Stock markets in the UK and across Europe faltered on Wednesday afternoon while Wall Street soared in reaction to Donald Trump’s election as president.
The FTSE 100 – London’s top index – opened firmly higher but handed back all its gains to close lower at the end of trading amid concerns over volatility in the bond markets.
The index was just 0.07% lower at the end of trading on Wednesday. Elsewhere in Europe, the German Dax index was down 1.1% and the French Cac 40 was down 0.5%.
The key financial markets all saw confidence among traders slide after early positivity around increased certainty gave way to concerns over the wider economic environment.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “Fresh nervousness has been sweeping financial markets after Donald Trump’s triumphant win.
“His policies look set to increase inflationary pressures and swell the US deficit even further, with knock-on effects expected for the UK economy.”
Markets were shaken by a jump in Treasury yields due to the potential impact of swathes of tariffs and tax cuts.
The potential inflationary impact of this and the related upward pressure on interest rates caused UK housebuilders to fall during the session.
Spirits giant Diageo was another major faller amid concerns its Scotch products could be among those hit with fresh tariffs.
However, some London-listed businesses with significant US domestic operations, such as Ashtead, made significant gains.
The pound was down about 1% against the US dollar, at 1.292, with the American currency making sharp gains on the back of Mr Trump’s victory.
The Dow Jones index rose 3.1% after trading opened on Wednesday.
Economists said investor sentiment in the US is being bolstered by the prospect of a lower tax environment under a Trump presidency, while the implementation of trade tariffs could strengthen the US dollar.
The rising dollar also reflects expectations that Mr Trump’s policies will add to inflation in the economy and keep interest rates higher for longer, experts said.
Samuel Tombs, chief US economist for Pantheon Macroeconomics, said it was raising its forecast for US inflation under the expectation that Mr Trump will introduce higher tariffs on all imports next year.
This would give the Federal Reserve less scope to ease interest rates, he said.
Nevertheless, the knock-on impact on the UK economy and countries around the world continues to come under the spotlight.
Higher US import tariffs would reduce global economic growth by about one percentage point over the next two years, according to analysis from the National Institute of Economic and Social Research (Niesr).
For the UK, Niesr estimates that economic growth would slow to 0.4% in 2025, down from a forecast of 1.2%.
Ahmet Kaya, principal economist for Niesr, said the UK economy could be “one of the countries most affected” with the proposed tariffs coming as “yet another shock” to the country.
Mr Trump has said he wants to increase tariffs on goods imported from around the world by 10%, rising to 60% on goods from China.