Market snapshot: UK stocks react to losses on Wall Street

To prove it will remain a recurring theme, inflation concerns reared up again overnight.

Bumper results from Home Depot (NYSE:HD) and Walmart (NYSE:WMT) in the US were swept aside as investors continued to fret about the spectre of inflation.

Concerns were heightened as new US housing construction tumbled 9.5% in April, largely due to soaring raw material costs. Set against this number and keeping a lid on inflation concerns was a slight weakness in the oil price, where ongoing talks between the US and Iran could result in increased supply from the latter. Even so, the oil price remains 31% higher than at the start of 2021.

The shortages in the supply chain and increasing signs of labour market pressure are making it difficult for markets to sidestep the issue of inflation.

• Bill Ackman: I think this could be the Black Swan event of 2021
• Why Warren Buffett just rang the alarm bell on inflation
• Want to buy and sell international shares? It’s easy to do. Here’s how
• Check out our award-winning stocks and shares ISA

However, minutes due today from the Federal Reserve’s recent meeting are fully expected to reiterate recent guidance that the spike in inflation is transitory and that accommodative monetary policy therefore remains appropriate.

Despite the jitters, the major indices are comfortably ahead, although the pressure on growth stocks as typified by big tech in particular has put some pressure on the Nasdaq. In the year to date, the Dow Jones is up by 11.3%, the S&P 500 9.9% and the Nasdaq tech index 3.2%.

In the UK, inflation is also in focus having risen to 1.5% in April, as compared to 0.7% in March. Set against the falling prices of a year ago, the move is unsurprising, while the recent strength of sterling will provide some support in containing the number as it should lower import prices.

The figure remains within the Bank of England’s 2% target, but is expected to rise to perhaps 2.5% by the end of the year as comparisons harden, with a stronger oil price and the removal of some tax benefits adding to pricing pressure. When this has washed through, it is anticipated that inflation will settle again to the target level, which is of some solace to investors fearing overheating in developed economies.

Meanwhile, the inflation debate continues to underpin the FTSE 100, which remains ahead by almost 8% in the year to date, given the preponderance of cyclical stocks in the index and warming international sentiment on valuation grounds.