Ukraine Conflict Concerns, Inflation Worries and COVID Woes Hang Over Financial Markets

Written by: Susannah Streeter | Hargreaves Lansdown

The threat of conflict breaking out on the doorstep is hanging over European indices, as hopes begin to fade that there will be fresh meaningful moves from diplomats. The tech sector jitters are continuing, unsurprising given the seemingly unstoppable slide of the Nasdaq composite and the march downwards of the S&P 500 on Friday.

Amid expectations that inflation appears more entrenched, which could lead to a more aggressive stance to combat soaring in inflation, Scottish Mortgage Investment Trust, which holds a raft of tech stocks, was yet again one of the biggest fallers on the FTSE 100 in early trade. Payments firm WISE has also been caught up in the flight away from tech, dropping 5.5% in early trade. There are concerns about its forecasts for future revenue growth, which are considered to be excessive in relation to its price. The Hut Group is sinking again, down by more than 7%. Investors continue to fret about the foundations of the company, with concerns about governance continuing and future promises of growth looking extremely shaky. More investors in Deliveroo are dashing for the door, with shares down by around 5% in early trade. Tech-centric companies which launched onto the market with prospectuses full of promise over the last 18 months, are now seeing confidence in their business models fading fast, as the era of cheap money hurtles to a close.

Barratt Developments in the FTSE 100 also fell sharply, accelerating January declines, as investors fret about the expected further rise in interest rates on long term demand. Just like tech exuberance in the era of cheap and easy money, it’s feared the red hot market will cool dramatically when mortgage payments start increasing and the cost of living squeeze intensifies.

But warnings from the IMF that a tighter Fed monetary policy could strengthen the dollar and weaken developing nations, still recovering from Covid, is adding to concerns about the robustness of the global economic recovery. China’s zero tolerance policy towards the virus, is also expected to act as a drag on demand with fresh rolling lockdowns expected. That’s partly why miners are on the back-foot today, despite recent rises in commodities on expectations that Beijing will unleash stimulus to support the economy but concern about the geo-political tensions over Ukraine are also weighing on the sector.

However, a raft of corporate manoeuvrings are holding up the FTSE 100 from steeper losses. Speculation is swirling about the future of Vodafone which has pushed up its share price in early trade. A potential merger could be on the cards with Three UK and there are also talks continuing with rival Iliad to merge business in Italy. The deals would potentially create a telecoms powerhouse and give Vodafone much more clout across mobile and broadband operations. It would also layer up Vodafone with armour to fend off private equity bidders thought to be circling. 

Unilever’s shares have recovered from the rubbing last week, after investors recoiled in distaste at the plan to buy GSK’s consumer division. The company signalling it’s walking away from offering more than £50 billion was met with relief. The news that activist investor Nelson Peltz has built up a stake in the firm is leading to expectations that the company will be under even more pressure to give its business model an MOT, before going on any fresh spending spree. It’s also been helped by expectations that well-known household brands with pulling power  may be more resilient even as consumers tighten their belts.  That sentiment is also likely to have lifted shares in Reckitt Benckiserand Imperial Brands, both up in early trading. Burberry is putting a well-heeled foot forward today, amid hopes that sluggish sales across Europe and the US will improve when the Omicron wave recedes.

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