Equities in London kicked off the final session of the week on the back foot, with the FTSE 100 looking like it will extend its losing streak to five days.
Stocks in Asia and Europe struggled on fears that major central banks will keep interest rates higher for longer. Among them, the Bank of England, fresh from enacting a chunkier rate lift than what was predicted, is expected to hike again in the coming months.
Interest rate expectations did nothing for London-listed housebuilders, and neither did a bearish note from analysts at HSBC. It was a better morning for GSK, however, as it settled a Zantac suit in the US to avoid a protracted legal fight.
The FTSE 100 index opened down 42.37 points, 0.6%, at 7,459.66. The FTSE 250 was down 67.21 points, 0.4%, at 18,260.76, and the AIM All-Share was down 1.22 points, 0.2%, at 772.22.
The Cboe UK 100 was down 0.4% at 744.64, the Cboe UK 250 was down 0.4% at 15,998.39, and the Cboe Small Companies was up 0.1% at 13,810.43.
In European equities on Friday, the CAC 40 in Paris was down 0.3%, while the DAX 40 in Frankfurt was down 0.8%, hurt by shares in Siemens Energy plunging by 30%. The company warned that technical problems at its wind turbine unit Siemens Gamesa were worse than previously thought.
The company said it was setting aside more than €1 billion to deal with faulty components.
On Thursday, the Bank of England surprised with a chunkier-than-expected 50 basis point interest rate hike.
A 25 basis point hike had been largely expected. However, following Wednesday’s red-hot consumer price index data, bets on a half-point hike had increased, with the expectation that a more aggressive move may better tame the UK’s stubborn annual inflation rate.
The pound retreated after the decision.
‘You would’ve normally expected the opposite reaction, but the bears remained in charge of the market, pricing the fact that the dark clouds that are gathering over Britain will destroy more value than the higher rates could create,’ Swissquote analyst Ipek Ozkardeskaya commented.
Sterling continued to struggle early Friday, buying $1.2724, down from $1.2741 at the London equities close on Thursday. The dollar also gained strength, after recent hawkish rhetoric from the Federal Reserve. The euro traded at $1.0925, lower than $1.0953. Against the yen, the dollar was quoted at JP¥143.34, up versus JP¥142.86.
The high interest rate environment has already proven to be weighing on the UK housing market, with both house prices and mortgage approvals falling in recent months.
Following the BoE hike, HSBC downgraded the stock of Taylor Wimpey, Persimmon, Barratt and Berkeley. The stocks fell 2.0%, 2.5%, 2.4%, and 3.8% respectively in early trade.
Defying the otherwise gloomy mood, government data showed UK retail sales volumes held up better than expected in May, boosted by sunny weather.
The Office for National Statistics said retail sales fell 2.1% annually in May, easing from a downwardly revised fall of 3.4% in April. The market had been expecting a 2.6% fall for May, according to FXStreet-cited consensus.
From the previous month, sales ticked up 0.3% in May, slowing from a 0.5% rise in April. However, the reading was better than market consensus, which had forecast a 0.2% decline.
In addition, GfK’s UK consumer confidence indicator ticked up in June, despite the cost-of-living crisis and double-digit grocery inflation. GfK’s consumer confidence index increased three points to negative 24 in June, from a tally of negative 27 in May. It marks the fifth monthly improvement in-a-row.
GSK was the top performer in the FTSE 100, up 4.6%.
The pharmaceutical company said it has reached a confidential settlement with James Goetz, a claimant in Zantac litigation. The case he filed in California state court, which was set to begin in July, will now be dismissed. Zantac is the subject of numerous lawsuits, which allegedly link the heartburn drug with cancer.
‘The settlement reflects the company’s desire to avoid distraction related to protracted litigation in this case. GSK does not admit any liability in this settlement and will continue to vigorously defend itself based on the facts and the science in all other Zantac cases,’ the pharmaceutical company said.
Haleon, which also has exposure to Zantac litigation, rose 1.2%, while Sanofi edged up 0.1% in Paris.
In a similar vein, there was news of a historic settlement regarding so-called ‘forever chemicals’ polluting water in the US. Industrial conglomerate 3M Co said Thursday it will pay as much as $12.5 billion to settle numerous claims from US public water systems that accused the company of tainting their supplies.
Known for the lengthy amount of time required before they break down and used in Teflon and other goods, polyfluoroalkyl substances - or PFAS - are man-made chemicals produced since the 1940s and now widely present in soil and water as well as in humans, fish and other wildlife.
3M shares rose 4.9% in after-hours trade in New York.
On AIM, Hotel Chocolat plunged 18%.
The high-street chocolatier warned it expects to swing to an underlying marginal pretax loss in its financial year ending July 2, defying market expectations of £300,000 in underlying pretax profit. This is due to recent cost-cutting measures ‘materialising later in the year than initially anticipated’.
In financial 2024, it expects sales and underlying profit before tax to be lower than market expectations, due to weak consumer sentiment and continuing inflationary pressures.
Over in Asia, trading was downbeat on Friday, as investors feared for the toll high interest rates would take on global economic growth.
Financial markets in Shanghai remained closed for the Dragon Boat Festival holiday, though they re-opened in Hong Kong. The Hang Seng index was down 1.8%. The S&P/ASX 200 in Sydney closed down 1.3%.
The Nikkei 225 index in Tokyo closed down 1.5%, as Japan’s consumer inflation reading came in hotter than expected.
Excluding volatile fresh food, Japan’s consumer prices rose 3.2% year-on-year in May, with the pace of inflation slowing from the 3.4% recorded in April, government data showed Friday.
The hotter-than-expected print fuelled speculation on whether the Bank of Japan will shift away from its ultra-loose monetary policy that has dragged on the yen. A weak yen has been a key reason for the strength of Japanese equities in recent weeks.
Meanwhile, the latest purchasing managers’ index data from au Jibun Bank revealed business growth in Japan slowed in June. The services sector saw a softer rise in activity, while manufacturing slipped back into contraction amid muted domestic and international demand.
In the US on Thursday, Wall Street ended mixed, with the Dow Jones Industrial Average marginally lower, the S&P 500 up 0.4% and the Nasdaq Composite up 1.0%.
Gold was quoted at $1,914.29 an ounce early Friday, higher than $1,913.60 on Thursday.
Oil prices softened, amid the weaker global demand outlook. Brent oil was trading at $73.58 a barrel, down from $74.22.
Still to come in the economic calendar, there’s a slew of flash PMI prints from the EU, UK and US from 0900 BST.
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