Interest rate worries kept European markets in the red on Friday, while news of the UK averting a recession failed to boost stocks in London.
A worrying outlook for the UK economy clouds over investor sentiment. A tiny revision to the fourth quarter could result in the UK being in a technical recession.
Elsewhere, eyes were on the US bond market, as the inversion of the treasury yield curve - once seen as a precursor to a recession - deepens.
The FTSE 100 index closed down 28.70 points, or 0.4%, at 7,882.45. London’s blue-chip benchmark achieved a record high on Thursday, but is 0.2% lower than it was last Friday.
The FTSE 250 closed down 247.27 points, or 1.2%, at 20,030.07, and the AIM All-Share ended down 6.45 points, or 0.7%, at 874.39.
For the week, the FTSE 250 slipped 2.7% and the AIM All-Share lost 1.7%.
The Cboe UK 100 closed down 0.5% at 788.29, the Cboe UK 250 lost 1.4% to 17,466.59, and the Cboe Small Companies ended down 0.3% at 14,097.73.
In European equities on Friday, the CAC 40 in Paris closed down 0.8%, while the DAX 40 in Frankfurt slumped 1.4%.
The dollar was stronger as the week draws to a close. The pound bought $1.2072 at the time of the London equities close on Friday, down from $1.2154 at the same time on Thursday. The euro stood at $1.0677, lower against $1.0750. Against the yen, the dollar was trading at JP¥131.44, higher compared to JP¥131.10.
According to a first estimate from the Office for National Statistics, UK gross domestic product saw no growth in the fourth quarter from the third. This follows a revised contraction of 0.2% in the third quarter from the second.
It means the UK avoided a technical recession, which is defined as two consecutive quarters of economic shrinkage.
The outlook for the UK economy is anything but promising, however, hitting sterling.
In London, share price gains for Shell and BP, on the back of rising Brent prices, prevented the FTSE 100 from suffering an even worse fall on Friday. Shell added 3.0% and BP rose 2.6%.
Brent oil was quoted at $86.41 late Friday in London, up from $83.73 late Thursday.
Russia announced Friday it will slash crude oil output by 5% next month after Western countries imposed a price cap over the Ukraine conflict.
International crude prices surged after Deputy Prime Minister Alexander Novak said that Russia would ‘voluntarily’ reduce production by 500,000 barrels per day in March.
SPI Asset Management analyst Stephen Innes commented: ‘Novak certainly feels the pulse of the oil markets, as the intervention comes on the heels of the street’s biggest bull (Goldman Sachs) downgrading their 2023 forecast, ironically because of more supply coming from Russia than expected.
‘Despite the intervention, there is a good chance we have seen the high oil price in H1 due to significantly increasing US recession odds and a far more hawkish Fed than expected. Given China’s lack of organic growth, signalling a slower consumption recovery, it is doubtful we will get that slingshot rebound in Q2. We now see Brent trading back to $78 [a barrel] in Q1 before rising to $82 in Q2 as balances get tighter.’
Back in London, AstraZeneca extended gains, rising 1.8% and helping the FTSE 100 avoid suffering a bigger fall at the end of the week. The stock had closed up 4.1% on Thursday.
Weighing on the index, however, Standard Chartered lost 5.0% as First Abu Dhabi Bank repeated that it has no plans to make a takeover offer for the lender.
FAB said on Friday that its stance had not changed since early last month, when it said it ended ‘very early stages’ of evaluating a possible offer for StanChart.
Wealth managers also hurt the index, with abrdn sliding 4.0%, St James’s Place losing 2.3% and M&G declining 2.2%.
HSBC predicted a tough outlook for the sector. It cut abrdn to ’reduce’ but maintained the ’hold’ and ’buy’ ratings for St James’s and M&G, respectively.
Elsewhere in London, Itim plunged 20% after it said annual earnings will fall short of market expectations.
The London-based click-and-collect software firm said earnings before interest, tax, depreciation and amortisation are expected to be £200,000 below current market expectations, at about £200,000, collapsing by more than 90% from £2.2 million in 2021.
Itim said this was due to its increased cost base after self-financing its projects to drive growth, offering transitions to its platform free of charge.
Stocks in New York were mixed at the time of the closing bell in London on Friday. The Dow Jones Industrial Average was up 0.3%, the S&P 500 index edged up 0.1%, though the Nasdaq Composite was down 0.6%.
Eyes were on the US bond markets on Friday, as the inversion of the treasury yield curve deepened on Thursday. The 10-year bond traded at a 3.73% yield around 1630 GMT, the five-year a 3.92% yield and the two-year at a 4.51% yield.
A normal yield curve would show that bonds with a longer maturity offer higher yields, while instruments with shorter maturity offer less chunky rewards. The opposite is true with an inverted yield curve - shorter-dated bonds pay more than those with a longer maturity.
SPI’s Innes commented: ‘Indeed, the yield curve inversions are scaring bulls back to the pen, while new-year hibernating bears are stirring again. The [two to 10] treasury yield curve inverted by 85 basis points, the deepest inversion since the early 1980s, is waving multiple red flags about economic dangers just as investors price in a more hawkish Federal Reserve.’
Gold was quoted at $1,858.39 an ounce late Friday, lower against $1,873.46 on Thursday.
In a quiet economic calendar on Monday, Federal Reserve Governor Michelle Bowman speaks at 1300 GMT.
The week picks up pace with eurozone GDP and unemployment readings on Tuesday, US inflation later that day, before UK consumer price index on Wednesday.
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