(Alliance News) - The FTSE 100 index gave up morning gains to trade in the red by midday on Tuesday, weighed down by technology stocks and a steadily rising pound.
This was enough to offset a good session for travel and leisure shares on hopes for a return to normality in the UK in the coming months, though the more domestically-focused FTSE 250 index was faring better.
The FTSE 100 index was down 20.69 points, or 0.3%, at 6,591.55 on Tuesday. The mid-cap FTSE 250 index was up 84.46 points, or 0.4%, at 21,065.55. The AIM All-Share index was down 1.6% at 1,181.74.
The Cboe UK 100 index was down 0.3% at 656.57. The Cboe 250 was up 0.4% at 18700.02, and the Cboe Small Companies up 0.1% at 12927.28.
In mainland Europe, the CAC 40 in Paris was down 0.2%, while the DAX 30 in Frankfurt slid 1.2% on Tuesday.
"The reopening trade is in full swing across Europe, although this has not been enough to avoid heavy losses," said Chris Beauchamp, chief market analyst at IG.
Stocks set to benefit post-pandemic were in the green at midday, though had pared morning gains. Jet engine maker Rolls-Royce rose 4.8%, while British Airways parent International Consolidated Airlines added 1.6%.
Food and beverage outlets operator SSP Group and retailer WH Smith - which both have operations in travel locations such as train stations and airports - were up 17% and 9.0% respectively at midday. easyJet shares climbed 4.5%. All three companies are FTSE 250 constituents.
Less positive for the market was growing concern about reawakened inflation.
"Investors continue to watch the rise in bond yields with concern, and the weakness seen in US tech stocks yesterday has spread across to Europe," said Beauchamp. "European markets have seen their momentum stall in recent weeks, and as night follows day, such a stall has been followed up by heavy losses, although in most places this is still a fairly well-contained sell-off."
Wall Street is set to join Europe in the red, with the Dow Jones pointed down 0.3%, the S&P 500 down 0.8% and the Nasdaq Composite 1.7% lower.
AJ Bell investment director Russ Mould noted the Nasdaq Composite's 2.5% slide on Monday, as investor concerns heightened over rising inflation expectations and interest rates and "how that would put tech stock valuations into question".
"Tech-heavy investment trust Scottish Mortgage has fallen by more than 12% in just over a week and was among the FTSE 100's worst performers on Tuesday along with other tech names Ocado and Avast," he noted.
Scottish Mortgage Investment Trust - which holds investments in firms such as Amazon.com and Tesla - was the worst performer in the FTSE 100 at midday, down 8.3%, while Ocado shed 4.2% and Avast slipped 3.7%.
In the New York pre-market, Amazon was down 1.3% and Tesla 4.4%.
Another blue-chip in the red on Tuesday was HSBC, shares declining 2.7% after the bank reported a sharp drop in profit in 2020 but offered some "cautious optimism" going forward.
For 2020, the China-focused lender saw pretax profit drop to USD8.78 billion from USD13.35 billion in 2019. The 34% fall was blamed on higher expected credit losses and other credit impairment charges and lower revenue. Despite the sharp decline, HSBC's pretax profit came in ahead of market consensus, which forecast the figure at USD8.33 billion.
The bank noted it had a "good start" to 2021, and is "cautiously optimistic" for the year ahead.
Also weighing down London's international-focused FTSE 100 index was a stronger pound, slowly closing in on the USD1.41 mark.
Sterling was quoted at USD1.4092 midday Tuesday compared to USD1.4060 at the London equities close on Monday.
The pound trended higher after figures showed the UK unemployment rate edged up in the three months to December, as expected, but it wasn't all bad news for the labour market.
Figures from the Office for National Statistics on Tuesday showed the UK unemployment rate nudged up to 5.1% for the final three months of 2020 from 5.0% in the three months to November, and 1.3 percentage points higher than a year ago.
The ONS noted that the claimant count - the number of people claiming unemployment benefits - decreased slightly in January, down 0.8% on the month before to 2.6 million. Still, this was double March 2020's level. Also in January, 83,000 more people were in payrolled employment when compared with December - the second consecutive monthly increase.
ING said the data signals that the jobs market "stabilised" in the final weeks of 2020.
However, ING added: "We suspect that the unemployment rate will rise to around 6-6.5% through the middle of the year, and potentially higher if wage support is removed fairly abruptly in the second quarter."
In other data on Tuesday, figures confirmed the eurozone annual inflation rate bounced into positive territory at the start of the year.
The bloc's annual inflation rate was confirmed at 0.9% for January, figures released by Eurostat showed, versus a 0.3% fall in consumer prices in December. The figures mark an end to a streak of deflation - not seen in the eurozone since 2016 - driven by tumbling energy prices as the pandemic slammed demand for fuel.
In January 2020, the euro area annual inflation rate was 1.4% - a figure which slipped into negative territory as the year progressed and the pandemic's hit became more pronounced in Europe. The eurozone posted a 0.2% decline in consumer prices for August 2020, and was unable to shake off this deflation until the start of the new year.
The euro traded at USD1.2152 on Tuesday after the data, edging up from USD1.2145 late Monday in London.
Against the yen, the dollar was quoted at JPY105.26, up from JPY105.07.
Gold was quoted at USD1,807.89 an ounce on Tuesday, easing from USD1,810.01 on Monday. Brent oil was trading at USD65.72 a barrel - having traded above the USD66 mark earlier on Tuesday for the first time in just over a year - higher than USD64.45 late Monday.
By Lucy Heming; lucyheming@alliancenews.com
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