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Today's markets: A floor, or another trap door?

European shares have regained a footing after yet more dramatic selling overnight in the US
June 17, 2022

 

  • Central bank catch up hurts markets
  • US and Asian markets a sea of red overnight
  • UK markets in positive territory

Further weakness on Wall Street bled into more selling in Asia overnight as investors look set to end a punishing week on a downbeat note. The S&P500 shed another 3.25 per cent with the Nasdaq down 4 per cent in yesterday’s session, leaving both fully ensconced in bear market territory. 

 

Central bank action to try to tame inflation has been the driver of sentiment this week with the Bank of England upping interest rates by another 0.25 per cent yesterday and, perhaps more surprisingly, the Swiss central bank raised interest rates for the first time in 15 years yesterday in response to runaway inflation. Pretty much the only central bank not playing the tightening game is the Bank of Japan, which left interest rates unchanged overnight and saw the yen fall to a 24 year low against the dollar in response. 

Inflation is the boogie man as far as markets are concerned with central banks likely to have to continue hiking into the autumn to try to put the genie back in its bottle. Will it work? Who knows, but what we do know is that UK inflation looks set to hit 11 per cent at some time soon. 

UK shares staged something of a fightback, or dead cat bounce depending on your view of the markets, in early trading today with the FTSE100 trading up 0.8 per cent by mid morning. Will the UK escape the worst of the global sell off? That is a question Bearbull asks in his column this week. Meanwhile our in depth feature this week highlights some value opportunities which may help insulate investors from the worst of the sell off. 

What does inflation, monetary tightening and fear of recession feel like on the street then? Tesco (TSCO) gave us a flavour today in its trading update in which management admitted it has started to see some changes in consumer behaviour in recent weeks (see below for more detail). Sales in the UK and Ireland went into reverse as consumers began to trade down. Meanwhile, management is investing in keeping prices low, matching Aldi across 650 products, which will eat into margins as input costs rise. The main bright spot for Tesco has been the recent rebound in performance at the cash and carry business Booker which has benefited from the reopening of the economy and the return of catering customers.