Stock prices were lower and the dollar higher early Friday, after a hotter-than-expected US inflation reading increased expectations for aggressive policy tightening by the Federal Reserve.
The FTSE 100 index was down 40.64 points, or 0.5%, at 7,631.76 early Friday. The mid-cap FTSE 250 index was down 175.93 points, or 0.8%, at 22,031.82. The AIM All-Share index was down 6.71 points, or 0.6%, at 1,085.02.
The Cboe UK 100 index was down 0.5% at 758.18. The Cboe 250 was down 0.8% at 19,743.02, and the Cboe Small Companies down 0.1% at 15,673.75.
In mainland Europe, the CAC 40 in Paris was down 0.7%, while the DAX 40 in Frankfurt was down 0.4% early Friday.
Data on Thursday showed US consumer prices rose at their fastest pace in 40 years in January, ramping up pressure on the US central bank to tighten monetary policy at its meeting next month.
On an annual basis, the US consumer price index rose 7.5% in January, picking up steam from a rise of 7.0% in December. The latest annual inflation rate was the highest since February of 1982 and was above market forecasts of 7.3%.
Lending substance to market concern about policy tightening, Fed official James Bullard said he wanted to see interest rates lifted by one percentage point by the start of July.
The St Louis Fed boss said he was in favour of a 50 basis point lift next month - double the usual 25 point 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.’
In New York on Thursday, Wall Street ended lower, with the Dow Jones Industrial Average down 1.5%, the S&P 500 down 1.8% and the Nasdaq Composite down 2.1%
Expectations of US rate hikes put the dollar on the front foot on Friday, even as data showed the UK economy fared better in December than feared.
UK GDP shrank 0.2% month-on-month in December, having been expected to tumble 0.6%, according to market consensus cited by FXStreet. However, this still marked a deterioration from growth of 0.7% in November.
Services output fell by 0.5% in December but remained 0.5% above pre-virus levels. The sector was dented by the Omicron variant in December, which saw a wave of hospitality cancellations as concern about the virus grew ahead of Christmas and swathes of the population had to self isolate.
In the fourth quarter of 2021, GDP grew 1.0% on a sequential basis, at this level 0.4% below pre-pandemic times, though the Office for National Statistics noted that December's GDP figure matched pre-coronavirus levels. November 2021 remains the first month that GDP recovered to above its pre-coronavirus levels, by 0.3%.
Sterling was quoted at $1.3564 following the data, down from $1.3629 at the London equities close on Thursday, amid overall dollar strength.
‘With inflation rising to its highest level since 1992 and the UK economy growing faster than expected, the case for another rate hike from the BoE in March is already priced in by most market participants,’ said Jesus Cabra Guisasola at Validus Risk Management.
The euro traded at $1.1389 early Friday, down from $1.1488 late Thursday in London. Against the yen, the dollar was quoted at ¥116.04, up from ¥115.84.
In China, the Shanghai Composite ended down 0.7%, while the Hang Seng index in Hong Kong closed down 0.1%. The S&P/ASX 200 in Sydney ended down 1.0%. Financial markets in Japan were closed for National Foundation Day.
Gold miners in London tumbled as they tracked the price of the metal lower. Precious metals miner Polymetal International fell 2.8% and peer Fresnillo declined 1.5%.
Gold was quoted at $1,826.41 an ounce early Friday, lower than $1,839.85 on Thursday.
‘Gold first rallied to $1,842 an ounce as a kneejerk reaction to the US inflation data then tanked to $1,820 as the rising US yields increased the opportunity cost of holding the non-interest-bearing gold and got investors to dump their positions,’ commented Ipek Ozkardeskaya, senior analyst at Swissquote.
At the top of the FTSE 100 was Antofagasta, the Chilean copper miner up 1.2% after Barclays upgraded the stock to Overweight from Underweight.
British American Tobacco edged up 0.3% after approving a £2 billion share buyback programme amid headway with its 'new categories' division in 2021.
Revenue for 2021 slipped 0.4% to £25.68 billion from £25.78 billion the year before, though pretax profit increased 5.7% to £9.16 billion from £8.67 billion. Profit was helped by lower finance costs and depreciation, amortisation & impairment costs.
Constant currency adjusted diluted earnings per share growth of 6.6% to 329.0 pence was at the top end of guidance, BAT said. It expects this to grow in the high-single figures in 2022.
The Dunhill cigarette maker highlighted that revenue from 'new categories' - such as vapour and tobacco heating products - grew well ahead of the group as a whole last year, up 42% to £2.05 billion. Non-combustible consumers grew by 4.8 million to 18.3 million and non-combustible products now account for 12% of group revenue, up from 4% in 2017.
Further, the ‘new categories’ division has a ‘clear pathway’ to profitability by 2025.
BAT lifted its annual dividend by 1.0% to 217.80p and set out plans for a £2 billion share buyback this year.
In the FTSE 250, Tate & Lye rose 7.2% after saying 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.
Victrex fell 3.7% despite a ‘solid’ start to its 2022 financial year. Revenue of £74.6 million in the three months to December 31 was up 9% on a year ago and sales volume of 1,025 tonnes was 16% ahead.
‘Expectations for the full year are unchanged at this early stage. Whilst we anticipate further volume improvement across several end markets, we are mindful of headwinds including currency, raw material costs and increasing energy inflation. Overall, we continue on plan to deliver year-on-year growth in FY 2022,’ said chief executive Jakob Sigurdsson.
However, he did flag that energy and raw material cost inflation mean that margin improvement may be held back, particularly in the second half.
Brent oil was trading at $91.25 a barrel on Friday, down from than $92.78 late Thursday but up 17% so far this year.
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