Equity markets went into Friday afternoon in negative territory, hurt by US interest rate worries, weaker China data, and escalating tensions in the Middle East.
Thursday’s US inflation data did little to soothe ‘higher for longer’ interest rate worries. Conversely, the inflation reading from China was tepid, adding to growth fears there.
Israel, meanwhile, sent an order for citizens to evacuate Gaza, as the precarious geopolitical situation in the Middle East continues.
The unease hurt equities but boosted gold. Fears of a conflict escalation supported oil.
The FTSE 100 index was down 27.77 points, 0.4%, at 7,617.01. Despite the unease emanating through global markets, the blue-chip index is up roughly 1.7% so far this week.
The FTSE 250 slumped 185.57 points, 1.0%, at 17,650.12, and the AIM All-Share was down 2.51 points, 0.4%, at 693.06.
The Cboe UK 100 fell 0.4% to 760.79, the Cboe UK 250 lost 1.2% at 15,303.20, and the Cboe Small Companies was down 0.5% at 12,836.09.
In European equities on Friday, the CAC 40 in Paris was down 0.8%, while the DAX 40 in Frankfurt was down 1.0%.
Stocks in New York are called to open lower. The Dow Jones Industrial Average is called down 0.2%, the S&P 500 down 0.3% and the Nasdaq Composite 0.6% lower.
The mood was downbeat after data on Thursday showed the US yearly inflation rate was unmoved at 3.7% in September. It had been expected to cool to 3.6%, according to FXStreet-cited consensus.
While the Federal Reserve is still expected to stand pat next month, the CME FedWatch Tool predicting a 90% chance the federal funds rate is left unchanged at 5.25%-5.50%, hotter inflation readings may mean rates stay in lofty territory for longer.
Swissquote analyst Ipek Ozkardeskaya commented: ‘The Fed is expected to sit on its hands, wait and see. But the first Fed rate cut won’t come so soon, and the Fed will try to capitalize on the ’higher for longer’ policy to avoid having an accident on what they call ’the last mile’. The Fed is expected to cut rates in July next year. The expectation was for June before yesterday’s CPI data. Activity on Fed funds futures still gives more than 90% chance for a no action in November, and around 70% chance for a no action in December.’
Elsewhere in the central banking space, the governor of the Bank of England said things in the UK look better than they did a year ago in a nod to the mini-budget chaos of last autumn.
Governor Andrew Bailey also said he expects decisions on interest rates to continue being close calls.
He said there are signs inflation is coming down, but there is much left to do. He said the bank’s policy will continue to be ‘restrictive’.
Bailey added: ‘We have made, I think, particularly in the last few months, solid progress in terms of showing signs that inflation is being tackled. But let’s not get carried away because there’s an awful lot still to do.’
Bailey said last month’s decision to keep interest rates at 5.25% was ‘a tight one’ and predicted ‘they’re going to go on being tight ones’.
Sterling was quoted at $1.2173 early Friday afternoon, lower than $1.2209 at the London equities close on Thursday. The euro traded at $1.0519, down from $1.0547. Against the yen, the dollar was quoted at JP¥149.61, down versus JP¥149.77.
Also leaving markets uneasy was less-than-stellar data from China.
Official consumer price inflation data showed prices for goods and services remained unchanged in September compared to the same month last year, a warning signal of impending deflation. Analysts had expected a slight price increase, after annual inflation of 0.1% in August.
Meanwhile, Chinese trade also continued to slump, but improved from the previous month. The National Bureau of Statistics said exports fell 6.2% annually in September, which was less severe than the FXStreet-cited market consensus of an 8.3% fall. It was also softer than the 8.8% decline seen in August. Imports fell 6.2% from the year before, which was slightly worse than forecasts of 6.0%. Imports had fallen 7.3% in August.
Asia-focused insurer Prudential fell 2.4%, while lender Standard Chartered lost 1.5%.
Adding to the wall of worry for equities are developments in the Middle East.
The Israeli military on Friday dropped flyers on Gaza warning residents to flee ‘immediately’ to the south, AFP correspondents in the Palestinian territory said.
‘Evacuate your homes immediately and go south of Wadi Gaza,’ read flyers dropped by drones and seen by AFP.
A map featured on the flyers showed an arrow pointing south across a line in the central Gaza Strip.
ActivTrades analyst Pierre Veyret commented: ‘Risk appetite decreased for the week’s last trading session as investors feared a military escalation in the Middle East after Israel seemed to brace for a ground invasion in Gaza.’
Veyret noted the geopolitical unease is boosting gold, however.
Gold was quoted at $1,888.18 an ounce early Friday afternoon, higher than $1,871.43 on Thursday. Gold miner Endeavour Mining tracked the precious metal higher, climbing 2.1% in London.
Veyret added: ‘Growing tensions in the Middle East are also driving greater demand for bullion as investors begin to price in the disruptive impact that an escalation in the conflict between Israel and Hamas may have in the financial markets.’
The precarious situation in the Middle East also lifted Brent oil. The North Sea benchmark was trading at $89.00 a barrel midday Friday, up sharply from $86.58 on Thursday.
Back in London, St James’s Place slumped 15%. It responded to media reports that it is under pressure to change its fee and charges structures for clients.
The wealth manager said it was continuing to build on the work completed for Consumer Duty, as previously disclosed, which includes an assessment of its fees and charging models. SJP said it was ‘engaging with all of [its] primary regulators during this process’.
It added: ‘Whilst the evaluation has not yet been completed and therefore no decision has been made, we are confident that all the options under consideration will ensure value for clients and a strong, secure, and sustainable business for all stakeholders.’
The Financial Times had reported SJP was facing pressure from regulators to change its fee structure, with critics citing ‘opaque and expensive charges’ for financial advice, as well as ‘stiff penalties’ for early withdrawals.
Avon Protection added 7.9%. The personal protection equipment company said trading the second half to September 30 was stronger than the first. Its order book at year-end was 10% higher annually, with strong demand for helmets offsetting softness in Respiratory demand.
Over in New York, JPMorgan was in focus after releasing third-quarter results.
JPMorgan was up 0.1% in pre-market dealings in New York. It said reported net revenue in the third-quarter of 2023 rose 22% to $39.87 billion from $32.72 billion.
Net income surged 35% to $13.15 billion from $9.74 billion.
Though the headline figures were a year-on-year improvement, the results were tinged by a warning from Chief Executive Jamie Dimon.
‘We still do not know the longer-term consequences of quantitative tightening, which reduces liquidity in the system at a time when market-making capabilities are increasingly limited by regulations. Furthermore, the war in Ukraine compounded by last week’s attacks on Israel may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships. This may be the most dangerous time the world has seen in decades. While we hope for the best, we prepare the firm for a broad range of outcomes, so we can consistently deliver for clients no matter the environment,’ Dimon added.
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