Stock markets on Friday were giving back some of the gains built up during the past week, as investors took on board the likelihood of fast action by the US Federal Reserve and other central banks to rising inflation.
The FTSE 100 index was down 56 points or 0.7% at 7,616 points midday Friday. London's large-cap measure remained up around 1% for the week as a whole.
The mid-cap FTSE 250 index was down 222 points, or 1.0%, at 21,985 points. The AIM All-Share index was down 6 points, or 0.5%, at 1,086 points.
In mainland Europe, the CAC 40 in Paris was down 1.2%, while the DAX 40 in Frankfurt was down 0.5% on Friday.
'It's been quite a week for the markets with a shock from US inflation growing faster than expected, and now we've got confirmation that Omicron tripped up the UK economy in December, albeit by a smaller amount than forecast,' said Russ Mould, investment director at AJ Bell.
U.S. RATES IN FOCUS
Data on Thursday showed US consumer prices rose at their fastest pace in 40 years in January, ramping up pressure on the Federal Reserve to tighten monetary policy at its meeting next month.
Markets have been under pressure since the start of 2022 as the prospect of central bank tightening loomed large, with heat ramping up in recent weeks as investors weigh up the possibility of hefty 50 basis point rate hikes from the Federal Reserve.
Remarks from Fed official James Bullard, who said he wanted to see interest rates lifted one percentage point by the start of July, dented stocks in New York on Thursday. 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.
'I'd like to see 100 basis points in the bag by July 1,' Bullard, who has a vote on policy this year, told Bloomberg News. 'I was already more hawkish but I have pulled up dramatically what I think the committee should do.'
Bank of America expects a 25 basis point rate hike from the Fed next month, but said the risk of 'one or two 50bp hikes out of the gate is rising'.
U.K. GROWTH REBOUND
Jitters flowed into Europe on Friday, with losses throughout the FTSE 100 in London. London Stock Exchange Group was the worst performer, falling 3.8%, while gold miners Polymetal International and Fresnillo were hammered as the price of the precious metal dropped.
Gold was quoted at USD1,825.90 an ounce on Friday at midday, lower than USD1,839.85 on Thursday.
The safe haven metal suffered amid dollar strength, with investors looking to a US interest rate hike next month. Major currency pairings weakened versus the greenback, with sterling quoted at USD1.3557 at midday, down from USD1.3629 at the London equities close on Thursday.
The pound failed to get a meaningful boost after data showed the UK economy fared better than feared at the end of 2021.
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.
For 2021 overall, the Office for National Statistics said gross domestic product increased by 7.5% following a 9.4% fall in 2020.
While the result 'doesn’t look bad at all' given the Omicron hit at the end of the year, Dutch bank ING said the bigger challenger is the cost of living crunch facing the UK.
'Disposable incomes are set to decline noticeably this year on a combination of tighter fiscal policy and to a greater extent, higher inflation...Economic growth rates are likely to slow later this year,' said ING's James Smith.
The euro traded at USD1.1389 on Friday, down from USD1.1488 late Thursday in London. Against the yen, the dollar was quoted at JPY115.98, up from JPY115.84.
Brent oil was trading at USD91.25 a barrel on Friday, down from USD92.78 late Thursday.
MARKET MOVERS
Back in London, Antofagasta shares rose 2.3% after Barclays raised the miner to Overweight from Underweight.
Tate & Lyle shares rallied 7.9% after 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%.
'We enter 2022 in a strong position. Our new business pipeline in Food & Beverage Solutions is healthy and in both our businesses we have renewed 2022 calendar year customer contracts that offset inflation. In addition, the transaction we announced last year to create two focused businesses is progressing well and we remain on track for completion at the end of March,' said Chief Executive Nick Hampton.
Shares in Aston Martin Lagonda fell 4.6%. The executive chair of Aston Martin said the luxury sports car maker does not need to raise new funds, despite admitting to delays in the production of its Valkyrie hypercars, the Financial Times reported on Thursday.
'We don't need any more money at all,' Lawrence Stroll said, according to the newspaper. 'Let me be crystal clear, black and white: we do not need money, and car sales are on track.'
Less positively, Stroll said the Valkyrie, which will be priced at GBP2.5 million each, are taking longer than expected to build due to their complexity.
Thungela Resources rallied 11% after the coal miner said it expects to swing to annual earnings following a surge in coal prices in 2021.
The Anglo American spin-off, which has operations in South Africa, expects 2021 earnings per share between ZAR60.32 and ZAR61.27, bouncing back from a ZAR5.31 loss in 2020. This came on the back of stronger coal prices in the year as a global energy crunch caused prices to rocket to a high of USD274.50 per tonne in October from USD69.00 at the start of 2021.
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