The FTSE 100 and European stocks finished lower this Friday as investors on both sides of the Atlantic fear that central banks might keep raising interest rates to cool inflation and markets come down from record highs.
The FTSE 100 (^FTSE) lost 0.19% to close at 7,997 points during afternoon trading, while the CAC 40 (^FCHI) in Paris dropped 0.18% to 7,352 points. In Germany, the DAX (^GDAXI) fell 0.27% to 15,492.
Across the pond, stocks fell again on Wall Street, on track for their first back-to-back weekly drop since the turn of the year.
The Dow Jones (^DJI) lost 0.30% to 33,589 points. The S&P 500 (^GSPC) retreated 0.92% to 4,052 points and the tech-heavy NASDAQ (^IXIC) slipped 1.30% to 11,699.
US markets have taken a tumble amid fears that accelerating inflation could prompt the Federal Reserve to keep monetary policy restrictive through the year.
Back in London, the UK blue chip has fallen back after its record close on Thursday following data showing stronger than expected retail sales in January.
Retail sales rose unexpectedly last month as the January sales brought people into stores. The volume of goods sold in stores and online increased by 0.5% after a 1.2% decline in December, according to the Office for National Statistics (ONS).
Economists had expected a drop of 0.3% indicating that consumers in the UK are weathering the cost of living crisis better than feared.
This increases the chance that the Bank of England will tighten monetary policy and raise interest rates higher for longer to tame inflation.
Read more: What sort of house £1m buys you around the UK
Neil Birrell, chief investment officer at Premier Miton Investors, said: “Retail sales in the UK rose last month and were much stronger than expected, contrary to the inflation data earlier in the week. There is clearly still life in the consumer, despite ongoing pressures from impending increases in council tax, amongst other things.
“Those thinking that the Bank of England might start moderating policy in the short term will be disappointed by this number. Although, overall, the economic data is ambiguous, making the short and medium-term outlook really very uncertain.”
The money markets currently suggest there is a 72% chance that the BoE raises interest rates from 4% to 4.25% in March.
NatWest (NWG.L) shares plunged 6% despite revealing the fact its profits surged by more than a third to reach £5.1bn last year, as guidance for 2023 and beyond disappointed the City.
Traders are calculating that the bank may not make such large profits from higher interest rates this year.
Russ Mould, investment director at AJ Bell, said: “NatWest may have delivered its biggest profit since the financial crisis but investors are far more concerned about what’s coming next and that’s less positive.
“Income for 2023 is now guided to be lower than expected, with the key net interest margin metric also falling short. Costs are also set to be higher than forecast.
“While impairments are anticipated to be a bit lower than estimates the market may be cautious of taking NatWest at its word given the difficult backdrop for consumers and businesses which could lead to a big increase in bad debts.
Read more: My First Boss: UK’s Elon Musk: Martin Warner on his business career
“With the rate cycle nearing its peak the recent momentum in banking shares could be difficult to maintain. Whether this will act as a catalyst for the government to sell down more of its remaining stake remains to be seen.“NatWest’s rescue by the state during the financial crisis means criticism of its tardiness in passing on higher interest rates to savers arguably carries more weight and that could have some impact on profitability.”
Meanwhile, Brent crude (BZ=F) slipped and was trading at around $83/barrel, putting oil on track track for weekly losses of 2.5% as strong US economic data heightened concerns that the Federal Reserve would further tighten monetary policy to tackle inflation, a move that could hit fuel demand.
In Asia, Tokyo’s Nikkei 225 (^N225) lost 0.66% to 27,513 points, while the Hang Seng (^HSI) in Hong Kong tumbled 1.15% to 20,745. The Shanghai Composite (000001.SS) also lost ground, slipping 0.77% to 3,224 points.
Watch: Why there is no such thing as a ‘no landing’ scenario
Download the Yahoo Finance app, available for Apple and Android.
