FTSE 100 over fell over 2% in early trade on Monday after Covid lockdown fears in China led to big sell-offs in Asia and stoking fears of further inflationary pressure and supply chain problems.
China has been battling the rise of the pandemic with severe lockdown measures resulting in a decline in oil and metal imports in the country as its industrial sector faces a slowdown. As China continues mass testing in its largest district, investors become wary of Asian markets resulting in large sell-offs ultimately impacting global markets including the FTSE 100.
“The prospect of further restrictions in China could lead to a poisonous mix of further inflationary pressure, as supply chains in the so-called ‘factory of the world’ get disrupted, and weaker economic growth,” says Russ Mould, Investment Director, AJ Bell.
“The result could be stagflation – a slowing economy accompanied by surging prices – a brew few investors would be able to stomach.”
Brent crude has dropped 4.8% to $101 a barrel as further lockdowns in China invoke demand fears amongst investors.
Major oil companies which ride on the back of oil prices such as BP and Shell saw their share prices fall 5.4% to 371p and 4.4% to 2,091p.
Susannah Streeter, Senior Investment and Markets Analyst, Hargreaves Lansdown said, “However the [oil] price is set to stay volatile given the brutal ongoing battles in Ukraine are adding to the spring tides of worry.”
Mining stocks on the FTSE 100 also took a hit on Monday with Anglo American shares tanking 7% to 3,227p after the company announced setbacks in its Los Broncos copper project due to recommended permit blocks by regulators in Chile.
“While the world might benefit from wider availability of the metal, which is critical for renewables and electric vehicle components and infrastructure, complaints domestically about the environmental impact within Chile demonstrate the difficult balancing act miners face as they look to show off their new ‘green’ credentials,” said Russ Mould.
Amongst miners stocks declining on the FTSE 100 on Monday are Glencore, Rio Tinto, Ferguson and Endeavour Mining.
Glencore shares were trading down 6.4% to 445p, followed by Rio Tinto shares dropping 4.5% to 5,405p. Ferguson shares were down 4% to 10,100p and Endeavour Mining shares lost 3.5% to 1,951p.
Later in the week, the US Fed is expected to announce aggressive monetary policies, leaving investors on the edge of their seats as it “could have an influence on the market’s mood as we head into May,” added Mould. The impact of the policies may backfire and result in a recession.
Amongst financial services companies, Standard Chartered and HSBC shares decreased 2.5% and 3.2% to 502p and 506p respectively as the banks have significant exposure in Asia and investors remain cautious about the rising US interest rates expected by the Fed.
Scottish Mortgage Investment Trust has large holdings in tech stocks and as investors swerve away from Asian markets, the trust’s shares lost 3.6% to 874p.
British Land shares lost 1.7% to 507p after the company announced the sale of its 75% stake in Paddington Central assets to GIC on Monday.
AstraZeneca shares dropped 1% to 10,177p despite the pharmaceutical company announcing that its candidate for unresectable liver cancer Tremelimumab has been accepted under priority review by the US FDA.
With such sharp decline in stocks today, a limited number of companies saw an increase in their shares today, as Reckitt Benckiser shares gained 1.6% to 6,236p, Unilever shares were trading up 1.1% to 3,580p and BT Group shares rose 0.6% to 187p.
Cost of living crisis
Earlier today, the Office for National Statistics released a report in which it claimed that 9 out of 10 UK adults experienced an increase in their cost of living over the last month in March as gas and electricity bills soared followed by higher prices in certain consumer goods.
We’ve published new analysis on the impact of rising costs of living on adults in Great Britain (for the period 16-27 Mar 2022).
— Office for National Statistics (ONS) (@ONS) April 25, 2022
Around 9 in 10 (87%) adults reported an increase in their cost of living over the past month – compared with 62% in Nov 2021 https://t.co/d8t4fYgfTi pic.twitter.com/JkxfJa7zsA
As a result, utility stocks were mixed – but still outperformed the benchmark on Monday as investors sought out safe havens – with National Grid shares falling 0.4% to 1,167p, Severn Trent shares down 1% to 3,019p and United Utilities shares declining 0.6% to 1,120p at the time of writing.