(Sharecast News) - London stocks kicked off the month of October sharply lower on Thursday as worries about inflation dented sentiment amid a selloff in bond markets and rising oil prices.
At 0840 BST, the FTSE 100 was down 1.6% at 10,438.46, while Brent crude was up 2.1% at $100.13 a barrel and West Texas Intermediate was 2.2% higher at $92.42.
Susannah Streeter, chief investment strategist at Wealth Club, said: "It's been a sober start to October for the Footsie, as investors eye up soaring borrowing costs, and digest unpalatable warnings about the AI boom. The blue-chip index has taken a dive in early trade, with confidence hit by concerns about the potential for higher inflation, more refinancing costs and the knock-on effect on spending.
"The bond market is adding to the pressure cooker ahead of the UK Budget, with the 10-year gilt yield climbing to around 5.49%, the highest level since July 2007. The warning lights are flashing in a week when the government paid the highest yield on a 10-year gilt auction since 1999, underlining how much more expensive it is becoming to borrow. With debt already high and interest payments eating up a hefty chunk of public finances, sustained yields at these levels could further squeeze the Chancellor's wiggle room when he sets out his spending plans."
Investors were also mulling the softer-than-expected US PCE reading released on Wednesday.
The PCE - the Federal Reserve's preferred inflation gauge - increased in August by an annualised 3.4% versus the 3.7% expected. Core PCE, which excludes the more volatile food and energy components, came in at 3% versus expectations for 3.3%, although both figures were well above the Fed target.
Richard Hunter, head of markets at Interactive Investor, said that due to the fact the data was historic and that some methodology changes in calculating the numbers were introduced, the release did little to change the underlying inflation narrative.
"In addition, there are increasing signs that the US economy is much stronger than many had anticipated," he said. "GDP for the second quarter increased by 2.2% annualised, revised up from a previous 1.5% estimate, driven by robust consumer spending and business investment related to the AI infrastructure buildout."
On home shores, figures from Nationwide also gave investors little to cheer, as house price growth slowed sharply in September amid mounting economic and geopolitical tensions.
According to the latest house price index, annual growth halved to 0.8% from 1.6% in August. The market had been looking for a far more modest decline, to 1.3%. Month-on-month, house prices declined 0.2%, compared to an 0.2% uptick in August. The average house price now stands at £274,251.
Nationwide said the housing market had been battling an "uncertain" economic backdrop.
"Geopolitical tensions remain high, with the conflict in the Middle East exerting upward pressure on energy prices, fanning inflation concerns," said Robert Gardner, the building society's chief economist. "This in turn has led to mounting financial market expectations of Bank Rate increases, which has maintained upward pressure on the market interest rates which underpin mortgage pricing."
Looking to the rest of the day, the S&P Global UK manufacturing purchasing managers' index for September is due at 0930 BST.
In equity markets, ex-dividend stocks proved a drag, with Weir, British American Tobacco, Breedon and TP ICAP all weaker. Breedon was also in focus as it announced the appointment of James Brotherton as its new chief executive with effect from 1 January 2027.
On the upside, SSE was among the top gainers as it reiterated its guidance.
Market Movers
FTSE 100 (UKX) 10,438.46 -1.58%
FTSE 250 (MCX) 24,241.11 -1.22%
techMARK (TASX) 6,105.17 -1.18%
FTSE 100 - Risers
Rolls-Royce Holdings (RR.) 1,473.00p 0.99%
SSE (SSE) 2,484.00p 0.64%
DCC Energy (DCC) 6,445.00p 0.23%
Intertek Group (ITRK) 5,870.00p 0.09%
easyJet (EZJ) 677.60p 0.06%
RELX FINANCE BV 3.375% GTD NTS 20/03/33 (BW73) 98.64p 0.00%
Balfour Beatty (BBY) 919.50p 0.00%
Fresnillo (FRES) 2,713.00p -0.15%
Rentokil Initial (RTO) 295.80p -0.24%
Diploma (DPLM) 7,665.00p -0.45%
FTSE 100 - Fallers
Games Workshop Group (GAW) 16,950.00p -5.02%
Weir (WEIR) 2,610.00p -3.63%
British American Tobacco (BATS) 3,981.00p -3.37%
Standard Chartered (STAN) 2,240.00p -2.52%
HSBC Holdings (HSBA) 1,459.60p -2.51%
Reckitt Benckiser Group (RKT) 4,915.00p -2.42%
Barratt Redrow (BTRW) 323.20p -2.38%
InterContinental Hotels Group (IHG) 157.80p -2.32%
AstraZeneca (AZN) 12,034.00p -2.30%
Lion Finance Group (BGEO) 14,010.00p -2.30%
FTSE 250 - Risers
W.A.G Payment Solutions (EWG) 98.40p 2.82%
HGCapital Trust (HGT) 384.00p 1.69%
Cordiant Digital Infrastructure Limited NPV (CORD) 126.00p 1.61%
JPMorgan Emerging Markets Growth & Income (JMGI) 169.40p 1.30%
Harbour Energy (HBR) 263.80p 1.29%
Foresight Environmental Infrastructure Limited (FGEN) 89.20p 1.02%
Ruffer Investment Company Ltd Red PTG Pref Shares (RICA) 298.50p 1.02%
Caledonia Investments (CLDN) 384.50p 0.92%
Herald Investment Trust (HRI) 2,990.00p 0.84%
Harworth Group (HWG) 188.40p 0.75%
FTSE 250 - Fallers
Breedon Group (BREE) 313.20p -4.27%
Ocado Group (OCDO) 244.80p -3.77%
TP Icap Group (TCAP) 330.20p -3.68%
Kainos Group (KNOS) 1,188.00p -2.94%
Wickes Group (WIX) 200.50p -2.89%
Gamma Communications (GAMA) 1,092.00p -2.85%
Morgan Sindall Group (MGNS) 4,188.00p -2.77%
Zigup (ZIG) 459.50p -2.75%
Coats Group (COA) 81.20p -2.73%
Wetherspoon (J.D.) (JDW) 796.00p -2.70%
180.04 (1.70%)
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