LONDON MARKET MIDDAY: Stocks Fall Gathers Speed As Rate Worries Mount

(Alliance News) - The FTSE 100's losses accelerated as Friday's session progressed, the blue-chip index shedding more than 85 points as worries mounted over rising inflation expectations and eventual interest rate hikes.

The FTSE 100 was down 86.19 points, or 1.3%, at 6,565.77 midday Friday. The mid-cap FTSE 250 index was down 233.17 points, or 1.1%, at 21,052.68. The AIM All-Share index was down 0.7% at 1,183.79.

The Cboe UK 100 index was down 1.3% at 654.54. The Cboe 250 was down 1.2% at 18,665.08, and the Cboe Small Companies down 0.1% at 13,193.57.

In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were down 0.8% and 0.7% respectively Friday afternoon.

"Investors are clearly still concerned about inflation risks as US government bond yields continue to spike," said AJ Bell investment director Russ Mould.

"This was reflected in a significant sell-off overnight in the US and Asian markets," Mould said. "US Federal Reserve chief Jay Powell has done his best to allay concerns about the prospect for interest rate hikes but it appears the market is unconvinced."

US Fed Chair Jerome Powell has appeared in Congress twice this week, both times offering reassurances that monetary policy will remain loose for an extended period of time. However, this has failed to calm markets, amid widening bond yields as vaccine rollouts accelerate and investors eye a brighter economic outlook.

Wall Street is set for further falls on Friday, with the Dow Jones called down 0.2%, the S&P 500 down 0.1% and the Nasdaq Composite down 0.3%.

Scottish Mortgage Investment Trust remained the worst performer in London's FTSE 100 on Friday, losses accelerating to see the stock tumble 7.4% at midday. 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.

Also lower in the FTSE 100 at midday was Rightmove, down 4.6% as it reported a fall in profit for 2020.

The online real estate portal operator 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.

"The UK housing market has, for the most part, shaken off pandemic-related challenges to forge an optimistic start to 2021. In the absence of further economic shocks, we think it is likely that the current shortage of new listings will correct once the immediate lockdown is lifted and will have no lasting impact on estate agency branch numbers," said Rightmove.

At the top of the blue-chips was British Airways-parent International Consolidated Airlines, up 3.4% even as it reported a hefty loss for 2020.

For the whole of 2020, IAG suffered an operating loss before exceptional items of EUR4.37 billion, swinging from a EUR3.29 billion profit in 2019. It was forecast to post a EUR4.45 billion loss by this measure.

Total revenue for 2020 slumped 69% to EUR7.81 billion, while the company swung to a pretax loss, also of EUR7.81 billion, from a EUR2.28 billion profit in 2019.

"These results from IAG really do bring out just how painful the last year has been for the airline industry," said Jack Winchester, analyst at Third Bridge.

"Investors have been willing to plug IAG's finances on the assumption of an eventual recovery, but when the dust settles we are likely to see that low cost carriers like Ryanair and Wizz Air have come out of 2020 in far better shape," he noted.

The best performer in the FTSE 250 was Pets at Home, up 4.3% after upgrading profit guidance.

The pet care company said it now anticipates full-year underlying pretax profit, including the previously announced repayment of business rates relief of GBP28.9 million, to be GBP85 million, which is ahead of its previous guidance of at least GBP77 million. For the year to the end of June 2020, Pets At Home posted underlying pretax profit of GBP99.5 million.

The company explained that its previous guidance guidance reflected a number of ongoing uncertainties over the near-term outlook, including renewed challenges from higher Covid infection rates and restrictions on a national level, as well as potential supply disruption relating to the UK's exit from the EU.

Still to come in Friday's economic calendar is the US goods trade balance at 1330 GMT, with core personal consumption expenditures due at the same time.

In currency markets, the dollar gained ground against major rivals amid Friday's risk-off mood.

"The US dollar is on the front foot once again, gaining ground to risk-related currencies such as the euro and the pound," said Ricardo Evangelista, senior analyst at ActivTrades.

"The strength of the greenback arrives on the back of developments in the bond market, where investors are clearly pricing-in the heightened chances of an inflation spike occurring later in the year," said Evangelista. "Despite the continued dovish stance from the Fed, with its chairman reiterating on Wednesday that the current accommodative monetary policy and purchase programs will be maintained until the economy has fully recovered, investors don't seem convinced and appear determined to close any exposure to low yielding debt before inflation starts rising."

The pound backed down from above the USD1.40 mark, with sterling quoted at USD1.3911 midday Friday, tumbling from USD1.4130 at the London equities close on Thursday. The euro fell to USD1.2100 from USD1.2230 late Thursday.

The dollar was quoted at JPY106.39, up from JPY106.22 last Thursday.

Gold failed to capitalise on the risk-off mood as the dollar strengthened. The safe-haven precious metal was quoted at USD1,759.99 an ounce on Friday, lower than USD1,778.65 on Thursday.

Oil prices also slipped, with Brent easing to USD66.33 a barrel from USD66.90 late Thursday and dragging down London-listed oil majors with it. BP shares were down 3.3% at midday, while Royal Dutch Shell 'A' and 'B' shares were down 2.2% and 2.4% respectively.

By Lucy Heming; lucyheming@alliancenews.com

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