The FTSE 100 was unable to enjoy the post-US inflation rally, as a stronger pound, the weight of defensive stocks and a looming recession tipped the bluechip index into the red at the week's end.
The FTSE 100 index closed down 57.30 points, 0.8% at 7,318.04, edging down 0.2% over the course of the week. The FTSE 250 ended up 238.97 points, 1.2%, at 19,616.21, adding 7.0% over the course of the week. The AIM All-Share closed up 13.27 points, 1.6%, at 854.84, closing the week 4.9% higher.
The Cboe UK 100 ended down 0.9% at 732.66, the Cboe UK 250 closed up 1.3% at 16,936.06, and the Cboe Small Companies ended up 2.9% at 24,735.65.
In European equities on Friday, the CAC 40 in Paris ended up 0.6%, while the DAX 40 in Frankfurt ended up 0.6%.
US inflation slowed in October, the latest data from the US Bureau of Labor Statistics showed on Thursday, undershooting market expectations. This caused a strong rally in stocks across the globe.
The consumer price index rose 7.7% in October against the prior year, slowing from the 8.2% rise recorded in September. Market consensus, as cited by FXStreet, had expected inflation to cool to 8.0% in October.
'The outturn added to expectations that the pace of tightening will slow from next month and that the terminal rate might also be lower than previously anticipated. Fed policymakers cautiously welcomed the inflation data but reaffirmed that further rate rises were likely,' said Lloyds Bank.
Nevertheless, the dollar fell even further on Friday, having already lost ground on Thursday.
The pound rose to $1.1781 on Friday afternoon in London, from $1.1661 late Thursday. The euro traded at $1.0326, up sharply from $1.0162 on Thursday.
Against the yen, the dollar slumped to JP¥139.07, from JP¥141.78 at the time of the London equities close on Thursday.
The risk-on mood sparked by the CPI print saw a pivot away from defensive stocks, which are often large constituents of the FTSE 100 index by market cap. Defensive stocks are companies that see constant demand for their products and services, and tend to fare well during an economic downturn.
Many such stocks also earn in dollars, and are hindered by a stronger pound.
Pharma stocks AstraZeneca and GSK were down 2.3% and 6.0%. Sin stocks like tobacco firms Imperial Brands and British American Tobacco fell 4.8% and 2.6% respectively, while alcoholic beverage company Diageo fell 2.6%. Defence firm BAE Systems lost 7.9%.
Utilities are also considered defensive stocks, with SSE down 2.5%, while United Utilities and National Grid lost 1.6% and 1.9% respectively.
However, bluechip miners made strong gains, with Anglo American, Rio Tinto and Antofagasta up 7.7%, 4.7% and 5.8%.
Gold rose to $1,763.60 an ounce late Friday, from $1,745.45 late Thursday.
The yellow metal was boosted by a more positive outlook from China, as the country announced the relaxation of some of its hardline Covid-19 restrictions on Friday. A notice from the country's disease control agency on Friday said the Politburo Standing Committee - the apex of power in China - met Thursday to rubberstamp limited relaxations.
According to the notice, quarantines for inbound travellers will be cut from 10 days to eight, consisting of five days in a state isolation centre and three days at home.
Inbound arrivals will still be required to undergo six nucleic acid tests and will not be allowed to freely set foot outside during those eight days, the notice says.
Asia-focused insurer Prudential added 7.6%, while luxury fashion firm Burberry added 1.9%. China is a key market for luxury goods.
On AIM, Croma Security Solutions lost 11%.
The security service provider said pretax profit in the year ended June 30 fell to £200,000 from £1.2 million a year ago. Revenue grew 8.1% to £35.2 million from £32.5 million.
However, it noted increasing demand and raised its total dividend by 5% to 2.1p.
London's more local equities performed well, considering the growing likelihood of a recession.
According to the latest figures from the Office for National Statistics, UK gross domestic product fell 0.2% quarter-on-quarter in the third quarter of 2022. GDP had increased 0.2% in the second quarter from the first.
However, the reading was better than expected, with FXStreet-cited consenus of a 0.5% decline.
'A 0.2% fall isn‘??t as bad as many economists had been expecting and September’??s GDP number has to be viewed as a particular outlier. Many businesses closed their doors to mark the funeral of her majesty Queen Elizabeth II, production stopped and parents stayed home with their children,' said AJ Bell's Danni Hewson.
Still, the Bank of England last week said it expected the UK economy to remain in recession until the first half of 2024, with only a 'gradual' recovery after that point. This would make it the longest recession since the 1920s.
The eurozone is grappling with similar headwinds, and the European Commission also warned of a winter recession. In contrast to the BoE's prediction, contraction in the eurozone is expected to continue only until the first quarter of next year, with growth to return in the spring.
There is a lot that hangs in the balance for the UK between now and 2024, however. Chancellor Jeremy Hunt will announce the autumn statement next Thursday, which is expected to slash budgets for public services, as well as the freezing of income tax brackets.
Hunt has previously warned that navigating such a volatile economic backdrop would require 'decisions of eye-watering difficulty'.
Stocks in New York were mixed at the London equities close, with the DJIA down 0.7%, the S&P 500 index up 0.1%, and the tech-heavy Nasdaq Composite up 0.6%.
Brent oil fetched $96.32 a barrel, rising from $93.90.
In Monday's corporate calendar, there's third-quarter results from HgCapital Trust, and a trading statement from business publisher and events organiser Informa.
In Monday's economic calendar, there's Japanese GDP figures, UK house price index and regional PMI overnight, followed by EU industrial production at 1000 GMT.
There will also be UK and EU unemployment on Tuesday, Wednesday has UK producer and consumer inflation as well as US retail sales and industrial production, and Friday has EU consumer inflation.
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