Sterling fell to its lowest level against the dollar in nearly four decades on Friday, lending support to the FTSE 100 index, after the report of a sharp drop in UK retail sales last month.
The measure of large-cap London stocks was up 13.72 points, or 0.2%, at 7,295.79 midday Friday. A weaker pound will make the dollar earnings of FTSE 100 constituents more valuable upon conversion.
The mid-cap FTSE 250 index was down 63.85 points, or 0.3%, at 18,822.47. The AIM All-Share index was down 4.43 points, or 0.5%, at 862.95.
The Cboe UK 100 index was up 0.1% at 728.61. The Cboe 250 was down 0.3% at 16,208.76, and the Cboe Small Companies down 0.3% at 13,571.26.
Key stock indices in mainland Europe were faring much worse. The CAC 40 in Paris was down 1.2%, while the DAX 40 in Frankfurt was down 1.5%.
‘Investors have become increasingly nervous about the scale and pace of interest rate hikes after the recent bout of inflation data, and next week we have some serious decisions to be made by some of the most important central banks,’ said Russ Mould, investment director at AJ Bell.
Due on Wednesday is an interest rate decision from the Federal Reserve, with a hotter-than-expected US inflation print earlier this week raising the stakes for the September policy meeting.
Analysts now see the risk of a 100 basis point rate hike from the Fed next week, though the majority still expect a more moderate, but still outsized, 75 basis point increase.
Then, on Thursday, comes the turn of the Bank of England.
The meeting was due to be held Thursday just gone but was postponed due to the death of Queen Elizabeth II. This has meant the central bank will have had some extra time to mull a raft of UK data released this week, which painted a mixed picture of the economy.
Released earlier on Friday, figures showed UK retail sales slumped far more than expected in August.
Sales fell 1.6% month-on-month, far worse than the forecast 0.5% decline, according to FXStreet-cited consensus. This reversed a 0.4% rise in July.
The ONS said August’s data continued ‘a downward trend since summer 2021 following the lifting of restrictions on hospitality; in recent months, rising prices and cost of living are also affecting sales volumes.’
Societe Generale’s Kit Juckes commented: ‘They are now lower than they were in January 2020 and on one measure at least (the 12-month/12-month change) this is the worst run of data since 1992, which is ominous.’
The UK data and a rising dollar left the pound struggling. It was trading at its lowest level since 1985. Sterling was quoted at $1.1391 midday Friday, down from $1.1494 at the London equities close on Thursday.
A stronger dollar also hammered gold prices. Gold was quoted at $1,661.87 an ounce at midday, down from $1,667.03 on Thursday.
This, in turn, knocked the share price of precious metals miner Fresnillo, down 3.1% at midday.
Industrial miners were lower over global recession fears, with Glencore down 2.9%, Antofagasta down 2.0% and Anglo American down 1.7%.
The week’s worrying data was compounded by a recession warning from the World Bank on Thursday.
The worst case scenario described in a paper released on Thursday would entail a recession in advanced economies, and sharp declines in growth in emerging and developing economies. ‘The global economy is now in its steepest slowdown following a post-recession recovery since 1970,’ the World Bank said.
Wall Street futures are pointing towards further losses, with the Dow Jones called down 0.8%, the S&P 500 down 0.9%, and the Nasdaq Composite down 1.1%.
The euro traded at $0.9976 on Friday in London, lower than $0.9996 late Thursday. Against the yen, the dollar was quoted at JP¥143.24, down from JP¥143.36.
Brent oil was trading at $91.22 a barrel, up from $90.04 late Thursday.
Back in London, FTSE 250-listed Jupiter Fund rose 5.4% after an upgrade to ‘neutral’ from ‘sell’ by UBS. ‘While we still forecast headwinds to Jupiter’s business (and a cut to its progressive dividend policy), we would argue these headwinds are priced into the shares at their current level,’ said UBS.
Royal Mail slumped 11% after being cut to ‘neutral’ from ‘overweight’ by JPMorgan.
Naked Wines rose 4.4% on AIM. The online wine retailer named founder, former chief executive and shareholder Rowan Gormley as an advisor, just days after it announced it would undertake a strategy review.
The position of board advisor is unpaid, it said, and is expected to last for two to three months. Gormley owns a 2.9% stake in the online wine retailer.
Naked Wines on Tuesday had said it was mulling plans to improve profit and keep a lid on costs as it grapples with slower sales progress due to pandemic tailwinds unwinding.
‘This appointment does not change our stance, and we believe the business is in a precarious position,’ cautioned investment bank Liberum.
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