After a session yesterday driven by stock-specific news, interest rate concerns were back in the driving seat in early trade on Friday.
The FTSE 100 was down 1.2% at the time of writing on Friday after the S&P 500 closed down 0.8% overnight.
A poor US bond auction and comments from Fed chair Jerome Powell were responsible for the negativity in UK stocks on Friday.
A 30-year US bond auction was met with tepid demand overnight, and the US government was forced to issue debt at the highest yield since 2010.
There was weak demand from overseas buyers in a dismal display of confidence in the US economy and fiscal strategy.
Federal Reserve Chairman Jerome Powell also dampened the mood last night by saying the Fed has not done enough to bring down inflation, and they would not hesitate to hike rates further.
US bonds tanked, taking equities with them, leaving European equity traders little choice but to mark down the value of stocks when trade opened on Friday.
“The FTSE 100 has rocks in its shoes after markets around the world digest Jerome Powell’s speech yesterday, which suggested the US would hike interest rates again if needed,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
“The battle to vanquish inflation could still need an extra pair of hands, and that’s upset an investor base that had grown increasingly optimistic that policymakers would stick to the hands-off approach.
“While the comments weren’t a warning of imminent increases, they do keep monetary tightening on the table. Early signs from the US and Europe show that markets are taking this news with pouted mouths. Treasury yields have also increased slightly and that’s another way to burst equity market bubbles as the risk-reward profile for investing in riskier assets becomes less palatable.”
FTSE 100 movers
Diageo shares sank on Friday after issuing a shock profit warning as sales volumes fall in the second half. The drinks giant highlighted weakness in the Caribbean and Latin America while growth faltered in Europe.
Diageo shares were down around 14% shortly after 12pm.
Burberry shares fell 3% as Daigeo’s profit warning hit the luxury sector across Europe.
The Federal Reserve’s comments last night rocked the FTSE 100’s interest rate sensitive housebuilding sector with Barratt Developments falling 3.7% and Taylor Wimpey dropping 2%.
General deterioration in sentiment saw Ocado shares drop 8%.