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(Alliance News) - Stocks in London ended sharply lower on Friday as fears over a potential rise in inflation kept US bond yields elevated.
In bond markets, the yield on the 10-year US Treasury edged up to 1.51%, from 1.48% at the same time Thursday. It briefly moved past 1.6% on Thursday - its highest level in over a year amid expectations for higher economic growth and inflation on the back of Covid-19 vaccine rollouts.
There is a worry that surging inflation could threaten the rally in world markets, despite reassurances from Federal Reserve Chair Jerome Powell that US interest rates will not rise for the foreseeable future.
The 10-year US yield is seen as a pure reading on economic growth prospects.
The FTSE 100 index closed down 168.53 points, or 2.5%, at 6,483.43 - finishing 2.0% lower since the week began.
The FTSE 250 ended down 287.75 points, or 1.4%, at 20,910.37, closing down 0.1% for the week. The AIM All-Share closed down 8.61 points, or 0.7%, at 1,183.25 - down 2.1% for the week.
The Cboe UK 100 ended down 1.6% at 644.59, the Cboe UK 250 also closed down 1.4%, at 18,624.14, and the Cboe Small Companies ended 0.4% lower at 123,786.29.
In Paris the CAC 40 ended down 1.4%, while the DAX 30 in Frankfurt ended down 0.7%.
IG Group's Chris Beauchap said: "From the look of afternoon trading in Europe and the opening moves in the US, it is clear that very few investors are willing to step up and buy the dip, at least for the time being. It is nearly the end of the week, and indeed the month, and, human nature being what it is, mostly people will have decided that the prudent course is to keep trimming back on risk and wait to see how things pan out next week, rather than jump in and spend the weekend fretting about new positions.
"The story is the same in both London and on Wall Street - miners, oil stocks and financials have borne the brunt of the selling, a breakdown in some of the key leaders of recent weeks and a sign that this market selloff is beginning to gather some real momentum."
Stocks in New York were mostly lower at the London equities close amid growing fears that an expected strong global economic recovery this year will fan inflation and force central banks to hike interest rates. However, the tech-heavy Nasdaq rebounded slightly following a brutal sell off on Thursday.
The DJIA was down 0.7%, the S&P 500 index down 0.1% but the Nasdaq Composite up 0.7%.
"With the US economic outlook boosted by pandemic improvement, vaccine distribution and the prospects of President Biden's fiscal package getting through Congress, investors are now fixated on the risk of inflation and economic overheating," said Tai Hui, at JP Morgan Asset Management. "Investors may not be fully convinced by the Federal Reserve's commitment to keep monetary policy loose for an extended period."
The analyst added that the rise in yields "serves as a trigger to investors who have been looking for a reason for an equity market correction. Volatility will continue but this could provide an interesting opportunity for investors to reload on equities".
In the FTSE 100, International Consolidated Airlines was the best performer up 5.7%, among three stocks to end in the green. The British Airways parent laid bare the damage being caused to travel operators by the Covid-19 pandemic, but still managed to beat market expectations.
IAG, which also owns Irish airline carrier Aer Lingus and Spain's Iberia, swung to a pretax loss in the fourth quarter of EUR1.61 billion from a EUR6 million profit in the fourth quarter of 2019.
IAG posted an operating loss before exceptional items in the fourth quarter of EUR1.17 billion, swung from a profit of EUR765 million a year before. Company-compiled consensus had expected IAG to post a EUR1.25 billion loss.
At the other end of the large-caps, Rightmove ended the worst performer, down 6.8%, after the property portal reported 2020 results that outperformed market expectations despite slipping below the prior year's.
Rightmove said revenue for 2020 was down 29% to GBP205.7 million, reflecting the discount support offered to its customers for the period from April to September 2020. The company's 2020 pretax profit fell to GBP134.8 million from GBP213.6 million posted for 2019.
Average revenue per advertiser was down 28% in 2020 to GBP778 per month from GBP1,088 per month in 2019. Consensus has guided for revenue of GBP201.6 million, while the average revenue per advertiser was forecast to be GBP773.
Risk-asset miners were also caught up in the wider market sell off with Anglo American down 6.1%, Glencore down 4.7%, and Rio Tinto down 4.5%.
Oil majors BP, Royal Dutch Shell 'A' and 'B' ended off 4.2%, 3.3% and 3.9% respectively, tracking spot oil prices lower.
Brent oil was quoted at USD66.10 a barrel at the equities close, down from USD66.90 at the close Thursday.
Scottish Mortgage Investment Trust recouped some of its earlier losses to end 5.1% lower as the Nasdaq rebounded. Scottish Mortgage - which holds investments in tech firms such as Amazon.com and Tesla - was tracking the tech-heavy Nasdaq Composite which closed down 3.5% in New York on Thursday.
RSA Insurance Group closed down 0.1% as the insurer reported its last annual results as a London-listed company.
In mid-November, RSA had agreed to be sold in a deal with a two-headed consortium which valued the insurer at GBP7.2 billion. The deal will see the insurer divided between Canada's Intact Financial Corp and Scandinavian insurer Tryg.
For 2020, the London-headquartered general insurance company recorded pretax profit of GBP483 million, down 1.8% compared to GBP492 million in 2019.
The dollar was in the green against major counterparts on Friday as investors flocked to its safe-haven allure, amid the rise in bond yields.
The buck was also buoyed ahead of Congress later Friday voting on US President Joe Biden's massive USD1.9 trillion economic rescue package. The recent stimulus package included USD600 checks to mostly low-income and some middle-income Americans.
The pound was quoted at USD1.3940 at the London equities close, down sharply from USD1.4130 at the close Thursday and falling further from a near three-year high of USD1.4206 reached midweek.
The euro stood at USD1.2111 at the European equities close, sharply lower from USD1.2230 late Thursday. Against the yen, the dollar was trading at JPY106.62, up from JPY106.22 late Thursday.
Gold was quoted at USD1,728.20 an ounce at the London equities close, lower against USD1,778.65 late Thursday.
The economic events calendar on Monday has manufacturing PMI readings from Germany, the eurozone and the UK at 0855 GMT, 0900 GMT and 0930 GMT respectively.
The UK corporate calendar on Monday has annual results from distribution firm Bunzl.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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