Today's business and finance round up 12th May 2021
Today's issue - Market gets spooked by inflation fears 📉
12th May 2021
Good morning News just in - the UK economy shrank by 1.5% in the first quarter of 2021, as the country experienced a lengthy winter lockdown. However in March the economy grew 2.1% which was better than economists expected.
- Market gets spooked by inflation fears
- Morrisons sales beat expectations as lockdown lifts
Yesterday's market moves
FTSE 100 -2.5% 6,948
FTSE 250 -2.3% 22,167
Global stock markets were in the red as investors feared that higher inflation could derail the buoyant stock market. Tech stocks were hit hardest as inflation reduces the value of their future profits (more below).
Market gets spooked by inflation fears
What’s going on
It was a tough day in the office as US, European and Asian stock markets all fell. Investors fear that rising prices could lead to higher interest rates which could in turn stop the record rise in the stock market.
Why is this important
From the UK furlough scheme to the stimulus checks in the US, the pandemic has led to huge government support schemes across the world. This alongside higher household savings rates means that consumers have lots of money to spend as the economy reopens.
As we reported earlier in the week, there is already evidence that this is leading to
Sustained higher prices usually lead to central banks increasing interest rates in order to control it. However so far they have played down this risk believing that any pandemic related inflation will be temporary.
The big US tech names (Facebook, Amazon, Apple and Google) felt the brunt of the sell off as their future earnings are more sensitive to higher interest rates. As these names are the largest in the US stock market this weighed on the S&P 500.
This then started of a domino effect in stock markets in Europe and Asia. As the old saying goes when America sneezes the rest of the world catches a cold.
This is by no means a crash, although the FTSE 100 dipped below 7,000 it’s still up 6% so far this year.
Tech stocks tend to be the most impacted by inflation fears as they are by nature riskier. If higher prices become more persistent then it’s likely there will be pressure on their share price which would then have a knock on effect for the wider market.
Morrisons sales beat expectations as lockdown lifts
The UK’s 4th largest supermarket reported that sales were up 5% in the three months to 9 May. The easing of lockdown restrictions led more of us back on the road buying petrol and food on the go. Seasonal events like Mother’s Day and Easter also helped boost sales.
The supermarket said that customers have embraced shopping online, both on their own website and through Amazon. Online sales during Q1 continued to be very strong, with year-on-year growth of 113%.
The UK supermarket sector is notoriously competitive and Morrisons has seen its market share slip in recent years to German discounters Aldi and Lidl. As the economy reopens Morrisons are optimistic that they can take advantage of a summer of socialising and major sporting events.
They also said that during the pandemic there has been “a renaissance of the supermarket in Britain and customers are enjoying cooking at home more”. But the question will be as lockdown lifts and with high savings levels, will we all hang up our aprons and rush back to eating out?
Covid-19 Vaccine Update
- In the past 24 hours 115k UK adults have had their first dose and 232k have had the second dose.
- This means 67.6% of UK adults have had at least one dose of a vaccine, 34.3% of adults have had two doses.
Other stories to keep you in the loop
Stat of the day
It took the telephone 50 years to reach 50 million customers, 22 years for television, seven years for the Internet and just 19 days for Pokémon Go