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FTSE 100 opens higher despite soaring inflation and stagflation fears

London’s blue-chip index opened higher than predicted, climbing 54 points to 7,269. This is despite the economic outlook remaining gloomy, said Naeem Aslam, a market analyst at Avatrade. “Dark economic outlook, soaring inflation, and fear of stagflation are driving the current momentum in the global equity market.” “The US equity indices hit their lowest level in thirteen months yesterday. Despite this weakness which represents an opportunity for bargain hunters, some have doubts about their participation in the markets today as they believe that the activity may not last for long.” “Basically, equity traders are also feeling uncomfortable about the Fed’s warning of worsening liquidity conditions across key financial markets due to the rising risk factors such as stagflation.” “However, it is important to state that if the next inflation reading shows that it has reached its optimum level, then it is by no means exaggeration that the Fed’s hawkish stance has peaked as well.” “And this means that the current fear about the Fed’s hawkish monetary policy is only creating excessive fear among traders. Hence, the existing sell-off could be an opportunity for traders and investors.” 6.44am: Market preview The FTSE 100 is being called marginally higher on Tuesday despite Wall Street stocks tumbling further overnight. London’s blue-chip share index is heading for a 17-point gain, according to the IG spread-betting platform, after falling 2.3% at the start of the week to 7,216.6. Overnight, tech and other growth stocks, as collected on the Nasdaq and the Russell 2000 indices, fell over 4% to levels last seen in late 2020. The S&P 500 index gave up 3.2% and the Dow Jones dropped 2%. The US dollar continued to gain ground, making a new 20-year high, though it was outperformed by the Japanese yen. Oil prices also reversed course, with Brent crude reversing all of the previous week’s gains in a single day, sliding 6.5% as the EU fails to agree on a ban on Russian oil and worries increase about demand from China as pandemic lockdown rules were tightened.   “For a good part of this year the rise in US bond yields has helped put downward pressure on stock markets over concerns that higher rates would tighten financial conditions, as well as putting upward pressure on real yields,” said market analyst Michael Hewson at CMC Markets. “Yesterday we saw both yields and stocks fall heavily in unison in a move that could be being driven by a fear that the global economy is heading for a sharp slowdown, stagflation or even recession. “The price action yesterday shows that markets are becoming more concerned about one or all of these scenarios, than they are about rate rises, on the basis that any coming rate hikes could well soon be reversed by rate cuts.” Around the markets Pound up 0.2% to US$1.2366 Oil down 0.75% to US$105.14 per barrel of Brent crude   Gold up 0.5% to US$1864 Bitcoin down 4.7% to US$31,915.3 6.50am: Early Markets – Asia / Australia Shares in the Asia Pacific were mostly lower on Tuesday following a heavy selloff overnight on Wall Street that saw the tech-heavy Nasdaq Composite tumble 4.3%. Japan’s Nikkei 225 fell 0.29% and South Korea’s Kospi slipped 0.37%. The Shanghai Composite in China gained 1.07% while Hong Kong’s Hang Seng index declined 1.88% after returning to trade following a holiday on Monday. Australia’s S&P/ASX200 tumbled 1.16% as the Australian dollar sunk to its lowest level in nearly two years, hitting 69.45 US cents. The US dollar index hovered near a 20-year high as it continues to rally on its safe-haven appeal. READ OUR ASX REPORT HERE