Wall Street and FTSE 100 struggle as inflation worries return

·Finance Reporter, Yahoo Finance UK
·4-min read
FTSE Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the announcement that the U.S. Federal Reserve will hike interest rates in New York, U.S., December 14, 2016.  REUTERS/Lucas Jackson
Both the FTSE 100 and Wall Street struggled to find gains as inflation fears hit the retail sector. Photo: Lucas Jackson/Reuters

The FTSE 100 and European stock market were treading water as investors weigh up the fallout from the no confidence vote and fears over how high interest rates might go fuelled caution.

Wall Street opened lower, after Target Corp's quarterly margin forecast cut raised worries about slowing demand against growing inflation and dragged down retail shares.

The S&P 500 (^GSPC) lost 0.4% while the tech-heavy Nasdaq (^IXIC) and Dow Jones (^DJI) both shed 0.5% at the opening bell.

Shares in Target (TGT)  fell 2.8%, while retail rival Walmart (WMT) was also dragged 2% lower.

The FTSE 100 (^FTSE) was flat in the water at the close, while the CAC (^FCHI) shed 0.7% in Paris. In Germany, the DAX (^GDAXI) lost 0.6%.

The London benchmark struggled as traders digested prime minister Boris Johnson's hollow confidence vote victory.

The pound (GBPUSD=X) was down 0.2% against the dollar after spikes yesterday.

Market analyst Michael Hewson at CMC Markets said this is unrelated to the outcome of yesterday’s confidence vote in Johnson.

“Markets are more concerned about the direction of the UK economy and the Bank of England’s attempts to address it,” he said.

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Victoria Scholar, head of investment at Interactive Investor, added: "Although the leader came out victorious, the triggering of the confidence vote itself along with the fact that 41% of Tory MPs failed to back him are both politically corrosive leaving the prime minister wounded. History suggests that this could mark the beginning of the end of his time as prime minister.

"The pound held onto gains after the result of the confidence vote was announced, trading higher against the US dollar but has since lost ground this morning with $1.24 the next support level to watch.

"The currency is suffering amid a lack of international investor confidence in the UK both economically and politically with criticism of Johnson’s leadership expected to continue and the potential for government legislation to be blocked by members of his own party."

JD Sports (JD.L) slumped 3.8% to the bottom of the FTSE 100 after the competition watchdog found it had conspired to fix the price of Rangers football shirts.

B&Q owner Kingfisher (KGF.L) and Ocado (OCDO.L) fell 3.1% and 2.5% respectively, as figures from the British Retail Consortium fuelled concerns that cost pressures are causing consumers to rein in spending.

Ted Baker (TED.L) plunged over 20% after its preferred bidder walked away from a takeover. It has since recovered but is still deep in the red.

Recycling business Biffa (BIFF.L) surged 28% as it revealed it had received a £1.4bn takeover approach from a US private equity firm.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: “The FTSE 100 has largely shrugged off the political drama of yesterday’s no confidence vote, with a dramatic reaction avoided. However, the situation has put a ceiling on progress, with no meaningful additions to the 75 point gains the FTSE began the week with.

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"Political turmoil is always bound to leave a mark on UK investor confidence, but the full extent of any market moves will depend on how quickly the saga is truly put to bed. There’s still plenty of uncertainty looming about the stability of the current government, and until those jitters have gone, the market will struggle to find its place."

Meanwhile, Brent crude (BZ=F) advanced 0.4%, trading at $120 a barrel this Tuesday.

Asian markets are mixed following a bond sell-off on Wall Street amid anxiety around a possible US economic slowdown and Australia’s surprise interest rates hike. The Shanghai Composite (000001.SS) was basically flat at 0.1% while the Hang Seng (^HSI) retreated 0.4%. Tokyo’s Nikkei 225 (^N225) advanced 0.1%.

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