Market snapshot: central banks trigger rush for exit

It had been a positive week until last night when parts of Wall Street handed back gains. Now, UK stocks are on the backfoot. Our head of markets explains what's going on.

Central bank comments did little to alleviate the gloom from markets, resulting in mixed performances and a continuation of the difficult outlook.

At the European Central Bank (ECB) forum in Portugal, the Federal Reserve maintained that its primary objective remains on reining in inflation, although conceding that this could come at the cost of recession.

Feb chair Jerome Powell reiterated the view, however, that the US economy remained in sufficient health to withstand the monetary tightening of the screws. ECB President Christine Lagarde, meanwhile, warned that pre-pandemic levels of low inflation may not reappear, given the altered shape of economies and the current geopolitical tensions.

Bank of England governor Andrew Bailey added to the prospects of a worsening outlook, suggesting that the UK could face an earlier and deeper recession than the rest of Europe amid the possible requirement for the Bank of England to act “more forcefully” in the coming months.

The combination of hawkish comments again took the wind from investors’ sails, with US markets largely flat, Asian markets mixed to negative and the UK’s premier index opening in weak fashion.

• How you can own three great businesses for the price of one
• Chart of the week: why 50% slump might signal time to buy Tesla
• What an inflation shock really looks like
• Want to buy and sell international shares? It’s easy to do. Here’s how

For the US, the release of the latest Personal Consumption Expenditures index, a preferred Fed gauge of inflation, will provide further clues on consumers’ willingness or otherwise to spend. With more recent data suggesting that this vital cog of the US economy may be withdrawing in the face of higher energy and food prices, the shift of consumer estimates adds pressure to the importance of the release.

As the end of the first half of 2022 approaches, the combination of factors which has plagued markets so far this year has the Dow Jones and S&P500 on track for their worst quarter since 2020 at the outset of the pandemic. The Nasdaq meanwhile looks set to deliver its worst performance since 2008, with the index standing down by almost 29% year to date.

Asian markets were mixed to negative, with encouraging gains in factory and services activity in China partly offset by some disappointing industrial output from Japan. Of late, any gains have been tentative, despite a potentially recovering Chinese economy and the stated willingness of the authorities to assist economic growth if necessary.

The absence of any immediate positive catalysts, combined with the circumspect outlook comments from the central banks, pulled the rug from the FTSE100 also in opening exchanges. The blue-chip index was down 1.8% and way below 7,200 within 20 minutes of the start.

• Stockwatch: is the tide turning for this small-cap share?
• Time to turn to alternatives as bear market bites

The losses were broad-based, with particular weakness feeding through to the retailers and the miners, while the housebuilders also came under further pressure given the challenges facing the UK economy.

The slump leaves the index down by 2.5% in the year to date, almost doubling the loss from the previous session and showing yet again how precarious the current backdrop is proving to be.