(Alliance News) - Wall Street's late rout on Thursday, leading to a rough session in Asia, spilled over to Europe on Friday morning, with a negative start to trading as the US Federal Reserve doubles down on surging inflation.
Richard Hunter, head of Markets at interactive investor, said: "Further hawkish comments from the Federal Reserve chair put another cat among the pigeons in a day of violent swings."
The Fed may opt to hike interest rates by larger-than-normal half a percentage point at its policy meeting next month in a bid to battle record US inflation, Chair Jerome Powell said Thursday.
"It is appropriate, in my view, to be moving a little more quickly. And I also think there's something in the idea of front-end loading whatever accommodation one thinks is appropriate," Powell said during a debate on the global economy hosted by the International Monetary Fund on the sidelines of its spring meetings.
He noted a 50 basis points will be "on the table" for the May meeting.
Hunter continued: "Quite apart from the widely expected 0.5% rate hike in May, this could also imply similar rises in subsequent months. While the news should not have come as too much of a surprise, investors rushed for the exit as concerns of over-tightening and recession came back into focus."
The FTSE 100 index was down 33.66 points, or 0.4%, at 7,594.05 early Friday. The mid-cap FTSE 250 index was down 96.97 points, or 0.5%, at 21,062.71. The AIM All-Share index was down 5.80 points, or 0.6%, at 1,052.82.
The Cboe UK 100 index was down 0.5% at 755.83. The Cboe 250 was down 0.5% at 18,607.60, and the Cboe Small Companies down 0.1% at 15,431.94.
In mainland Europe, the CAC 40 in Paris was down 1.6% while the DAX 40 in Frankfurt was 1.3% lower early Friday.
The dollar was mostly higher early Friday due to the hawkish tone from the US central bank. Sterling was quoted at USD1.2921, lower than USD1.3040 at the London equities close on Thursday. The euro traded at USD1.0815 early Friday, down against USD1.0852 late Thursday.
Adding further pressure to sterling, UK March retail sales volumes dropped by 1.4% from the month before, worsening from February's revised 0.5% fall and missing market expectations. According to FXStreet, market consensus had tipped for just a 0.3% month-on-month fall in March.
The Office for National Statistics said the largest contribution to the fall came from non-store - meaning online - retailing, where sales volumes fell by 7.9% over the month following a fall of 6.9% in February.
Despite March's woeful performance, sales volumes were 20% above their pre-coronavirus February 2020 levels.
CMC Markets Analyst Michael Hewson said: "Today's numbers could also play into the calculus around next month's Bank of England rate decision with the prospect that we could get a split between those members who may want to go down the 50 basis points rate hike route, and those who would prefer to hike by 25bps. The central bank is facing an unenviable task this summer, facing an inflation problem that it is behind the curve on, and having to consider raising rates further into the teeth of an economic slowdown.
"Until we get some further clarity on what the Bank of England might do next month in terms of outlining a policy response, the pound could well remain under pressure, with the recent lows at 1.2970 likely to give way to a potential move towards 1.2800. This has become much more likely given the perception that the Federal Reserve seems more determined to squeeze down on inflation much harder."
In London, variety goods store chain B&M European Value Retail was stuck to the bottom of the FTSE 100, after long-time Chief Executive Simon Arora announced he is stepping down next year.
B&M was down 5.2%.
Chair Peter Bamford has begun planning for Arora's successor, who has led the firm for 17 years, and who plans to retire in 12 months.
Simon Arora's brother, Bobby Arora, will remain with the company in his current role, as group trading director.
Anglo American was down 2.4% after RBC cut the mining giant to 'sector perform' from 'outperform'. On Thursday, Anglo downgraded its full-year production guidance for its major commodities and indicated that its first-quarter performance was "challenging". The stock had lost 8.8% on Thursday, the worst FTSE 100 faller.
Housebuilder Berkeley was 3.2% higher after Jefferies upped the stock to 'buy' from 'hold'.
In the midcaps, Ferrexpo advanced 4.0%. The Ukraine-focused iron ore pellet producer said its production in 2021 - so before the Russian invasion of Ukraine - was flat, but its revenue saw a boost from higher prices.
Ferrexpo recorded a pretax profit of USD1.07 billion, rising from USD747.9 million in 2020.
Revenue rose to USD2.52 billion from USD1.70 billion.
Pellet production was flat at 11.2 million tonnes, while its sales volume dropped 6% to 11.4 million tonnes from 12.1 million tonnes.
Ferrexpo pointed out, however, that average Platts CFR 62% iron ore fines price rose to USD160 per tonne from USD109 per tonne in 2020. For higher grade iron, prices increased to USD186 per tonne from USD122.
Chief Executive Jim North said: "The events of early 2022 have changed Ukraine significantly, but our business model and our resolve remains unchanged. We continue to produce high grade iron ore pellets, and we are continuing to invest in growing our business for the future, which will help further support the Ukrainian economy to rebuild."
On the other side of the war divide, Russian gold miner Petropavlovsk said its first-quarter production has increased, despite the fallout from the war in Ukraine, but it has seen sales fall as it looks for new buyers - after its main customer was placed on a European sanctions list.
It raced 35% higher at the open.
In the March-quarter, total gold production increased 8% on the year before to 103,000 ounces. Own-mined gold production dropped 3% to 82,400 ounces, owing to lower production at the Albyn and Malomir mines, but third-party concentrate gold production increased 73% to 22,800 ounces.
Total gold sales dropped to 89,800 ounces from 95,600 ounces, but the average realised gold price in the quarter improved to USD1,871 per ounces from USD1,789.
The Russian gold miner - which has been dumped from the FTSE 250 since the start of the war in Ukraine - said, at the moment, there are no direct sanctions on the company or any of its subsidiaries. It did, however, note it is prohibited from selling gold to Gazprombank, a lender to Petropavlovsk which had acted as the main off-taker for the company's production
"The group continues to explore options for the sale of its gold, including to other potential buyers, and has applied for a new licence to export gold," it added.
Homeserve jumped to an 11% gain in early trading following an update late Thursday that it has entered talks with Brookfield Infrastructure over a potential takeover offer.
The home repairs and improvements noted it has received a number of proposals from Brookfield since the end of March.
"The board has carefully considered the proposals, which are subject to a number of conditions," it explained.
Brookfield now has until May 19 to make firm offer, which was extended from Thursday as the pair enter discussions.
In Asia on Friday, the Japanese Nikkei 225 index closed down 1.6%. In China, the Shanghai Composite closed up 0.2%, while the Hang Seng index in Hong Kong was 0.4% lower in late trade. The S&P/ASX 200 in Sydney ended down 1.6%.
Japan's core consumer prices rose at the fastest rate in over two years in March, reflecting the soaring cost of energy and other products, official data showed Friday.
The core consumer price index, which excludes fresh food, edged up 0.8% year-on-year, in line with market expectations.
The index has marked increases for seven straight months, reflecting pandemic distortions including supply chain issues and, more recently, the effects of the war in Ukraine.
Japan also saw the sharpest rise in private sector output for four months, as the flash composite purchasing managers' index rose to 50.9 points in April, up from March's final figure of 50.3, according to Friday's preliminary figures from au Jibun Bank.
Activity in services companies increased for the first time since December, as output from manufacturers grew for the second month in a row.
Against the yen, the dollar was quoted at JPY127.97, down from JPY128.45.
Gold was quoted at USD1,953.60 an ounce early Friday, higher than USD1,945.88 on Thursday evening. Brent oil was trading at USD107.37 a barrel, down from USD108.22 late Thursday.
The economic events calendar on Friday has PMI readings from the eurozone at 0900 BST, the UK at 0930 BST and the US at 1445 BST.
By Paul McGowan; paulmcgowan@alliancenews.com
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