FTSE 100 rallies after global markets rout

The FTSE 100 staged a surprise rally today after yesterday suffering its biggest one-day tumble for nearly three months.

Inflation fears returned with a boom to hammer global markets yesterday. The FTSE closed down 2.5%, followed by the Dow Jones Industrial Average sliding 1.4%.

Futures markets this morning suggested the FTSE would open down a further 17 points at 6922 today, although that figure was swinging wildly in the hours before trading began.

In fact, as trading started, the market gained, with the FTSE heading back up towards the 7000 level.

An hour in, the FTSE was up 47.36 at 6995.41, helped by a further evidence of a bounceback in the UK economy.

GDP fell by a relatively shallow 1.5% in the first quarter and grew strongly in March, with that month’s output hitting 2.1% and boding well for the full reopening of pubs, bars, shops and travel.

Asian stock markets continued the rout this morning but the FTSE was the biggest European faller yesterday.

Traders don’t have to look back too far for similar gut-wrenching falls, though. Markets fell sharply earlier this month but gradually built back up over the following days.

With shares having rallied so strongly since the depth of the Covid gloom last year, these are jittery times for those wondering whether to put more cash into the stock market.

Watch: FTSE 100 'milestone' as it tops 7,000 mark for first time in more than a year

Investors have been worried about inflationary pressures causing central banks to start tightening their super-loose monetary policy by raising interest rates or trimming back their quantitative easing programmes.

Such talk hits stocks hard because it would send investors back into less risky assets like bonds and make borrowing costs for companies higher.

Later today, US inflation data will provide more clues about the future direction of prices in the world’s biggest economy.

After a sharp rise in Chinese factory gate prices yesterday, US CPI numbers today are likely to show a similar jump. Markets expect a leap for April from 2.6% to 3.6%. While that may seem outlandishly high by modern standards, central bankers in the US should not be overly perturbed, given that it is in comparison to some of the worst days of Covid’s impact on the economy a year ago.

The question, as CMC analyst Michael Hewson pointed out in a note to clients this morning, is how much of the rise in prices is transitory, as the US Federal Reserve believes it to be.

“Unfortunately,” Hewson says, “we won’t know if they are right for another 2-3 months, which means we can probably expect to see further gyrations in global equity markets until the picture becomes clearer.”

The biggest riser on the FTSE 100 was Diageo, up 3% after a surprise announcement of stronger than expected profit growth and a return of its £4 billion share buyback plan. Glencore also rallied 3% and Spirax-Sarco Engineering gained 2.8%.

Fallers were Just Eat Takeaway.com, down 3.5% and Flutter Entertainment, which fell 1.5% after the respected head of its fantasy sports arm quit. HSBC fell 1%.

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