Investor concerns on the US interest rates outlook hurt stocks in Europe on Friday, although investors in New York still bought despite recent hawkish comments from US central bankers.
Among London shares, Diageo was by far and away the worst FTSE 100 performer. There was some slight strength in oil stocks, as Crude prices recovered, while defence firms also climbed with contract-winning Babcock International leading the charge.
The FTSE 100 index slumped 95.12 points, 1.3%, at 7,360.55. The FTSE 250 fell 184.76 points, 1.0%, at 17,853.09, and the AIM All-Share fell 3.17 points, 0.5%, at 701.09.
For the week, the FTSE 100 lost 0.8%, the FTSE 250 gave back 0.7%, though the AIM All-Share added 0.6%.
The Cboe UK 100 closed down 1.3% at 734.45, the Cboe UK 250 lost 1.2% at 15,450.97, though the Cboe Small Companies achieved a 0.2% gain at 12,857.04.
In European equities, the CAC 40 in Paris closed down 1.0%, while the DAX 40 in Frankfurt fell 0.8%.
In New York, the Dow Jones Industrial Average was up 0.4%, the S&P 500 added 0.7%, while the Nasdaq Composite shot up 1.1%.
‘Markets have been rather subdued this week, echoing the UK economy as a whole. Only a handful of companies managed to eke out any kind of forward momentum on the FTSE 100 today as investors digested the combination of comments from Fed Chair Jerome Powell and the lack of UK economic growth,’ AJ Bell analyst Danni Hewson commented.
The US Federal Reserve is prepared, if needed, to hike interest rates further in order to bring inflation down to its long-term 2% target, the Fed chair said.
‘We know that ongoing progress toward our two percent goal is not assured: Inflation has given us a few head fakes,’ Powell told a conference in Washington.
‘If it becomes appropriate to tighten policy further, we will not hesitate to do so,’ he added, in remarks that were briefly disrupted by climate protesters.
Early Friday, numbers showed the UK economy has dodged a technical recession for now. The UK economy fared better than expected in the third quarter, avoiding contraction, but made no progress either, according to figures from the Office for National Statistics on Friday.
In the third quarter, the ONS estimates that gross domestic product registered no growth on a quarterly basis and was flat on the second quarter. The estimate was better than the FXStreet-cited market consensus of a 0.1% contraction. In the second quarter, GDP grew by 0.2% from the first quarter.
Sterling was quoted at $1.2200 late Friday afternoon in London, dropping from $1.2275 at the European equities close on Thursday. The euro traded at $1.0670, lower than $1.0709. Against the yen, the dollar was quoted at JP¥151.49, up versus JP¥151.00.
The higher for longer interest rate narrative may support the dollar and prevent counterparts from stealing a march as the year draws to a close.
Capital Economics analyst Jonathan Petersen commented: ‘In an otherwise quiet week, the greenback seems set to close higher against most major currencies, reversing much of its decline following the October payrolls data release. We think the dollar’s rise is largely due to the renewed rise in US Treasury yields yesterday, which reflected the relatively hawkish tone in Chair Powell’s comments and, to some extent, rising term premia from the latest Treasury auction.
‘The Fed’s commitment to ’higher for longer’ was a key driver of the dollar’s rally in Q3 and could keep the greenback on the front foot for some time. We think the strength of macro data out of the US including next week’s CPI data will be the key determinant for the dollar: continued resilience would support ’higher for longer’ in US rates and the dollar, while any signs of softening as last week’s payrolls report showed could see the dollar falter amid a ’Goldilocks’ backdrop.’
Hurt by a stronger dollar, gold was quoted at $1,938.67 an ounce at the time of the London equities close, down from $1,961.11 on Thursday.
Gold miners Fresnillo and Endeavour Mining, down 4.9% and 2.5% in London, tracked bullion lower.
Also struggling in London, Ocado slumped 5.6%. The grocery chain and warehouse technology firm’s stock market performance has ebbed and flowed, in line with wider risk sentiment recently. It has suffered a more than 5% decline this week. It had surged 12% a week earlier as markets cheered a favourable US jobs report.
BP and Shell rose 0.5% and 0.6%, rounding off a difficult week for the oil majors with a gain.
Brent oil traded higher at $81.12 a barrel on Friday, up from $80.69 at the European equities close on Thursday.
Capital Economics analyst Edward Gardner commented: ‘The big commodity price moves this week were to the downside, notably in oil markets. There were a mix of demand- and supply-side motives for the oil price falls. But, ultimately, we forecast that the oil market will be finely balanced over the coming months, and there is a risk that Opec+ decide to cut supply even further if prices fall by more. So, we are sticking with our forecast of Brent ending both this year and next year at around $85 per barrel.’
BAE Systems added 1.2%, while Babcock climbed 4.2%.
Babcock said that it signed a four-year £750 million contract with the UK Ministry of Defence’s Submarine Delivery Agency.
The London-based aerospace and defence firm said the deal aims to deliver infrastructure required to support and sustain the UK’s submarines ‘for decades to come’. The contract includes a dock, logistics and modern support facilities.
Diageo shares suffered a bruising 12% decline. Diageo, whose financial year runs to June 30, warned that growth in its first half will be weaker than the second half just gone.
Sales in Latin America and the Caribbean will act as a drag on growth, with the region hit by low consumption due to macroeconomic pressures. Sales in the LAC market are nearly 11% of its net sales value.
‘Macroeconomic pressures in the region are resulting in lower consumption and consumer downtrading. These impacts are slowing down progress in reducing channel inventory to appropriate levels for the current environment,’ it explained.
Consequently, organic operating profit growth for the first half of its financial year is anticipated to decline from the prior year. In the first half of financial 2023, it had climbed 9.7%.
Elsewhere in London, PensionBee surged 9.0% after it predictable a profitable fourth-quarter at the adjusted earnings before interest, tax, depreciation and amortisation level.
It hit this profit milestone in October, the online pension provider said.
‘This performance has been driven by a combination of a growing customer base, strong net inflows from new and existing customers, the inherent scalability of its technology platform and sustainable cost discipline,’ PensionBee added.
Monday’s economic calendar has the latest Rightmove UK house price index overnight. There are also a trio of speeches of UK interest, including words from Bank of England policymakers Sarah Breeden and Catherine Mann, and UK Prime Minister Rishi Sunak’s annual foreign policy speech at Lord Mayor’s Banquet.
The local corporate calendar has a trading statement from BAE Systems, while property investor British Land reports half-year results.
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