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(Alliance News) - Stocks in London closed in the red on Friday after a closely-watch gauge of US inflation accelerated in January, keeping pressure on the US Federal Reserve to maintain a hawkish stance on interest rates.
The FTSE 100 index closed down 29.06 points, or 0.4% at 7,878.66 on Friday. The index ended the week 1.6% lower.
The FTSE 250 ended down 93.96 points, or 0.5%, at 19,696.53, closing the week down 2.0%. The AIM All-Share closed down 2.99 points, or 0.4%, at 852.52, finishing the past five days down 1.7%.
The Cboe UK 100 ended down 0.3% at 789.65, the Cboe UK 250 closed down 0.3% at 17,217.61, and the Cboe Small Companies ended down 0.3% at 13,821.05.
According to the US Bureau of Economic Analysis, the personal consumption expenditures index increased 5.4% on-year in January.
The rate of PCE inflation quickened from 5.3% in December and came in markedly ahead of the FXStreet cited consensus of a slowdown to 4.9%.
Core PCE inflation, the Federal Reserve's preferred price gauge, quickened to 4.7% on-year in January, from 4.6% in December.
The figures suggest inflationary pressures are proving stickier than ideal.
James Knightley, chief international economist at ING, said that the data will ensure the "Fed mantra of ongoing hikes" continues, with 25 basis point moves in March, May and June now "fully priced" by markets.
CMC Markets' Michael Hewson was more blunt, saying that the latest US inflation numbers "killed stone dead" any prospect of a pause in rate hikes from the Fed any time soon.
The dollar strengthened in the wake of the reading. The pound was quoted at USD1.1947 at the London equities close on Friday, down from USD1.2023 at the close on Thursday. The euro stood at USD1.0545, lower against USD1.0593.
Against the yen, the dollar was trading at JPY136.31 late Friday, significantly higher compared to JPY134.72 late Thursday.
"To state the obvious, the recent US data have come around to support our more hawkish view on the Fed, which in turn supports our call for a stronger dollar," said analysts at Brown Brothers Harriman.
Stocks on Wall Street dived, meanwhile. At the London equities close, the Dow Jones Industrial Average was down 1.2%, the S&P 500 index was down 1.4%, and the Nasdaq Composite was down 2.0%.
In London, International Consolidated Airlines finished the day as the worst blue-chip performer, closing 6.1% lower. This was despite reporting a swing to a profit in 2022, led by higher passenger numbers, as skies got busier after Covid-19 mobility restrictions eased.
The British Airways parent reported a pretax profit of EUR415 million for 2022, swinging from a loss of EUR3.51 billion in 2021. In 2019, the airline reported a pretax profit of EUR2.28 billion.
Operating profit was EUR1.26 billion, 4.7% higher than the median company-compiled consensus of EUR1.20 billion, which had a range of EUR1.07 billion to EUR1.40 billion.
It swung from an operating loss of EUR2.77 billion in 2021, but 2022's figures were less than half of 2019's operating profit of EUR2.61 billion.
Looking ahead, IAG expects 2023 operating profit before exceptional items to be between EUR1.8 billion and EUR2.3 billion, above 2022's EUR1.23 billion but at least 30% lower than EUR3.29 billion in 2019.
AJ Bell analyst Russ Mould cautioned, however, that, as a legacy of Covid, IAG's debt is "highly elevated".
"This could make the market uncomfortable, particularly if there is any indication it is preventing IAG from making necessary investments in its business," he explained, adding that there is also no dividend to serve as a reward to those shareholders still "sticking around".
M&G climbed to the top of the FTSE 100, finishing 7.4% higher.
Though the reason behind the surge is not immediately apparent, the rise may be due to a positive read-across from FTSE 250-listed Jupiter Fund Management, which closed up 8.1%.
Jupiter Fund Management reported a drop in yearly pretax profit and a fall in assets under management, but a decent second half for the company lifted spirits.
The London-based investment manager said, at December 31, assets under management fell 17% year-on-year to GBP50.2 billion from GBP60.5 billion. Pretax profit plunged 68% over in 2022 to GBP58.0 million.
Jupiter blamed macroeconomic events, which hit market valuations and investor sentiment. However, the second half was more positive, with positive net inflows for the first time since 2017.
Elsewhere in London, Kin & Carta plunged 32% after the business consultancy cut its full-year expectations, due to the effects of macro headwinds which have made clients more cautious, and elongated sales cycles.
It said like-for-like organic revenue at constant currency was down 6% in the first half to January 31 from a year before. Net revenue rose 15% to GBP98.8 million on a reported basis. For its full year, it expects net revenue growth of 8% to 12%, but organic net revenue at constant currency to decline.
In European equities on Friday, the CAC 40 in Paris and the DAX 40 in Frankfurt both ended down 1.8%.
ING argued that a "recession is in the making" in Germany after new figures showed that the economy saw a worse contraction than initially thought in the final quarter of 2022.
According to Destatis, German gross domestic product fell by 0.4% in the fourth quarter from the previous quarter, worsening from a preliminary forecast of a 0.2% contraction.
In the third quarter, GDP grew 0.5% from the second quarter. The German economy had grown 0.1% in the second quarter and 0.8% in the first.
Brent oil was quoted at USD81.83 a barrel at the London equities close on Friday, up slightly from USD81.71 late Thursday. Gold was quoted at USD1,811.07 an ounce, lower against USD1,821.05.
In Monday's UK corporate calendar, outsourcer and distributor Bunzl and components and systems manufacturer Senior will release full-year results. Primark-owner Associated British Foods will publish a trading statement.
In the economic calendar next week, there are a slew of PMI prints from the UK, EU and the US on Wednesday, as well as EU and US unemployment data on Thursday.
By Heather Rydings, Alliance News senior economics reporter
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