European stocks sank in a sea of red on Thursday as global markets plunged and concerns about the impact of rising inflation on economic growth soured investor sentiment.
"More than £51bn has been wiped off the value of the FTSE 100 as worries ratchet up about the difficult task central banks face trying to rein in rampant inflation without pushing economies into reverse," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. "The FTSE 250 closed down 1.6%, with daily losses mounting up to more than £7bn."
"The sell-off comes amid concerns about inflation risks becoming more embedded in the UK economy not just due to high commodity costs but also due to a spiralling upwards of wages as firms continue to fight for talent.’"
Royal Mail (RMG.L) was the biggest single fall on London's benchmark index as shares plummeted 14.7% after the group missed its profits forecast and warned it will need to raise prices and cut costs as it grapples with soaring inflation.
Diageo (DGE.L) was the biggest drag with shares down 5.5%. Just six firms posted gains on the FTSE 100.
The mood was underscored by a 9% surge in UK inflation, fuelling fears the economy could be tipped into recession as the Bank of England forecast inflation to reach as high as 10% this year.
Sterling (GBPUSD=X) climbed 1.2% to $1.248 after slipping to a near five-year low against the dollar following April's red-hot inflation data. It was little unchanged at 84p against the euro (EURGBP=X).
"Market sentiments are also being impacted by the weakness in the British pound, which has lost around 8% against the US dollar so far this year, adding almost 0.70% to the overall inflationary pressure," said Kunal Sawhney, CEO of equities research firm Kalkine Group.
Across the pond, US stocks extended losses on Thursday following the biggest drop since June 2020 that wiped $1.5trn (£1.2trn) off Wall Street firms.
"Earnings from Walmart and Target amounted to a red flag on the health of the consumer and helped send stocks on Wall Street to their worst daily decline since 2020," said Neil Wilson, chief market analyst at Markets.com.
"Whenever the trend breaks everyone rushes for the exits so they’re not left holding the bag – this is the slow grind of a bear market."
Traders were also rattled by comments from top Federal Reserve officials hinting at aggressive interest rate lifts after Fed chair Jerome Powell reiterated the determination of the central bank to regain the initiative to reign in 40-year high inflation.
Analysts at ING said that the "fact that some of the biggest main street names are under pressure on the back of profit warnings is a reminder that the squeeze on real incomes is starting to hit home".
"Over prior decades, decades associated with very dovish Fed policy, one might have expected this magnitude of an equity market sell-off to put a dent in Fed tightening expectations – or expectations that the Fed would come to the equity market's rescue."
Overseas markets tracked the sell-off on Wall Street as major indexes in Japan and Hong Kong lost ground.
In Hong Kong, the Hang Seng (^HSI) slumped 2.4%, led by a 7.1% fall in shares of Chinese tech behemoth Tencent (TCEHY) after reporting a halving in its quarterly profit. The Nikkei (^N225) dipped 1.9% in Tokyo, while the Shanghai Composite (000001.SS) bucked the trend, up 0.4% on close.
Gold (GC=F), an asset that investors perceive as a safe have and hedge against inflation, rallied despite the risk-off environment and a resurgent dollar dimming the metal's shine. Spot gold was up 1.6% to $1,844 a troy ounce.