FTSE 100 bounces after steep early drops after Wall Street liquidation
The FTSE 100 staged a quick rebound after steep early falls today, as London reacted to fears of rising interest rates that sparked a sell off on Wall Street last night.
U.S. markets plunged after surging bond yields – the interest payable on government debt – as investors grew worried about the impact on inflation of big stimulus packages aligned with President Joe Biden .
Inflation fears and the associated surge in bond yields tend to hit stock prices as they signal central banks will need to raise interest rates. This in turn means that companies’ borrowing costs go up and profits go down.
Government debt yields in Asia also surged this morning, causing stock prices in that country to fall sharply, although earlier surges in yields moderated slightly during the session.
The FTSE 100 fell from 53.06 to 6,598 in the first few minutes, a drop not as severe as the 1.3% drop in futures markets had predicted earlier. But it quickly recovered, rebounding just 0.2% as the morning progressed to just 11 points at 6641.
The tech-laden Nasdaq stock index saw its biggest drop since October, falling 3.5% last night, while the S&P 500 fell 2.5%. Futures markets have indicated that a slight rally is expected for the S&P when it opens this afternoon.
Germany Dax and the French CAC 40 fell further than the FTSE in the opening minutes but, like London stocks, regained their balance as the morning progressed.
CMC analyst Michael Hewson said: “It is certainly true that after years of low or negative real rates, the possibility of real rates now starting to rise a bit becomes a reality, which makes some people nervous, given that more fiscal stimulus comes from the new US administration.
“The problem is also linked to the speed of the climb. Let’s not forget that US 10-year yields were at 0.913% at the end of last year and are now trading around 1.5% – a move of 60 basis points in less than two months. “
He said it blew the “foam” out of some highly regarded actions.
UK stocks could be further affected by leaks suggesting Chancellor Rishi Sunak is on the verge of cutting his emergency loan programs and replacing them with a new, less generous one.
All three existing programs, including the popular Bounce Back Loans for small businesses, will end at the end of next March, the Financial Times reported. They will be replaced by new state guaranteed loans with interest rates of up to 15%. Bounce loans are capped at just 2.5%.
More details will appear in next week’s budget, when Sunak extends other Covid support programs through June, such as commercial rates and VAT relief, the holiday program, and legal vacations. stamped.