he FTSE 100 was set to pause for breath today after heavy selling yesterday saw London shares tumble 2% on concerns about Covid’s global spread.

A rally in European stocks that has been running for nearly two months came to a shuddering stop with travel, banking and retail stocks all tumbling.

A European Central Bank survey showing banks could squeeze lending to smaller businesses, crimping growth in the region, led to heavy selling in the previous session ahead of Thursday’s meeting on central bank monetary policy.

Covid infection rates around the world spooked travel stocks and sentiment around airlines and hospitality will be a key factor in today’s session. British Airways owner IAG fell 8% after India was added to the UK’s red list of flights.

Rolls-Royce, the aero engines maker, easyJet and Premier Inn owner Whitbread all fell 5-6%.

The pandemic is spreading alarmingly in India and across Asia, with much of that attributed to the new variant first seen in India which appears to be more virulent and able to strike those who have had the vaccine. The variant has been found in the UK.

Having said farewell to the 7000 levels the FTSE 100 broke through last week, investors were, before trading opened today, expecting a pause in the selling. IG’s platform was pricing in a 1.5 point gain to 6859.

Asian market followed the US and Europe’s lead downhill this morning.

CMC analyst Michael Hewson said: “There is a nagging doubt that the economic recovery that is currently being priced looks set to encounter a few potholes, and it is that which appears to have exacerbated some of the rush to cash out on some risk positions.”

Today brings data on inflation in the UK which could see the CPI number edge up from 0.4% to 0.8%, with core inflation rising to 1.1% after last month’s surprise drop to 0.9%.

The figures will be key to those who fear the direction of interest rates – albeit long term – is up.

In the US, that trend was reversed partially yesterday as government bond yields fell with the tumble in share prices. The 10-year Treasury yield slipped 0.04 percentage points to 1.56% – still way higher than its 0.9% level at the start of the year.

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