MARKET WRAP: FTSE falls; Bitcoin highest since May; Putin to rescue Europe?

Key Points

• FTSE 100 closing price of 6,996.7, -1.1%
• FTSE drops below 6,950 before bouncing
• Tesco outperforms after guidance raised
• Oil & gas prices in focus as inflationary pressures build
• USD rallies
• Bitcoin surges to highest level since May

By Samuel Indyk

Investing.com – The FTSE 100 fell on Wednesday but recovered marginally from a drop below 6,950 to trade back towards 7,000 at the close of business. Fears of inflation, or even stagflation, are continuing to lift bond yields and weigh on stocks in Europe and the US.

The latest reason that inflationary pressures may not be transitory is the surge in natural gas and power prices in Europe. UK natural gas prices jumped above £3 per therm for the first time while Dutch power prices also hit record highs.

The fear is that higher power prices will lead to higher inflation and may force central banks, such as the Bank of England, to hike interest rates faster than the market currently expects. The benchmark UK 10-Year yield jumped as high as 1.15% before comments from Russian President Putin appeared to put a cap on the gas rally.

“I would like to hear your suggestions as to what more we can do to stabilise global energy markets,” Putin told ministers in a broadcast of his introductory statement at the start of a video-conferenced cabinet meeting.

The comments helped European gas markets reverse course, amid hopes that Russia’s Gazprom (MCX:GAZP) could increase supplies to Europe and ease the supply crunch.

The oil market was also in focus with both WTI and Brent crude futures paring some of the OPEC+ inspired gains but both benchmarks remain elevated. The latest data from the Energy Information Administration showed an unexpected build in US crude oil stockpiles in the latest week. Inventories increased by 2.346 million barrels, versus expectations of a drawdown of 418,000 barrels, the EIA said.

In company specific news, Tesco (LON:TSCO) was the notable outperformer in the UK, rising over 6% after the supermarket lifted its guidance and announced a new £500 million share repurchase programme.

“Tesco’s enormous scale means it’s weathering the supply chain crisis better than others- it’s times like these when being the biggest fish in the pond really counts,” said Hargreaves Lansdown (LON:HRGV) Senior Equity Analyst Sophie Lund-Yates. “A large-scale share buyback indicates Tesco’s confident on its outlook and ability to keep heady levels of cash flowing through the business.”

In FX markets, the USD was king as the US Dollar Index broke back above 94.00 and looked to test the recent high of 94.50. GBP/USD declined back below 1.36 with stagflation worries continuing to impact the pound.

“Higher yields and a hawkish BoE Governor have not been sufficient to convince investors that GBP is a buy, instead it would appear that stagflation is a bigger concern,” said Rabobank head of FX strategy Jane Foley.

Cryptocurrencies rallied with Bitcoin continuing its run higher to trade at its highest level since 12^th May. The world’s largest cryptocurrency broke above $55,000 and the all-time highs near $65,000 are back in view.

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