The FTSE 100 slid lower on Tuesday as early positivity was erased by a downbeat opening on Wall Street.
Traders came back from the bank holiday break in high spirits but saw commodity firms and healthcare stocks come under heavy pressure from broad weakness in the US markets.
London’s top flight ended the day down 65.68 points, or 0.88%, at 7,361.63.
Unfortunately, markets will be at risk for some time yet
Joshua Mahoney, IG
Joshua Mahoney, senior market analyst at IG, said: “An upbeat European morning has soon turned swiftly around today, with the afternoon seeing sharp declines across both sides of the Atlantic.
“Unfortunately, markets will be at risk for some time yet, with inflationary pressures ensuring that rates remain higher for longer.”
Mr Mahoney added that Fed chair Jerome Powell’s focus on addressing inflation through interest rate increases has highlighted further pressure on the European Central Bank ahead of its meeting next month.
It came as German Consumer Price Index (CPI) inflation soared to a new 50-year-high.
Nevertheless, the German Dax improved 0.54% by the end of the session. Meanwhile, the French Cac finished 0.13% lower.
In the US, the markets drifted lower despite a better-than-expected consumer confidence reading for August.
Meanwhile, sterling continued its recent struggles to fall to another two-year low.
The pound was down 0.35% against the dollar at 1.166 and was 0.55% lower against the euro at 1.164 at the close
In company news, Bunzl shares finished firmly in the red despite the distribution and outsourcing business raising its profit margin forecast.
Sentiment drifted after the FTSE 100 company – which supplies businesses around the world with a variety of products, including coffee cups and food labels to department stores and hospitals – said inflation became “more widespread” across the business over the first half of 2022.
It closed 191p lower at 2,924p on Tuesday as a result.
Elsewhere, technology business Bango saw shares rocket after snapping up the global payment business of Japanese mobile phone operator NTT Docomo.
Analysts at Liberum hiked their target price for the business in response, claiming the move would help to accelerate the company’s growth strategy.
Bango finished the session 36p higher at 192p.
Manchester-based construction firm Kier Group moved higher after analysts at Peel Hunt argued it is well positioned to deliver long-term growth and a sustainable dividend.
“Recent momentum provides earnings visibility, a path to delivering the organic growth targets and cash generation,” commented equity analyst Andrew Nussey. Kier was up 1.7% at 72.1p at the close.
The price of oil witnessed a sharp reversal of fortune due to hawkish tones from central banks, wiping out many of the gains it saw during Monday’s rally.
Brent crude oil dropped by 5.63% to 99.17 US dollars per barrel when the London markets closed.
The biggest risers on the FTSE 100 were DS Smith , up 7.4p to 268.1p, Dechra Pharmaceuticals, up 92p to 3,532p, Entain, up 32.5p to 1,279p, Smurfit Kappa, up 68p to 2,870p, and JD Sports, up 2.65p to 112.3p.
The biggest fallers on the FTSE 100 were Endeavour Mining, down 123p to 1,659p, Centrica, down 5.4p to 76.56p, Bunzl, down 191p to 2,924p, Antofagasta, down 66p to 1,108p, and SSE, down 92p to 1,711p.