Sinking sentiment grips financial markets amid concerns over rate hike


A sense of sinking grips financial markets amid concerns over rising rates, slowing construction and further turmoil for airlines

The feeling of sinking grips the financial markets

“A sense of sinking has gripped financial markets at the end of a volatile trading week. Investors are digesting the nasty implications of inflation and worry that a bigger dose of the bitter medicine is needed. Tech stocks are crashing everywhere from Wall Street to Hong Kong and London as expectations of a bigger rise in interest rates hurt valuations Cybersecurity firm Dark Trace was among the biggest falls in the FTSE 250 at the start of trading, plunging almost 5%.Fintech company WISE fell 2%, continuing its downward spiral since its direct listing last July valued it at more than 8%. billion pounds.

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Worries over China’s onerous and ongoing zero Covid policy are also hanging over people’s minds with worries that there is no end in sight to the continued lockdowns that are already slowing growth in the world’s second largest economy. and exacerbate global supply chain problems. Concerns about the weakness of the UK economy are rising again, with the latest data on the construction industry appearing to confirm the grim warning that a recession is looming. Rising raw material costs and a shaky outlook are weighing on business optimism in the sector, with far fewer bidding opportunities arising in the past month. 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 collapsed. The disappointing snapshot kept homebuilder stocks down, despite the latest house price readings from Nationwide indicating the market is still hot but concerns are growing that it will soon start to cool .

New turbulence for airlines

The travel industry has experienced further turmoil at a time when there were high hopes that pent-up demand would boost its fortunes significantly. The fall was sparked by British Airways’ parent company IAG, which disappointed investors by announcing that while it returns to profitability, it is slowing expansion plans. It caused a headwind for other airlines today with easyJet plc (LON:EZJ) down around 2% at the start of trading and Wizz Air Holdings PLC (LON:WIZZ) also rocked by fresh concerns about its growth trajectory. There has been a ripple effect for Rolls-Royce Holding PLC (LON:RR), which is heavily dependent on the health of airlines for its core business of manufacturing and servicing jet engines with shares falling by 1.6% in morning trading. Deteriorating sentiment also hit engineering firm Melrose, given its large commercial aerospace business.

Compression of disposable income is also a growing concern, causing a ripple effect through airline stocks to retailers, amid concerns that with UK inflation set at 10% there will be a flight to essentials, with little luxuries like weekends and gourmet fare left behind. That concern is hitting retailers like Ocado Group PLC (LON:OCDO), amid fears that budget supermarkets will prove even tougher competition, with its shares falling around 5%. Even B&M European Value Retail isn’t immune, given its larger homewear ranges, which can be left out of shopping carts, especially since it doesn’t have the brand appeal that makes big names more resilient. »

Article by Susannah Streeter, Senior Investment and Market Analyst, Hargreaves Lansdown

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