Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:
‘’A sinking feeling has taken over financial markets at the end of a volatile week of trading. Investors are digesting the unpalatable implications of inflation and fretting that there will be a need for a bigger dose of the bitter medicine being administered to try and bring it under control. Tech stocks are taking a tumble everywhere, from Wall Street to Hong Kong and London as expectations of sharper interest rate rises hit valuations. Cyber security firm Dark Trace was among the biggest fallers on the FTSE 250 in early trade, plunging by almost 5%. Fintech firm WISE fell by 2% continuing its downward spiral since its direct listing last July saw it valued at more than £8billion.
Worries about China’s onerous and ongoing zero Covid policy are also weighing on minds with worries that there is no end in sight to rolling lockdowns which is already slowing growth in the world’s second largest economy and exacerbating global supply chain issues. Worries about the weakness of the UK economy are rising again with the latest data on the construction industry appearing to back up the grim warning that a recession is looming. Rising raw materials costs and the precarious outlook is taking a hammer to business optimism in the sector with far fewer tender opportunities coming through last month. The S&P Global/CIPS PMI data showed that activity has slowed to the slowest pace so far this year and longer term growth expectations have slumped. The disappointing snapshot has kept shares in house builders lower, despite the latest reading onhouse prices from Nationwide indicating that the market is still hot, but concerns are mounting that it will soon start to cool.
The travel sector has hit fresh turbulence at a time when there were high hopes that pent up demand would be dramatically reviving its fortunes. The slide was sparked by British Airways parent company IAG disappointing investors with news that although it’s flying back into profitability, it’s slowing expansion plans. That’s caused a headwind for other airlines today with EasyJet falling by around 2% in early trade and Wizz Air also buffeted by fresh worries about its growth trajectory. There was a knock on effect for Rolls Royce, which is highly reliant on the health of airlines for its core business of manufacturing and maintaining jet engines with shares falling 1.6% in morning trade. The deterioration in sentiment also hit engineering firm Melrose, given its large commercial aerospace business.
The squeeze on disposable incomes is also a growing concern causing a ripple effect through stocks from airlines to retailers, amid worries that with inflation in the UK set to top 10%, there will be a flight towards essential expenditure, with little luxuries like weekend trips and gourmet food left by the wayside. That concern is hitting retailers like Ocado, amid fears that budget supermarkets will prove even tougher competition, with its shares dropping around 5%. Even B&M European Value Retail is not immune, given its largest home wear ranges, which may be left out of shopping baskets, particularly given it doesn’t have the brand pull that makes bigger names more resilient. ‘’