Even Russian threats to trigger World War III by launching a nuclear strike on the UK has failed to dent London’s index of top blue-chip stocks. Our stock market has also shrugged off the cost of living crisis and fears that strict Covid lockdowns in China will stall the global economy.
US and European stocks are falling fast and vulnerable to further declines, but the UK is an exception, said Chris Beauchamp, chief market analyst at online trading platform IG.
“While continental European and US markets are poised to fall back towards the recent March lows, rising commodity prices are helping the FTSE 100 to outperform.”
The FTSE 100 is full of commodity stocks producing valuable raw materials including copper and iron ore, such as Anglo American and Rio Tinto.
Commodity prices are rising strongly due to shortages caused by supply chain problems in the wake of the pandemic.
Beauchamp said this has triggered a turnaround in fortunes for the UK’s top index and added: “That is perhaps the most surprising stock market development of the year so far.”
The benchmark Euro Stoxx 50 index has fallen 13.79 percent year-to-date, while the US S&P 500 is down 12.77 percent.
The NASDAQ index of top US tech stocks has crashed 18.02 percent, amid problems for giants such as Facebook (now renamed Meta) and Netflix.
All these major markets have suffered a technical “correction”, defined as a drop of more than 10 per cent.
Yet the FTSE 100 is down just 1.06 percent this year, despite growing fears of a world war and recession.
The European single currency is also falling, Beauchamp said. It is close to reaching parity with the US dollar, and could soon trade at just $1.05.
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Beauchamp said the European Central Bank’s reluctance to increase interest rates to curb rocketing inflation is one reason for euro underperformance. “The other is that bans on Russian gas imports may tip the economy into a recession.”
Banning Russian oil and gas would be the right thing to do, he said, but added: “The impact on consumers is likely to mean a contraction in economic growth is all but unavoidable.”
In other words, the Eurozone could be heading into recession.
Investors have plenty to be gloomy about, said Fawad Razaqzada, market analyst at City Index and Forex.com.
“There is an energy crisis in Europe, with Russia’s decision to suspend gas supplies to Poland and Bulgaria potentially triggering an energy war.”
China’s determination to beat Covid outbreak with strict lockdowns is also slowing the global economy, he said.
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The biggest risk comes from the US Federal Reserve pursing an aggressive monetary tightening policy and hiking interest rates, slowing growth.
“Investors find it difficult to buy and hold stocks for the long term. The Nasdaq is close to wiping out its entire gains from last year,” Razaqzada said .
Even supposed safe haven gold is falling right now, said Matt Weller, global head of research at StoneX.
It has hit a two-month low of $1,876, despite “inflation at multi-decade highs across the globe and a military conflict with a nuclear-enabled world power”, he said.
The precious metal is being beaten by another safe haven, the US dollar, which investors expect to strengthen when the Federal Reserve hikes interest rates, Weller added.
Bitcoin is down 10.88 percent year-to-date and 20.08 percent over 12 months. Simon Peters crypto market analyst at eToro said: “Rocketing inflation, rising interest rates and major geopolitical uncertainty have made for an unsettled picture.”
Yet he said a growing number of UK crypto investors believe it remains an attractive store of value and inflation hedge.