
“While investors have been expecting the Fed to do something about inflation for some time, it’s the likely pace of action that really worries the market.”
“Tighten monetary policy too quickly and the economy could fall into recession.”
It was a good day for oil companies as Shell gained 0.7% to 21,375 after the price of Brent Crude went up to $108 per barrel, following its plummet to $104 earlier this week.
Tobacco brands performed strongly, with Imperial Brands rising 3.3% to 16,700p and British American Tobacco shares gaining 1.4% to 32,752p after Imperial Brands announced projected tobacco price rises in the latter half of the year bringing in a boost in revenue despite a weakened slate of tobacco sales in Europe.
“Gains in the US, UK and Australia more than offset declines in Germany and Spain,” a spokesperson for Imperial Brands said.
“These share gains were achieved while maintaining strong pricing discipline, and overall tobacco volumes are in line with expectations.”
Diageo shares increased 1% to 40,195p following the company’s launch of priced fixed-rate sterling and euro-denominated bonds on Tuesday, from which the proceeds will reportedly be used “for general corporate purposes”, according to a statement from the drinks producer.
Smurfit Kappa led the FTSE 100 fallers with a 3.8% decline to 32,035p following the packaging group’s exit from Russia on the back of a fresh wave of sanctions. The company confirmed that its Russian business accounts for approximately 1% of its projected sales.
“This exit will be effected in an orderly manner, during which we will continue to pay our employees and fulfil our legal obligations,” said a spokesperson for the firm.
More bad news added to IAG’s worries as the travel company’s share price lost 2.9% to 135.6p following an announcement that flight groups including British Airways and EasyJet had axed over 100 UK flights from their Wednesday schedule due to surging rates of coronavirus among company staff.
ITV shares suffered a 2.2% drop to 80,180p after the company reported a potential £1 billion bid for Channel 4, which is set to be privatised by 2024. The company is projected to face a bidding war between competing parties including Paramount Global, Sky and Discovery.
