Stocks in Europe slumped into the red on Thursday as concerns around rising inflation resurfaced after signals from the US Federal Reserve.
“The FTSE 100 fell with miners and banks the principal sectors weighing on the index, suggesting that investors have started to worry again about the strength of the economic recovery," said Russ Mould, investment director at AJ Bell.
"Miners’ fortunes are heavily tied to commodity prices and the cost of metals and minerals is typically determined by supply and demand for industrial projects around the world."
He added: "Banks are also heavily influenced by economic activity. A strong period of growth means there could be greater opportunities to lend money to businesses and such a backdrop might also point to rising interest rates which increases the chance for the banking sector to make higher profit margins. If the economic outlook is not as strong, then investors start to go off banks for fear that it will be harder for them to push up earnings."
A string of corporate news also moved individual stocks in London, with Persimmon (PSN.L) down more than 4% despite announcing a special 110p dividend on the back of strong demand.
The housebuilder said in its trading update for the first half of the year that sale completions came in at 7,406, close to the 7,584 seen two years ago before the start of the pandemic. Revenues for the same period rose slightly to £1.84bn.
“These are good times for housebuilders. The customers want to buy and financing is easy, with mortgage availability improving, at rock bottom rates,” said Steve Clayton, fund manager of the Hargreaves Lansdown Select UK Income Shares fund.
“The challenge is to keep all the ducks in a row, because cost pressures are bubbling away, staff are hard to find and the government can change the degree of market support provided to homebuyers when it chooses. The market is choosing to fret about these risks today.”
Elsewhere, Ladbrokes-owner Entain (ENT.L), provided a bullish update and revealed plans to expand its in-house games development team.
The sports-betting and gaming entertainment group saw total gaming revenue lift 11% in the six months from 1 January to 30 June.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “England’s semi-final victory [against Denmark in Euro 2020 on Wednesday evening] will be a double cause for celebration in the Entain offices. An appearance in the final is an open goal for the group, and will be a boon for sports wagers. England’s long run in the tournament may well have been a contributing factor to the news that underlying cash profits are expected to beat consensus at the full year.”
There was also blood in the markets across the pond, with the S&P 500 (^GSPC) dipping 0.8% and the tech-heavy Nasdaq (^IXIC) falling 1%. The Dow Jones (^DJI) slumped 0.7% at the time of the European close.
On Thursday it was revealed that the number of Americans filing new claims for unemployment benefit rose unexpectedly – which may fuel concerns that the growth rebound is fading.
There were 373,000 initial claims for jobless support last week, more than expected, and a rise of 2,000. The previous week’s total has been revised higher too, from 364,000 to 371,000.
It came after the US Federal Reserve signalled a possible inflation-induced policy change on Wednesday. The central bank said that while rising prices were expected as the US economy recovered from the pandemic, the inflation jump was higher than expected.
Watch: What is inflation and why is it important?
Yields on US Treasuries fell to their lowest closing level since late February, marking their biggest two-day decline since the aftermath of the Fed's hawkish pivot back in mid-June.
This proved good news for the dollar, which advanced 0.1% on Wednesday to hit a three-month high, while gold rose around 0.3%, for a sixth successive session, to move back above $1,800 (£1,307).
Asian markets were broadly down on Thursday amid lingering concerns over China's crackdown on tech giants.
A strong session from Wall Street on Wednesday helped to provide a minor boost early on but the Nikkei (^N225) in Tokyo fell almost 0.9% on the day as the Japanese government debated further COVID-19 lockdowns to fight a surge in infections.
Stocks in Sydney managed to shake off the gloom, with investors remaining unaffected by news that the lockdown in Australia's biggest city could be extended.
Watch: What are SPACs?