FTSE 100 sinks as growth fears grip markets

The FTSE 100 sank on Tuesday as investors fled risk asset over fears further rate hikes could cause a central bank induced global recession.

Lower volumes make moves in stocks more pronounced and after a jump yesterday, London-listed shares took a step back as investors accessed the threat of inflation and a possible recession.

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The FTSE 100 was down over 2% at the time of writing while the Euro hit a 20-year low against the dollar as markets questioned the ECB’s plans for monetary policy.

Cyclical weakness

Early declines were led by cyclical stocks with WPP the biggest faller in morning trade, off nearly 5%. The advertising agency would suffer during a recession as the world’s biggest advertisers – which are typically consumer brands – tend to reduce spending during economic downturns.

However, in the afternoon WPP was overtaken by commodities companies who displayed signs of disappointment about the state of the Chinese economy.

“Reports that China is planning a $75 billion infrastructure fund to revive economy has failed to lift demand for iron ore, with factories cutting production. Iron ore prices have slipped again reaching $113.4 a tonne, a level not seen since January.That’s keeping commodities giants Anglo American and Glencore on the back foot in early trade,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.

Anglo American and Glencore were both were down over 7%.

Oil majors Shell and BP were weaker as the energy situation in Europe became ever tenser following reports German gas company Uniper was seeking a €9 billion.

Selling in oil companies picked up in afternoon trade as oil prices fell on fears of an economic slowdown.

Defensive positioning

The FTSE 100’s gainers were dominated by defensive plays with pharma stock Dechra Pharmaceuticals providing some support for the index as it rose 4%.

Sainsbury’s edged marginally higher following a ‘so-so’ update that pointed to a drop in sales that was largely influenced by a bumper period a year. Sainsbury’s also said they were feeling the pressure of discount competitors, but were preparing for a battle over prices by matching over 200 lines with discounters.

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