A stock market rally after the US's top central banker sounded less hawkish than expected reversed the very next day, as investors came to grips with still historically aggressive tightening of monetary policy to contain inflation running at a 40-year high.
The US Federal Reserve on Wednesday lifted borrowing costs by 50 basis points - the biggest single hike since 2000 - but Chair Jerome Powell said a feared 75-point lift was not on the agenda for now.
The FTSE 100 index was down 57.64 points, or 0.8%, at 7,445.63 midday Friday in London. The mid-cap FTSE 250 index was down 213.77 points, or 1.1%, at 19,876.79. The AIM All-Share index was down 14.86 points, or 1.5%, at 978.91.
The Cboe UK 100 index was down 0.6% at 741.40. The Cboe 250 was down 1.2% at 17,512.44, and the Cboe Small Companies down 0.7% at 14,908.21.
In mainland Europe, the CAC 40 stock index in Paris was down 1.2% while the DAX 40 in Frankfurt was 0.9% lower.
‘Concern about inflation is the culprit, as ever, and the wild swings we've seen this week are a reminder that sentiment is about as fragile as a porcelain doll. The other fear is that the cure for inflation, higher rates, could be as bad as the disease if they choke off growth and even lead to recession,’ commented AJ Bell's Russ Mould.
In the FTSE 100, oil majors BP and Shell were among a handful of stocks in the green, up 2.1% and 1.2% respectively, tracking spot oil prices higher.
Brent oil was quoted at $113.52 a barrel Friday at midday, up from $110.84 late Thursday.
At the other end of the large-caps, International Consolidated Airlines was the worst performer, down 8.7%. The British Airways parent said demand for travel is recovering strongly in line with its previous expectations as it posted a narrowed first-quarter loss.
For the three months ended March 31, IAG reported an after-tax loss of €787 million, narrowed from €1.07 billion in the first quarter last year, as total revenue more than tripled to €3.44 billion from €968 million. On a pretax basis, IAG's loss narrowed to €916 million from €1.22 billion a year before.
In addition, IAG's first-quarter operating loss before exceptional items was €754 million, narrowed from an operating loss before exceptional items €1.14 billion a year ago. However, the latest figure missed the consensus estimate for a loss of €510 million.
Still, IAG said it expects to be profitable from the second quarter onwards and for the full year of 2022.
InterContinental Hotels Group was down 0.5% after the Holiday Inn parent's first-quarter performance was soured by weak trading in China.
For the three months ended March 31, revenue per available room - a key metric in the hotel industry - was up 61% from the first quarter of last year.
IHG said Americas and EMEAA regions saw sequentially improved trading in February and March after a challenging January.
However, in Greater China, trading in March was hurt by the tightening of localised travel restrictions following a spike in Covid-19 cases. In Greater China, first-quarter RevPAR was down 7% from the first quarter of 2021 and down 42% from the same period in 2019.
In the FTSE 250, 4imprint was the best performer, up 19%, after the promotional products marketer raised its full-year outlook.
4imprint said strong trading has continued in the first four months of the year, with ‘excellent demand’ to result in a ‘very strong financial performance’ for the period.
In January to April, total order numbers in its primary North American business were 11% higher than pre-Covid 2019 levels. Average order values were 14% ahead of 2019, with overall demand revenue 27% ahead.
The trading momentum means 4imprint is likely to achieve its long-term goal of $1 billion in revenue in 2022, which is the upper limit of analysts' forecasts and higher than analysts' consensus, it said.
Elsewhere, McColl's Retail was up 48% after Sky News reported that supermarket chain Wm Morrison Supermarkets proposed a last-ditch deal that would avert McColl's collapse into insolvency and preserve the majority of its stores.
McColl's and Morrisons are partners for the Morrisons Daily branded convenience stores operated by McColl's.
The convenience store operator late Thursday confirmed it is in discussions regarding potential financing solutions for the business to resolve short-term funding issues.
McColl's warned though that unless an alternative solution can be agreed, it is ‘increasingly likely’ that the business will be placed into administration.
On AIM, Numis was down 1.4% after the investment bank and broker said first half performance was hurt by tricky macroeconomic conditions against a record comparator a year prior.
For its half-year ended March 31, Numis noted ‘elevated volatility’ and ‘cautious investor sentiment’ in the market over the period.
Revenue dropped 36% year-on-year to £74.2 million from £115.4 million and pretax profit tumbled 66% to £13.4 million from £39.3 million.
The pound was quoted at $1.2347 at midday on Friday, up from $1.2331 at the London equities close Thursday. Sterling had hit an intraday low of $1.2276 in early morning trade - its lowest since mid-2020 - after the Bank of England on Thursday warned of a sharp economic growth slowdown in the UK economy following its fourth straight interest rate hike.
On UK economic data on Friday, S&P Global said construction sector activity edged lower in April as rising energy and raw material costs weighed on client budgets.
The S&P Global-CIPS UK construction purchasing managers' index decreased to 58.2 points in April from 59.1 in March. The print just barely beat the market forecast, cited by FXStreet, of 58.0.
S&P said the near-term outlook for construction activity deteriorated in April as total new order volumes expanded at the slowest rate for four months. Escalating raw material prices and hesitancy due to higher borrowing costs and geopolitical uncertainty were among the reasons for reduced demand.
Meanwhile, UK Prime Minister Boris Johnson faces an angry backlash from local Tories as the party saw key London strongholds fall to Labour while also suffering losses in councils across England.
Opposition leader Keir Starmer hailed a ‘turning point’ as his party strengthened its grip on the capital, taking the totemic Tory authority in Wandsworth, winning Westminster for the first time since its creation in 1964 and clinching victory in Barnet.
As scores of Tory councillors lost their seats against a backdrop of the row about lockdown-busting parties in No 10 and the cost-of-living crisis, local Conservative leaders pointed the finger of blame at Johnson.
However, allies of Johnson warned it was not the time for a change in the occupant of No 10, saying the Labour gains fell short of what was needed for the party to secure victory at a general election.
The euro was priced at $1.0582, higher against $1.0516. Against the yen, the dollar was trading at JP¥130.36, firm on JP¥130.30.
Gold stood at $1,882.18 an ounce, little changed from $1,881.76 late Thursday.
New York was called to open with further losses on Friday after a torrid session the day before, as market participants look ahead to the closely-watched US jobs report at 1330 BST.
The Dow Jones Industrial Average was called down 0.2%, the S&P 500 down 0.3%, and the Nasdaq Composite down 0.5%, based on futures trading. The indices had closed down 3.1%, 3.6%, and 5.0% on Thursday. The S&P and Nasdaq indices suffered their worst days since 2000.
‘Thursday's slump suggests that the market doesn't think the Fed will be able to keep to the script and manage a 'soft landing', that it will have to tighten enough to cause a recession,’ commented Marshall Gittler, head of Investment Research at BDSwiss.
‘There's no possibility of a 'Powell put' this time, unlike most of the last 30 to 40 years. They can't lower rates to rescue the market because interest rates are already too low for the current level of inflation.’
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