Driven by stock disturbances, U.K. stocks have slipped

The uncertain market is not new for most investors and traders, as trading and investing is associated with risk. Right skills and strategies are important especially when the global economy is experiencing a recession.
As inflation in the U.S. soars at the fastest pace in more than 40 years, it has sent shockwaves to the world stock markets.

Prices of food, housing, gasoline and other necessities are quickly rising and squeezing the pay increases the Americans have received. Currently, the U.S. inflation rate is 8.5%, and the consumer price index has jumped to 6.2%. This has greatly impacted the value of stocks in the U.S. UK and the rest of the world. As this recession continues it is very important to know the right investment for the future.

Typically, stock values increase and perform better when the inflation rate rises. However, the U.S. inflation appears to cause disturbances in the U.K. stock markets resulting in the slip of its stocks. But the slip is not exclusive to the U.K. stocks alone. European countries are feeling the heat too. Almost all stocks in Europe are slipping and closing lower following the U.S. print. But what is causing disturbances in the stock market? Read on to see cause of disturbances and how interest rate impact stock markets.

Russia-Ukraine War
The rising inflation in the U.S. market is majorly attributed to the Russian invasion of Ukraine. The war has caused volatility in the oil industry and is impacting commodity markets negatively. In addition, the war has destabilized and is causing disturbances in the stock market. For instance, the European markets are experiencing heavy selling of shares especially in the banking sector, which is further dipping share prices.
Also, reports that Russia may have used chemical weapons in Mariupol City have sent shock waves in the stock markets. It has forced the U.K. government to release a statement to the effect that it is urgently working to verify the details. The statement is intended to calm down the markets since the government is aware that the war is negatively impacting its stock markets. In the same breadth, investors are keeping an eye on developments in Ukraine. However, employment data in the U.K. still looks positive and is the lowest since 2019.

The Banking Sector
The banking sector in Europe is severely affected. In Germany, Deutsche Bank shares fell by 9.4%, while Commerzbank shares dipped by 8.5%. Deutch bank sold 116 million shares while Commerzbank sold 72.5 million shares. This suggests that the European bank’s shares look incredibly cheap as the supply over strips the demand.

Inflation and Stock Markets
Typically, inflation rate and stock markets have an inverse relationship. As the inflation rate rises, a government’s central bank may raise rates on loans and deposits to reduce the amount of money in circulation. The move is meant to bring down interest rates. However, it ends up increasing the cost of capital and discourages further borrowing. It reduces the cash flows forcing stock prices to plummet.

Also, as the rates rise, speculations about products and services emerge, which further leads to stock market volatility. Thus changes in the inflation rates negatively impact the value of stocks since it impacts the rate of interest. Ordinarily, when the interest rate rises, the value of stocks should fall due to a squeezed market. In contrast, when the rates decrease, the price of stocks should increase.

Reasons for a Slip in U.K. Stocks
The U.K. stock market is falling because of the weak economic data. Also, the rising inflation in the U.S. has increased speculative activities. In addition, there is the growing fear that interest rates are likely to go up and dip the prices of shares further.

Secondly, the unpredictability of the Russian- Ukraine war is sending fears and shockwaves to many sectors of the world economies. This is further leading to the dip. Thirdly, U.K. investors are closely monitoring the situation in the U.S. product and services markets. Therefore, actions by the Fed which may include raising interest rates to control inflation, are likely to make the stock markets tumble even more.

Lastly, both the sell-off and the Risk-off sentiments dominating Wall Street are sending shockwaves across the global stock markets and the fact that the world bourses have shed more than1.5% since January is likely to affect UK stocks.

By April 15, 2022, most European markets closed lower as traders kept their eyes on the U.S. inflation rate and the war in Ukraine. Also, traders were keeping an eye on the heavy selling of bank shares. In the U.K, traders are looking forward to key central bank meetings scheduled for next week.