The FTSE 100 experienced its steepest decline since February on Tuesday, closing down 175.69 points at 6947.99, a drop of 2.47%. The sell-off was driven by concerns over rising inflation and the potential end of central banks' low-interest rate policies. British Airways owner IAG led the fallers, down 7.4%, followed by engineering firms Renishaw, Melrose, and Rolls-Royce.
European markets also tumbled, with Germany's Dax falling 1.8%, France's CAC down 1.9%, and Italy's FTSE MIB dropping 1.6%. The pan-European Stoxx 600 index recorded its worst day of 2021, declining by nearly 2%. The sell-off was triggered by a tech slump on Wall Street, where major companies like Apple, Facebook, Amazon, and Tesla saw significant losses.
In the US, the Dow Jones Industrial Average lost 600 points in morning trading after breaking the 35,000 barrier on Monday. The tech-heavy Nasdaq index saw half its shares lose at least 10% of their peak value, with Zoom falling more than 50% since October. Investors fear that rapid economic growth from vaccine programmes could lead to overheating and an end to cheap money that has boosted markets.
Asian markets were also affected, with China's producer prices index rising 6.8% in April, the highest in three years, indicating mounting inflationary pressure. Consumer prices in China rose 0.9% year-on-year, up from 0.4% in March. Analysts warn that higher inflation could lead to higher interest rates, which are particularly harmful to tech stocks that rely on future growth.
Investing magnate Stanley Druckenmiller criticised the US Federal Reserve for its $120bn-a-month bond-buying programme, stating that monetary and fiscal policy are out of step with economic circumstances. He warned of risks to the dollar's reserve currency status and potential asset bubbles. Markets are now closely watching upcoming US inflation data for further clues on central bank policy.
