The FTSE 100 fell heavily on Friday as bond yields pushed higher amid fears that higher inflation will keep interest rates elevated.
In London, the FTSE 100 index ended down 157.01 points, 1.5%, at 10,659.13.
The FTSE 250 fell 146.72 points, 0.6%, to 24,205.42, but the AIM all-share climbed 3.46 points, 0.4%, to 796.09.
For the week, the FTSE 100 was up 0.1%, the FTSE 250 was was up 1.0%, and the AIM all-share was up 0.8%.
Following a brief respite, bond yields climbed on Friday as investors continue to weigh the fallout from central bank interest rate decisions this week and high energy prices.
The Bank of Japan on Friday followed the US Federal Reserve’s move earlier this week by hiking rates, although the Bank of England bought itself some time by holding rates on Thursday.
The yield on the US 10-year Treasury was quoted at 5.01%, stretched from 4.95%.
The yield on the US 30-year Treasury was quoted at 5.34%, widened from 5.30%.
In London, the yield on 10-year gilts traded at 5.31%, up from 5.21% on Thursday.
Despite the Bank of England rate hold, analysts increasingly expect the central bank to increase rates going forward.
Panmure Liberum analyst Simon French moved his expectations from an unchanged UK bank rate through the next 12 months, to 25 basis point increases at both the November and February Monetary Policy Committee meetings.
“If this comes to pass the MPC will be reluctant hikers of UK interest rates, but with household energy prices on track to rise 25% in January there is a growing risk of second order impacts to consumer prices,” he said.
RBC Capital Markets also changed its BoE rate call and put a 25 basis point rate hike in for the next meeting in November.
Investors and analysts remain concerned that higher oil prices likely mean second-round effects on inflation, which could prompt a further round of interest rate increases.
“A higher expected path for oil prices means disinflation will be slower, and more restrictive policy also weighs on growth in 2027,” Morgan Stanley pointed out.
Brent oil was quoted at 104.37 dollars a barrel in London on Friday, up from 103.65 dollars late on Thursday.
In European equities on Friday, the Cac 40 in Paris fell 1.6%, as did the Dax 40 in Frankfurt.
In New York, the Dow Jones Industrial Average was down 0.4% at the time of the closing bell in London.
The S&P 500 eased 0.1%, and the Nasdaq Composite was down slightly.
Adding to the volatility, Wall Street’s trading is also taking place against the backdrop of quarterly “triple witching”, in which derivatives contracts tied to stocks, index options and futures are scheduled to mature.
This can contribute to elevated volumes and increased short-term volatility as investors roll or close positions.
Back in London, figures from the Office for National Statistics showed UK retail sales rebounded in August and beat expectations.
Retail sales volumes rose 0.5% month-on-month, reversing a 0.5% decline in July and outperforming the 0.2% fall expected by markets, according to FXStreet.
June’s increase was revised down to 0.6% from 0.7%.
The pound was quoted at 1.3372 dollars on Friday, up from 1.3356 dollars at the same time on Thursday.
Against the euro, sterling firmed to 1.1661 euro from 1.1627.
The euro eased to 1.1466 dollars from 1.1480 dollars.
Against the yen, the dollar was trading at 157.07 yen, up from 155.80 yen.
The yen weakened despite the Bank of Japan raising its policy rate by 25 basis points to 1.25%, its highest level since 1995, and reiterating that it would continue lifting rates if the economy and inflation developed in line with its forecasts.
However, the decision was opposed by two of the bank’s nine policymakers, which ING analyst Frantisek Taborsky said could make it more difficult for policymakers to agree on another hike in meetings to come.
Deutsche Bank described the decision as a “more dovish hike than expected”, noting that the two high-profile dissenters may point to less political support for further tightening than previously thought.
On the FTSE 100, IG Group rose 2.1% as UBS reiterated a “buy” rating and said the shares offer “compelling” value.
But Airtel Africa plummeted 11% after Bloomberg reported that its Airtel Money arm is considering raising at least 800 million dollars in its planned London initial public offering, substantially below the previously targeted 1.50 billion dollars to 2.00 billion dollars.
The mobile money business is also considering a valuation of 8.00 billion dollars to 9.00 billion dollars, down from the 10.00 billion dollars previously sought, following investor feedback.
Airtel Money could file for the IPO as early as next week and is targeting the start of trading on the London Stock Exchange in October, the report said.
Retailer Next fell 4.8% on further consideration of Thursday’s results, while Ladbrokes owner Entain dropped 5.2%, ahead of its demotion to the FTSE 250.
Friday is the betting operator’s last day in the lead index, for now.
Glencore was also in the doldrums, down 4.0%, as the Financial Times reported that the miner has suspended one of its senior executives in the wake of the escalating scandal involving iron ore trader Radiant World.
FT sources said Peter Hill, Glencore’s head of steelmaking raw materials, has been stood down from his position pending the outcome of a review into the miner’s business with Radiant World and associated companies.
On the FTSE 250, Harbour Energy rose 3.4% as Bank of America raised to “buy” from “neutral”, while Vistry fell back 2.7% ahead of next results and strategic review.
Gold was quoted at 4,355.67 dollars an ounce on Friday, little changed from 4,356.36 dollars on Thursday.
The biggest risers on the FTSE 100 were IG Group Holdings, up 2.13p at 1,343.0p, Fresnillo, up 1.03p at 3,035.0p, Computacenter, up 0.93p at 5,430.0p, AstraZeneca, up 0.58p at 12,500.0p, and DCC Energy, up 0.55p at 6,425.0p.
The biggest fallers on the FTSE 100 were Airtel Africa, down 11.27p at 316.4p, Coca-Cola HBC, down 7.85p at 4,248.0p, Metlen Energy & Metals, down 2.58p at 44.22p, BT Group, down 11.35p at 196.85p, and Entain, down 25.90p at 476.7p.
Monday’s local corporate calendar has full year results from Craneware and Getech.
Monday’s global economic calendar has an interest rate decision in China and the Chicago Fed national activity index.
Financial markets in Japan are closed for Respect for the Aged Day.
– Contributed by Alliance News
