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LONDON MARKET CLOSE: Stocks slide on rate hike fears after UK GDP data

11th Aug 2023 16:49

(Alliance News) - Stocks in London closed in the red on Friday, as markets worried that better-than-expected economic growth in the UK during the second-quarter of the year may prompt the Bank of England to keep interest rates higher for longer.

The FTSE 100 index closed down 94.44 points, or 1.2% at 7,524.16 on Friday, and ended the week down 0.5%.

The FTSE 250 ended down 194.11 points, or 1.0%, at 18,799.70, closing the week down 0.7%. The AIM All-Share closed down 0.52 of a point, or 0.1%, at 756.87, and ended 0.9% lower over the past five days.

The Cboe UK 100 ended down 1.2% at 750.52, the Cboe UK 250 closed down 0.8% at 16,539.23, and the Cboe Small Companies ended down 1.2% at 13,152.04.

According to the Office for National Statistics, the UK economy grew 0.2% quarter-on-quarter in the three months to June, following a 0.1% climb in the first-quarter.

It topped the FXStreet-cited consensus, which had forecast the UK economy to flatline.

Joshua Mahoney, chief market analyst at Scope Markets, said the data helped build on the idea that the UK could be on track for a soft-landing but warned that this also brings with it the potential for a more protracted period of tightening.

"As such, in the absence of any notable deterioration in the UK economy, we are likely to see rates higher for longer in a bid to drive down inflation," he said.

Against this backdrop, Michael Hewson, chief market analyst at CMC Markets, said next week's inflation and wages data will be "even more important" in the context of what actions the Bank of England decides to take next month.

The latest employment figures for the UK will be released on Tuesday next week at 0700 BST, with inflation figures following a day later at the same time.

In London, the biggest weakness was seen in the commercial property sector, which struggled as fears built over what more BoE rate hikes could mean for the market. FTSE 100-listed Land Securities closed down 2.3%, while FTSE 250 constituent British Land lost 5.2%.

Antofagasta was the worst blue-chip performer at the close on Friday, however, ending down 4.6%.

The Chile-focused mining group lowered its annual copper output outlook on Thursday due to the rescheduling of completion activities at the desalination plant and concentrator expansion at Los Pelambres.

It now expects to produce between 640,000 and 670,000 tonnes of copper in 2023, down from a previous estimate of 670,000 to 710,000 tonnes.

Entain closed down 4.3%.

On Thursday, Entain set aside GBP585 million for a possible settlement of an ongoing UK probe concerning its legacy business in Turkey.

Back in May, the Ladbrokes Coral owner said it was in talks with the UK Crown Prosecution Service regarding an ongoing investigation by HM Revenue & Customs into a potential breach of the bribery act at its former Turkey-facing business, which was sold in 2017.

"The [deferred prosecution agreement] negotiations have now progressed to the point where the company believes that it is likely to be able to agree on a resolution of the HMRC investigation insofar as it relates to the company and the group," Entain explained on Thursday.

The full terms of the agreement are yet to be confirmed and are subject to judicial approval.

Beazley, Haleon and Coca-Cola HBC were among the top stocks in the FTSE 100 at the close, ending 1.1%, 0.4%, and 0.1% higher, respectively.

On AIM, Emis surged 25% after UnitedHealth's buy of the firm was provisionally cleared by the UK's competition watchdog.

The UK Competition & Markets Authority said it found no competition concerns regarding UnitedHealth's subsidiary Optum UK buying Emis, with a final decision due early October.

The CMA said: "While the merging businesses do not supply competing services, Optum and its competitors use the data that Emis holds and integrate their own software with Emis's electronic patient record system to compete in other markets, including the supply of population health management services and medicines optimisation software."

The CMA will report a final decision on October 5.

UnitedHealth was trading 0.9% higher in New York at the tie of the London equities close.

In European equities on Friday, the CAC 40 in Paris ended down 1.3%, while the DAX 40 in Frankfurt ended down 1.0%

Stocks in New York were largely lower at the London equities close, with the Dow Jones Industrial Average up 0.1%, the S&P 500 index down 0.3%, and the Nasdaq Composite down 0.8%.

The dollar was stronger at the London equities close on Friday, meanwhile, bouncing back after an sell-off on Thursday in response to July's better-than-expected US inflation print.

The euro stood at USD1.0961, down from USD1.1014 at the time of the London equities close on Thursday. Against the yen, the dollar was trading at JPY144.80, higher compared to JPY144.46 late Thursday.

The pound was quoted at USD1.2703 at the London equities close on Friday, down from USD1.2728 at the close on Thursday.

UK GDP data had initially supported the pound on Friday morning, with sterling rising to USD1.2709 shortly after the readings, from USD1.2683 beforehand.

The pound's gains were capped following the release of stronger-than-expected producer price inflation data in the US, however.

The US producer price index for final demand rose 0.8% on an annual basis in July, quickening from a 0.1% increase in June. Markets were predicting July's print to quicken to 0.7%, according to FXStreet-cited consensus.

The stronger PPI figures revived investor worries of further interest rate hikes from the US Federal Reserve.

Brent oil was quoted at USD86.97 a barrel at the London equities close on Friday, down from USD87.02 late Thursday. Gold was quoted at USD1,916.88 an ounce, slightly higher against USD1,916.01.

In the UK corporate calendar on Monday, there are half-year results from CentralNic, Plus500, and Stelrad.

The economic calendar next week has the weekly US unemployment claims report on Thursday and EU inflation data on Friday.

By Heather Rydings, Alliance News senior economics reporter

Comments and questions to [email protected]

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