A Sprinkle Of Positivity Sugars Financial Markets Despite Inflation Worries Prompting Mass UK Strikes

Published on
  • The FTSE 100 opens higher, but gains may be capped due to inflationary pressures.
  • Largest rail strike in 30 years commences over wages as the cost-of-living crisis escalates.
  • Brent Crude rises to $114 making back some of the losses of last week.
  • Shares in Ocado have lost further ground, dipping 4% in early trade.

The Repercussions Of Surging Inflation

“A sprinkle of positivity is sugaring financial markets, masking the bitter taste induced as investors have been forced to assess the repercussions of surging inflation for the global economy. A mini snap back from the deep sell off last week is expected on US indices, after traders return from the Juneteenth holiday. This follows a wave of buying in Europe on Monday and Asia today as investors stepped into stocks pushed lower in the recent rout.

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The oil price has edged a little higher as concerns rise about supplies on world markets amid fresh efforts to stop Russia making revenues from crude. It comes after US Treasury Secretary Janet Yellen’s comments about working with allies to impose a price cap on Russian oil still being sold, with the aim of limiting flows into the country’s war chest. Brent Crude rose to $114 making back some of the losses of last week, and offsetting expectations of dwindling demand amid a global slowdown. The rise in the oil price has lifted the share price of BP and Shell which had been dragged down in recent sessions.

The FTSE 100 has opened higher, but gains may be capped with the risks of inflationary pressures moving centre stage again. A mass walkout of rail workers in the UK, which is set to cause chaos across the transport network, is indicative of the problems mounting up for the UK economy as the cost-of-living crisis escalates.

It’s easy to see why workers are desperate to see wage rises to help make ends meet, but this comes with the risk of adding to the inflationary spiral at a time when policymakers are focused on dampening demand in the economy.  If public sector pay rises to anywhere close to the rate of inflation, this could end up being a counterweight to the Bank of England’s efforts to try and drag down inflation. The huge strike is a precursor to another worrying snapshot expected of red-hot consumer prices, with the CPI measure of inflation released on Wednesday set to creep up again.

Even though inflation is forecast to soar to 11% by the Autumn, the Bank of England has been shying away from steeper rate rises for fear of triggering a deep recession. However, another scorching inflation reading is set to pile pressure on policymakers to take a tougher stance. The pound is still hovering around two-year lows against the dollar, at $1.22, given that it’s behind the steep curve of rate rises being taken by the Federal Reserve and worries are persisting about the weak outlook.’’

Shares in Ocado have lost further ground, dipping 4% in early trade, as investors assess its plans to super-charge expansion and growth through a fresh round of capital raising. Worries have ratcheted up about rapidly rising costs for the retailer amid mounting losses, particularly as shoppers are also showing signs of putting less in their virtual baskets as the cost-of-living crisis mounts."

Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown

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