Stock prices in London were lower on Friday morning following comments from the US Federal Reserve, with Chair Jerome Powell indicating that further interest rate hikes are on the table if needed.
The FTSE 100 index opened down 38.88 points, 0.5%, at 7,416.79.
The FTSE 250, widely considered to be the ‘domestic barometer’ in the UK, sank 442.09 points, 2.5%, at 17,595.76. Official data revealed the UK economy flatlined in the third quarter, though the print was better than market expectations of a slight contraction.
The AIM All-Share was down 0.96 of a point, 0.1% at 703.30.
The Cboe UK 100 was down 0.8% at 738.46, the Cboe UK 250 was down 1.2% at 15,444.04, and the Cboe Small Companies was down 0.1% at 12,818.54.
In European equities on Friday, the CAC 40 in Paris was down 0.5%, while the DAX 40 in Frankfurt was down 0.4%.
In local news, the UK economy fared better than expected in the third quarter, avoiding a contraction, but made no progress either, according to figures from the Office for National Statistics.
In the third quarter, the ONS estimates that UK gross domestic product registered no growth on a quarterly basis and was flat on the second quarter. The estimate was better than the FXStreet-cited market consensus of a 0.1% contraction. In the second quarter, GDP grew 0.2% from the first quarter.
Services sector output fell 0.1% over the third quarter, which entirely offset a 0.1% increase in construction output. Production sector output was broadly flat, the ONS explained.
‘No growth is not exactly the kind of headline any government wants but with this last lot of GDP figures the UK economy has at least avoided falling into a technical recession this year,’ said AJ Bell’s Danni Hewson.
‘And despite strikes on the railways and by junior doctors, September did deliver a sliver of growth as this year’s Covid vaccine programme was rolled out and the unseasonably warm weather helped reinvigorate the ailing construction sector.’
Despite the better-than-expected local data, investors in London were taking their cues from the downbeat mood elsewhere following hawkish rhetoric from the US central bank chief.
The Fed is prepared, if needed, to hike interest rates further in order to bring inflation down to its long-term 2% target, Fed Chair Jerome Powell said. ‘We know that ongoing progress toward our two percent goal is not assured: Inflation has given us a few head fakes,’ Powell told a conference in Washington.
‘If it becomes appropriate to tighten policy further, we will not hesitate to do so,’ he added, in remarks that were briefly disrupted by climate protesters.
Powell’s comments come just over a week after the US central bank voted to hold interest rates steady at a 22-year high for a second consecutive meeting, fueling expectations that it was done with rate hikes.
While the Fed’s rate-setting committee is ‘committed’ to achieving a sufficiently tight stance of monetary policy, ‘we are not confident that we have achieved such a stance,’ Powell said.
The dollar gained ground following the comments, and equities in the US and Asia retreated.
‘After sounding increasingly dovish at the press conference following last week’s meeting and the market adjusting its expectations accordingly, he sounded much more hawkish again,’ said Commerzbank’s Michael Pfister.
‘Powell thus provided a good conclusion to a very busy week of central bank commentary. Almost all Fed officials spoke of the fact that the battle against inflation is not yet won and that the Fed may need to do more.’
Sterling was quoted at $1.2228 early Friday, dropping from $1.2275 at the London equities close on Thursday. The euro traded at $1.0672, lower than $1.0709. Against the yen, the dollar was quoted at JP¥151.38, up versus JP¥151.00.
In Asia on Friday, the Nikkei 225 index in Tokyo closed down 0.2%. In China, the Shanghai Composite was down 0.5%, while the Hang Seng index in Hong Kong closed down 1.9%. The S&P/ASX 200 in Sydney closed down 0.6%.
In the FTSE 100, Diageo sank 8.2% in early trading.
The alcoholic beverage company known for Baileys and Smirnoff downgraded its outlook for the year ending June 30, 2024, amid a weak performance outlook in the Latin America & Caribbean market. It had been expecting to see a gradual improvement in organic net sales growth over its first half. However, while momentum continues in four of its five regions, it warns that growth in the first half of financial 2024 will be slower than the second half of financial 2023. Sales in the LAC market are nearly 11% of its net sales value, and are expected to fall by 20% year-on-year on an organic basis over the first half.
‘Macroeconomic pressures in the region are resulting in lower consumption and consumer downtrading. These impacts are slowing down progress in reducing channel inventory to appropriate levels for the current environment,’ it explained.
Meanwhile, in the FTSE 250, Redrow shed 6.0%.
Ahead of its annual general meeting, the housebuilder warned that the housing market has remained ‘subdued’ in August. It said net private reservation values dropped 25% year-on-year to £384 million.
Redrow now guides for annual profit before tax to be at the lower end of its £180 million to £200 million range, with revenue also to come in at the lower end of the £1.65 to £1.7 billion range.
It expects the annual average number of outlets to be around 113, which is behind its September guidance of 117.
‘The business has had to adapt to this more difficult trading environment in terms of build rate and operating costs. However, we continue with our strategy of delivering our high quality, award winning Heritage homes to our target customers,’ said Chair Richard Akers.
Wizz Air fell a further 3.5%, after its shares shed 10% in trading on Thursday, as the budget airline downgraded its bottom line guidance due to difficult operating conditions.
In the US on Thursday, Wall Street ended lower, with the Dow Jones Industrial Average down 0.7%, the S&P 500 down 0.8% and the Nasdaq Composite down 0.9%.
The question of a potential US government shutdown looms once again.
Less than two months since the US federal government narrowly avoided running out of funding, the deeply divided Congress once again faces a tight deadline to approve a new budget – just one week.
Neither the Democratic-controlled Senate or the Republican-led House of Representatives has passed a bill to extend government funding, which expires at midnight next Friday into Saturday.
Without an agreement by November 17, the world’s largest economy will instantly begin pumping the brakes: 1.5 million government employees will go without pay, most federal facilities including national parks will be closed, and sectors such as air travel could be forced to slow down.
Gold was quoted at $1,955.68 an ounce early Friday, lower than $1,961.11 on Thursday. Brent oil was trading at $80.39 a barrel, lower than $80.69.
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