Global stock markets tumbled this week after higher-than- expected US inflation figures rattled investors.
US indices started the week in the red amid a renewed rotation out of growth stocks towards higher-yielding value stocks. The tech-heavy Nasdaq slumped 2.6% in its worst session since March, and the S&P 500 declined 1.0%.
On Tuesday, the UK’s FTSE 100 sank 2.5% to end the session below the 7,000 mark. The pan-European STOXX 600 slid 2.0%, led by steep declines in travel and leisure stocks, while Japan’s Nikkei slumped 3.1%.
European stocks managed small gains on Wednesday following a string of positive earnings reports, whereas Wall Street stocks finished in negative territory on the back of an unexpected surge in US inflation. The Nasdaq fell 2.7%, the Dow slid 2.0% and the S&P 500 declined by 2.1%.
Fears of a hike in interest rates weighed on Asian stock markets on Thursday, with the Nikkei and Hang Seng down 2.5% and 1.8%, respectively. The FTSE 100 managed to claw back some earlier losses, but still ended the session down 0.6%. In contrast, the Dow jumped 1.3% in its best session since March, following encouraging initial jobless claims figures.
Wall Street’s recovery helped the FTSE 100 edge up 0.6% to 7,002 at the start of trading on Friday.
Company in focus: 3i
Investment firm 3i posted a sharp uptick in annual total returns in the 12 months to 31 March, following a strong performance in its private equity portfolio.
The group’s total return for the year jumped from £253m to £1.7bn, and the net asset value per share increased by 17.8% to 947p. The total return on opening shareholders’ funds surged from 3% to 22%.
The private equity business did particularly well, delivering a gross investment return of £1.9bn, or 30%, compared with £352m, or 6%, the year before.
“Many of our portfolio companies are supported by structural growth trends and have either excelled during the pandemic or adapted to the changing environment very quickly,” 3i said.
The infrastructure business also performed strongly, delivering a gross investment return of £178m, or 16%.
The company has increased its total dividend per share from 35.0p to 38.5p, with a second dividend of 21.0p to be paid in July subject to shareholder approval.
This week’s headlines were dominated by the latest US inflation figures, which revealed the headline consumer price index (CPI) surged by 4.2% in the 12 months through April, following a 2.6% rise in March. This marked the biggest annual increase since 2008 and was far higher than the 3.6% increase predicted by economists in a Dow Jones survey. Core CPI, which excludes food and energy prices, rose by 3.0% from a year ago. This was partly because of base effects – in April 2020 the economy was hit hard by the pandemic – although the monthly increase was also strong at 0.9%, the largest rise since 1981.
Several categories drove the increase, including sectors that have suffered the most during Covid-19. Airfares and lodging away from home rose by 10.2% and 7.6%, respectively, on a month-on-month basis. Car and truck rental prices surged by 16.2%, and used car and truck prices rose by 10%, which was the biggest monthly increase since the Bureau of Labor Statistics started tracking prices in the sector in 1953. Meanwhile, energy prices surged by 25% from a year earlier.
Elsewhere, the European Commission raised its economic growth forecasts for the euro area to 4.3% for 2021 and 4.4% for 2022, up from 3.8% previously, in a further sign of global economic recovery. All member states are expected to return to their pre-pandemic output levels by the end of 2022, following a 6.6% slump in 2020. The broader EU economy is expected to grow by 4.2% in 2021 and 4.4% in 2022. However, the unemployment rate is predicted to reach 7.6% this year, before falling to 7.0% next year. Paolo Gentiloni, the EU’s economics commissioner, said fiscal support “remains essential in helping Europe’s workers and companies to weather the storm”.
In the UK, the rapid roll out of the Covid-19 vaccine boosted gross domestic product (GDP) by 2.1% in March, the fastest monthly growth rate since August last year. The services sector grew by 1.9% as schools reopened across England and Wales and retail trade sales remained strong. Manufacturing grew for a second consecutive month at 2.1%, and the construction sector expanded by 5.8%. March’s GDP was still 5.9% below the level seen in February 2020, and 1.1% below the initial recovery peak in October 2020, the Office for National Statistics said.
The latest BRC-KPMG retail sales monitor showed UK retail sales grew by 7.3% in April to May compared with the same period two years ago, above the three-month average growth of 6.0%. However, Helen Dickinson OBE, chief executive of the British Retail Consortium, warned that sales growth is fragile. “There is little competition for share of spending while parts of hospitality, leisure and tourism remain restricted and inner cities and town centres continue to perform poorly as many people continue to work from home,” she said.
UK house prices also surged in April at their fastest pace in five years, according to Halifax’s monthly snapshot. The extension of the stamp duty holiday helped to push the average selling price up by 1.4% to a record high of just over £258,000. This means almost £20,000 has been added to the average house price since the market came to a standstill in April 2020. Stamp duty relief will be phased out in June and September, but Halifax said it expects demand to remain strong for the next few months.