LONDON MARKET CLOSE: Equities end week unnerved by US rate hike worry

(Alliance News) - Stock prices in Europe ended lower on Friday, as the prospect of a chunkier 50 basis point interest rate lift-off by the US Federal Reserve unsettled global markets at the end of a decent week for equities.

The CAC 40 in Paris saw the worst of the declines in Europe, though London's FTSE 100 and the blue-chip DAX 40 in Frankfurt came off session lows in the afternoon. However, equity markets remain discouraged as investors weigh up the possibility of hefty 50bp rate hike from the Federal Reserve next month.

The FTSE 100 index closed down 11.38 points, or 0.2%, at 7,661.02 on Friday. London's large-cap measure added 1.9% this week, however.

The mid-cap FTSE 250 index closed down 159.04 points, or 0.7%, at 22,048.71. The AIM All-Share index ended down 7.46 points, or 0.7%, at 1,084.27.

The FTSE 250 rose 1.6% this week, while the AIM All-Share lost 0.2%.

The Cboe UK 100 index ended down 0.2% at 760.46 on Friday. The Cboe 250 closed down 0.7% at 19,748.57, and the Cboe Small Companies ended marginally lower at 15,690.83.

In mainland Europe, the CAC 40 in Paris closed down 1.3%, while the DAX 40 in Frankfurt ended down 0.4%.

"Having started the day very much on the back foot, after yesterday's steep falls in the US, European markets have clawed back the worst of the day's losses, with the FTSE 100 finishing higher for the second week in a row. The rest of Europe has also seen a positive week, despite today's pullback, buoyed by the ability of most companies to be able to pass on price rises and maintain their earnings guidance thresholds." CMC Markets analyst Michael Hewson commented.

At the time of the closing bell in London, equities in New York were mixed. The Dow Jones Industrial Average was up 0.1%, though the S&P 500 was down 0.2%, and the Nasdaq Composite was 0.6% lower.

Remarks from Fed official James Bullard, who said he wanted to see interest rates lifted one percentage point by the start of July, disheartened the mood at the end of the week.

The St Louis Fed boss said he was in favour of a 50 basis point lift next month – double the usual rise and the first since 2000 – and two more after that.

BBH Global Currency Strategy analysts commented: "Fed tightening expectations remain elevated. [World Interest Rate Probability] suggests over 80% odds of a 50 bp move next month, followed by 25 bp hikes May 4 and June 15 mostly priced in that would take the rate up 100 bp by mid-year. If the market expects a 50 bp move next month, then the Fed would have little choice but to deliver. Otherwise, it risks roiling the markets even more."

The dollar was stronger against major counterparts. The euro was trading at USD1.1406 at the European equities close on Friday, down from USD1.1488 late Thursday. Against the yen, the dollar was quoted at JPY115.89, up from JPY115.84.

Sterling fetched USD1.3601 late Friday, up from USD1.3629 on Thursday.

Despite a weaker end to the year due to the Omicron wave of virus infection, figures on Friday showed that the UK economy staged an impressive rebound in 2021 after a pandemic-battered 2020.

For 2021 overall, the Office for National Statistics said gross domestic product increased by 7.5% following a 9.4% fall in 2020.

GDP shrank 0.2% month-on-month in December, beating forecasts after expectations of a 0.6% decline, according to market consensus cited by FXStreet. This still marked a deterioration from growth of 0.7% in November.

AJ Bell analyst Danni Hewson commented: "Many businesses called it 'lock down by stealth' and concerns about the Omicron variant did take a toll on the UK economy in December. People made tough choices as they fought to have a Christmas with family and friends. They cancelled restaurant bookings and hair appointments and stayed away from high street stores.

"Will 2022 see the UK quickly shake itself off after December's blip or will supply constraints and those rising prices keep the lid on things? One percent growth in Q4 is pretty good going when you think about those empty high streets dressed up for a Christmas party that never took place. Household consumption has been a key factor in the UK's growth story, the question is will households still have the firepower as additional budget pressures exert a choke hold."

In London, British American Tobacco shares rose 3.0%. The London-based maker of cigarettes and other smoking products reported pretax profit for 2021 of GBP9.16 billion, up 5.7% from GBP8.67 billion a year prior. This was helped by a 15% reduction in net finance costs to GBP1.49 billion from GBP1.75 billion.

Revenue slipped 0.4% to GBP25.68 billion from GBP25.78 billion.

Segmentally, New Categories - which include vapour and oral products - saw revenue rise 42% to GBP2.05 billion from GBP1.44 billion. Combustibles - which include traditional smoking products - revenue fell 3.2% to GBP22.03 billion from GBP22.75 billion.

AJ Bell analyst Russ Mould commented: "Obituaries for the tobacco sector have been written before and some high profile fund managers made their bones in the 1990s by going against the grain and investing in the space, making a lot of money from a subsequent smoking run for cigarette stocks. However, will any reprieve be temporary this time? The shift in regulation, consumer habits and the increasing importance of ethics in investing all count against the sector."

Tate & Lyle topped the mid-cap FTSE 250 index, as shares rose 6.6%. The food and beverage ingredients maker said third-quarter trading was in line with expectations and its outlook is unchanged.

Food & Beverage Solutions revenue grew 19% at constant currency in the three months to December 31, while Sucralose revenue was up 8%. For total continuing operations, revenue grew 18%.

Anglo American spin-off Thungela Resources advanced 9.9%. The coal miner said it expects to swing to annual profit following a surge in coal prices in 2021.

Elsewhere in London, metals processing company Jubilee Metals added 4.8%, after Berenberg initiated coverage of the stock at 'buy'.

Gold was quoted at USD1,834.21 an ounce late Friday, lower than USD1,839.85 on Thursday. Brent oil was trading at USD93.16 a barrel, up from USD92.78.

Monday's economic calendar is light, though the week will pick up speed with a UK unemployment report and EU GDP reading on Tuesday. UK inflation data for January is reported on Wednesday.

Monday's UK corporate calendar has a trading statement from Greater Manchester-based consumer brands owner UP Global Sourcing Holdings PLC.

By Eric Cunha; ericcunha@alliancenews.com

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