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(Alliance News) - Stocks in London went into the weekend treading water, following a highly volatile week, though the mood improved on Friday after strong private sector growth and retail sales data.

"As the penultimate full trading week of May draws to a close major indices are heading nervously back to the highs of last week, having spent the past 48 hours recovering from Wednesday's low," IG Chief Market Analyst Chris Beauchamp said.

The FTSE 100 index closed down 1.74 points at 7,018.05 - the blue chip index lost 0.4% this week.

The mid-cap FTSE 250 index ended up 7.42 points at 22,399.42 - growing 0.4% over the past five days. The AIM All-Share index advanced 0.3% at 1,249.29.

The Cboe UK 100 index closed up 0.1% at 699.83. The Cboe 250 added 0.1% at 20,150.05, and the Cboe Small Companies ended flat at 14,8865.96.

Beauchamp continued: "The picture today for risk assets looks a lot more positive than it did mid-week, as inflation concerns continue to subside and today's suite of stronger economic data provides a continued argument to stick with equities. However, until we clear the peaks seen a week ago some caution will linger."

UK business activity expanded at a rapid pace in May on strong contributions from both manufacturing and services, survey results from IHS Markit showed.

The IHS Markit-CIPS flash UK services purchasing managers' index print was 61.8 points in May, up slightly from 61.0 in April. The latest reading was just shy of the market forecast, cited by FXStreet, of 62.0, but remains above the 50.0 mark which separates expansion from contraction.

The UK manufacturing PMI score was 66.1 points in May, up sharply from 60.9 in April and soundly beating the market estimate of 60.0. Further, May's reading was the highest since the survey began in January 1992, Markit said.

The UK composite PMI reading increased to 62.0 points in May from 60.7 in April. The latest figure was a fresh record high.

UK retail sales saw a sharp increase in April as shoppers returned to high streets following the re-opening of all non-essential stores.

On an annual basis, UK retail sales surged 42% in April, having increased 7.2% in March. The latest figure was well above the market forecast, cited by FXStreet, for a 37% rise. On a monthly basis, retail sales grew 9.2% in April, following a 5.4% rise in March. The month-on-month print also beat market consensus of a 4.5% increase.

Sterling was having a strong session on the back of the solid data.

The pound was quoted at USD1.4169 at the local equities close, slipping back from USD1.4231 at midday, but still up from USD1.4163 at the London equities close on Thursday.

In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were up 0.7% and 0.4% respectively.

Eurozone business activity grew at a significantly faster rate in May, according to survey results, as economies continued to open up from virus restrictions.

The headline IHS Markit eurozone composite PMI print rose to 56.9 points in May from 53.8 in April. The latest reading was the highest since February 2018 and indicated a third successive month of output growth.

The flash eurozone services PMI activity index stood at 55.1 points in May versus 50.5 in April, while the flash manufacturing PMI slipped to 62.8 points from 62.9.

The euro was priced at USD1.2186 at the London equities close on Friday, but was seen at USD1.2233 at midday, down from USD1.2210 late Thursday.

IG's Beauchamp said: "But with earnings season now out of the way and a quieter economic calendar next week there are few obvious potential volatility catalysts ahead, potentially clearing the way for a further rebound in stock markets. Oil prices are one potential area of concern, but recent weakness appears to be ending following a 'sell the rumour' move on hopes that Iranian supply will return to the market as the thawing of relations between Tehran and Washington continues."

Brent oil was quoted at USD66.64 a barrel Friday evening, up from USD66.20 late Thursday. Gold was trading at USD1,875.10 an ounce, down from USD1,878.30.

In London, Royal Dutch Shell 'A' shares added 1.0%, while the 'B' shares closed 0.8% higher. Peer BP added 0.6%.

At the bottom of the FTSE 100, Kingfisher lost 4.6%, a day after raising its profit guidance as the pandemic-spurred demand for home-improvement projects continued. The stock had slipped 0.6% on Thursday.

In the midcaps, Biffa ended the best performer, up 5.8%. The waste management firm said it has entered into an agreement to acquire the Collections business and some Recycling assets from Viridor Waste Management for GBP126 million.

Close Brothers added 1.8% after the merchant bank said it continued to perform strongly in its financial third quarter to April 30, in line with trends reported in the first half of the year.

Close Brothers said the third quarter saw high new business volumes in the lending business, solid net inflows in Asset Management, and a strong trading performance by stockbroker Winterflood.

Further, Close Brothers said it capital position remained strong, with a Common Equity Tier 1 capital ratio of 15.5%, which it said was significantly above the applicable minimum regulatory requirement. In the Banking unit, the loan book increased by 3.2% in the quarter and 7.7% year-to-date to GBP8.2 billion, up from GBP8.0 billion at the end of the previous quarter.

At the other end of the FTSE 250, Trainline lost 4.2%. The public transport ticketing platform was extending losses from Thursday amid UK government plans to reform the railway network. The stock ended 23% lower on Thursday.

In the US, New York equity markets were mixed at the London close. The DJIA was up 0.6%, while the S&P 500 index was 0.3% higher, but the Nasdaq Composite was down 0.4%.

CMC's Michael Hewson said: "US markets have picked up where they left off yesterday, opening higher with the latest services PMI numbers for May giving sentiment an added boost, coming in at a record 70.1, as investors look to try and turn what looked as if it might be a negative week at one stage this week, into a positive one."

Against the yen, the dollar was trading at JPY108.94, up from JPY108.84.

In the international economic calendar next week, financial markets are closed in France and Germany on Monday. Tuesday is headlined by German GDP data, with Thursday's focus on US GDP data. A GDP reading from France is due Friday, which will also issue a CPI print. Friday afternoon will be headlined by US personal consumption expenditure.

The local corporate calendar on Monday, full-year results are due from Bermuda-based insurance firm Randall & Quilter and software company Kainos Group, while food packaging firm Hilton Food Group will issue a trading update.

By Paul McGowan; paulmcgowan@alliancenews.com;

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