LONDON MARKET CLOSE: Stocks slide as US Fed still hangs over markets

(Alliance News) - It was depressing end to the week for stocks in London, with the prospect of rising US interest rates adding to disappointing UK retail sales data.

"It's been a disappointing end to the week for stock markets in Europe, with the after effects from Wednesday's Fed decision still reverberating, wiping out any prospect of gains in a week that saw new record highs for both the DAX and Stoxx600," CMC Markets Chief Market Analyst Michael Hewson said.

He continued: "In what can only be described as choppy trading conditions, sentiment was given an additional knock this afternoon on the back of comments from St Louis Fed President James Bullard who said he was leaning towards a US rate rise in 2022, much sooner than Wednesday’s changed 'dots' of two by the end of 2023."

James Bullard, president of the Federal Reserve Bank of St Louis, told CNBC that "I think it's natural that we've tilted a little bit more hawkish here to contain inflationary pressures."

The remarks came after Fed officials on Wednesday moved up their forecasts for raising interest rates.

The FTSE 100 index closed down 135.96 points, or 1.9%, at 7,017.47 on Friday - the blue chip index lost 1.8% this week.

The mid-cap FTSE 250 index ended 210.95 points, or 0.9%, lower at 22,324.19 - resulting in the benchmark losing 1.9% over the past 5 days.

The AIM All-Share index closed down 0.9% at 1,229.80.

The Cboe UK 100 index closed down 2.0% at 698.26. The Cboe 250 ended down 1.2% at 20,021.46, and the Cboe Small Companies lost 1.0% at 15,199.94.

In mainland Europe, the CAC 40 in Paris gave back 1.5%, while the DAX 30 in Frankfurt ended down 1.8%.

IG's Chief Market Analyst Chris Beauchamp said: "Heavy losses in Europe and in the US are being influenced by options expiry but the second half of this week has taken on a distinctly 'risk off' feel, as investors seek to reassess a host of assumptions now that the Fed has changed its own working and outlook for the year for monetary policy.

"Having seemed so dedicated to the idea of 'transitory' inflation and talking markets down that path for so much of 2021 thus far the world's most powerful central bank appears to have shied away from the implications of such a policy and instead has gone back to the usual playbook of worrying about inflation. This could signal the start of a much more volatile period for markets, certainly over the summer until the Jackson Hole conference, so today could be just the opener to a much tougher few weeks for equities."

In the US, Wall Street was taking its cue from the dire European session, covered in red at the equities close in London. The Dow Jones Industrial Average was down 1.3%, the S&P 500 down 1.1% and the Nasdaq Composite 0.9% lower.

The dollar was improving on Friday evening, as investors seek safe-haven assets.

"Today is a day for safe haven assets, which at the present time just means the US dollar. Everyone is rushing to the greenback in the wake of the Fed meeting, and this dramatic change of the tides is making itself felt across a host of assets. Even the declines in EURUSD and GBPUSD do not appear to be doing much for European stock markets, and instead we have a classic 'flight to safety' that has been brewing for around 48 hours and is gathering pace as the weekend looms," IG's Beauchamp said.

The euro traded at USD1.1854 at the London equities close on Friday, down sharply on USD1.1920 late Thursday. Against the yen, the dollar fell to JPY110.26 versus JPY110.30.

Sterling was quoted at USD1.3799, tumbling from USD1.3933 at the London equities close on Thursday.

In London, blue chip banks were bearing the brunt of the move out of risk-assets. Barclays lost 3.9%, Lloyds gave back 3.2%, StanChart 3.4%, HSBC 2.3% and NatWest 1.7%.

"Banks have slipped back as short-term rates rise and longer-term rates come down, flattening the bond curve." Hewson explained.

Oil majors came under pressure, tracking the price of oil lower. Royal Dutch Shell 'A' shares closed down 3.1%, while the 'B' shares lost 4.0% and peer BP gave back 2.7%.

Brent oil was trading at USD73.56 a barrel, falling against USD74.06 late Thursday.

AstraZeneca welcomed a Brussels court decision over its vaccine supply pact with the EU.

The Anglo-Swedish pharmaceutical firm ended flat on Friday.

The European Commission President Ursula von der Leyen, meanwhile, welcomed that the decision confirmed its stance that Astra did not live up to its commitments.

The EU was looking to sue the London-listed pharmaceutical group in a bid to force it to deliver 90 million more doses of its Covid-19 vaccine before July. Astra delivered only 30 million doses in the first quarter out of the 120 million it was contracted to supply.

The Anglo-Swedish pharmaceutical firm on Friday said the European Commission had requested 120 million vaccine doses cumulatively by the end of this month, and a total of 300 million by the end of September.

The judge at the Court of First Instance in Brussels, however, has ordered delivery of just 80.2 million doses by September 27 - a figure Astra expects to "substantially exceed" by the end of June given it has already supplied more than 70 million doses to the EU.

Astra said it now looks forward to "renewed collaboration" with the EC.

In the midcaps, Inchcape ended the best performer, up 4.6%, as it guided to a full-year profit beat.

Since its first quarter update in late-April, Inchcape has seen "encouraging trends", the automotive distribution, retailing and services company noted.

"The group's performance to date has exceeded our expectations. During the period we have seen our businesses benefit both from an uptick in demand and margin resilience," it said.

Inchcape expects annual pretax profit, before exceptional items, to top consensus forecasts of GBP216 million, so at least a 68% hike from GBP128.9 million in 2020.

Retail sales volumes fell 1.4% month-on-month in May, pulling back after a 9.2% surge in April. Mid-April saw the re-opening of non-essential retail in England after months of lockdown. Consensus, according to FXStreet, had expected growth of 1.6% for May.

The largest contribution to May's decline came from food stores, the Office for National Statistics noted, where sales fell by 5.7%. Evidence suggests the easing of hospitality restrictions diverted some spending to pubs and restaurants after months of eating and drinking at home.

Alongside the UK retail sales data came first-quarter results from Tesco, the country's biggest supermarket chain. They showed a slowdown in sales growth.

Like-for-like retail sales for the 13 weeks to May 29 grew 1.0% year-on-year to GBP13.36 billion, and rose 8.1% on a two-year basis. For the financial year ended February, like-for-like sales growth was 6.3%.

In March 2020, UK supermarkets began to get a pandemic-related boost as consumers stockpiled and were forced to spend more time at home due to lockdown restrictions.

Tesco closed down 3.8%.

Gold was quoted at USD1,775.60 an ounce Friday evening, slipping from USD1,768.00 on Thursday.

The international calendar next week will be headlined by the Bank of England, with a rate decision due next Thursday. The UK, like other countries across the globe, is contending with gathering price pressures as the economy starts to bounce back from last year's bruising lockdowns.

Figures earlier this week showed UK annual inflation in May topped the BoE's 2% target for the first time in nearly two years. The consumer price index jumped 2.1% on an annual basis in May, accelerating from 1.5% growth in April, to mark the fastest growth since July 2019. The BoE targets a 2% inflation rate.

A busy Wednesday has flash PMI reading for France, Germany, the eurozone, UK and the US. On Friday, the US Fed's main inflation benchmark, personal consumption expenditures price index data is due. Also worth keeping an eye on next week is the Fed's latest results of its 2021 stress tests on the US banking system.

The local corporate calendar on Monday has full-year results from Brandshield Systems and SysGroup.

By Paul McGowan; paulmcgowan@alliancenews.com

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