Rolls-Royce caught up in fresh FTSE 100 crash 

Stocks headed sharply lower for the second time this week. Here’s who’s moving and why. 

Inflation anxiety pushed UK shares into another downward spiral today as previously-held optimism over the economic recovery is replaced by fears of higher interest rates.

The FTSE 100 index tumbled more than 2.5% at one point after Wall Street earlier reacted negatively to a 4.2% jump in the US consumer price index. April's figure was much bigger than the 3.6% forecast and also represented the fastest growth since the financial crisis.

If the inflationary spiral continues, the worry for investors is that policymakers will be required to take earlier than expected action to stop economies from overheating, such as through raising interest rates and tapering their various stimulus measures.

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The official line from the Federal Reserve in the United States is that inflationary pressures are transitory and not unexpected when set against last year's pandemic base line. For now, the priority continues to be on getting people back into work after Covid-19.  

However, this message went unheeded on bond markets last night, where the 10-year US Treasury yield reached a six-week high of around 1.7% to reflect the interest rate outlook. Such an environment dampens the appeal of high growth stocks, particularly those in the tech sector where lofty valuations are built on their strong cash flow prospects.

The FTSE 100 index is now back at 6,857 after its second big slide of the week, having rallied somewhat yesterday on the back of a similar pummelling on Tuesday.

It's worth remembering that markets endured a similar bout of inflation jitters in late January, when the FTSE 100 fell back to 6,407 before surging to a year-long high of 7,130 by the end of last week. This latest sell-off still only leaves the top-flight at the same level as mid-April.

The big fallers are…

Confidence has clearly been shaken, however, with stocks across the board down on fears that the stimulus taps supporting the market's pandemic recovery may be tightened.

Miners were at the forefront of this latest sell-off, with Rio Tinto (LSE:RIO) down 5% less than a week after record prices for iron ore, copper and other key commodities had sent its shares to a new all-time high. Other heavyweights lower today included BP (LSE:BP.) and Royal Dutch Shell (LSE:RDSB).

The conditions were far from ideal for those reporting updates today. Rolls-Royce (LSE:RR.) was among those affected despite a reassuring update on trading showed the engines company continues to think it can generate cash again later this year. It burned through £4.2 billion in 2020.

Shares showed signs of recovery at 127p in March, but with the return of international air travel taking longer than expected the blue-chip has since drifted back to just above 100p.

It initially fell 4% today but later settled 0.3p lower at 104.5p as CEO Warren East said large engine flying hours at around 40% of 2019 levels were in line with planning assumptions.

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Spare a thought too for Alphawave IP after the semiconductor firm fired the starting gun on its IPO in the worst possible conditions. The offer was priced at 410p, giving the company a valuation of £3.1 billion, but slumped in conditional dealings to 320p.

Toronto-based Alphawave's chip designs enable data to travel faster and more reliably on lower power, with uses in data centres, cloud computing, 5G wireless infrastructure and artificial intelligence. It has drawn parallels with former stock market darling Arm Holdings, the chip designer that soared in value before being taken over by Softbank for £23.4 billion in 2016.