FTSE 100 drops on rising inflation concerns; miners, banks weigh

Miners and banks pressured London's FTSE 100 index on Tuesday, with investors also worried about higher energy costs, supply chain disruptions and a looming rate hike crimping economic recovery.

Miners and banks pressured London's FTSE 100 index on Tuesday, with investors also worried about higher energy costs, supply chain disruptions, and a looming rate hike crimping economic recovery. The blue-chip FTSE 100 index declined 0.8% at 0810 GMT. Industrials fell about 1% and banks fell 1.5%.

On the macro front, UK's labor market showed signs of further recovery as employers added a record-high 207,000 staff to their payrolls in September. Separate data showed the unemployment rate fell to 4.5% in the three months to August, reinforcing bets for a sooner Bank of England rate hike. "We've got vacancy levels that are now higher than they were pre-pandemic, not just here in the UK, but also in the U.S., and that's obviously fueling concern about wage-price inflation," said Michael Hewson, senior analyst at CMC Markets UK.

The FTSE 100 has gained for the past four consecutive quarters and added nearly 10% this year on accommodative central bank policies and optimism over re-opening economies. However, the pace of gains has slowed as soaring energy costs and supply chain disruptions fanned inflation concerns, with the Bank of England hinting at adopting a more hawkish stance going ahead.

Adding to inflation concerns, British grocery prices increased 1.7% in the four weeks to Oct. 3 year-on-year, market researcher Kantar said. "While investors want to believe the narrative that stock markets can continue to move higher, this belief is bumping up against the reality of how the continued rise in inflation pressures are likely to impact company profit margins," added Hewson.

The domestically focussed mid-cap index declined 0.5%, with travel and leisure stocks among the top percentage losers. EasyJet dropped 2.5% as pandemic uncertainty and travel bans pushed the company to post an expected headline loss of between 1.135 billion pounds ($1.54 billion) and 1.175 billion pounds for the 12 months ended September.

($1 = 0.7370 pounds)

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