The FTSE 100 experienced its steepest single-day decline since February on Tuesday, closing down 175.69 points at 6947.99, a drop of 2.47%. The sell-off was driven by mounting inflation fears and a sharp fall in US tech stocks, with British Airways owner IAG leading the decline, falling 7.4%. Other notable losers included engineering firms Renishaw, Melrose, and Rolls-Royce.
European markets also suffered heavy losses, with Germany's Dax closing down 1.8%, France's CAC down 1.9%, Italy's FTSE MIB down 1.6%, and Spain's IBEX down 1.7%. The Europe-wide Stoxx 600 index recorded its worst day of 2021, falling nearly 2%.
On Wall Street, major tech companies such as Apple, Facebook, Amazon, and Tesla were among the biggest losers in morning trading. The Dow Jones Industrial Average lost 600 points after breaking through the 35,000 barrier for the first time on Monday. Half of the shares in the tech-dominated Nasdaq index have lost at least 10% of their peak value, with Zoom down more than 50% since October.
The global sell-off was triggered by concerns that rapid economic growth from mass vaccination programmes could lead to overheating and an end to cheap money policies. Data showing a sharp increase in Chinese factory gate prices deepened the gloom. China's producer prices index rose at an annual rate of 6.8% in April, the highest in three years, while consumer prices rose 0.9% year-on-year.
Investors fear that central banks may be forced to abandon zero-interest rate strategies in the face of rising inflation. Although the US Federal Reserve, European Central Bank, and Bank of England have indicated no immediate plans to tighten policy, equity traders worry that key inflation signals, such as labour shortages, could change the mood. Investing magnate Stanley Druckenmiller criticised the Fed's $120bn-a-month bond-buying programme, calling it inappropriate and a risk to the dollar's reserve currency status.
