Investors were forced to weigh the positivity of strong Chinese economic data against the prospect of higher interest rates on Friday, and consider whether strength in the world’s second largest economy was reason enough to buy into equities in a backdrop of tightening monetary policy.
Better than expected Chinese retail sales and industrial production were not enough to help lift Chinese equities overnight, nor were they enough to support European stocks in early trade on Friday.
However, the destruction of UK retail sales saw sterling fall to the lowest level against the dollar since the 1980’s, and in turn provide support for the FTSE 100’s overseas earners, limiting the downside in the UK’s leading index.
“It’s Bleak Friday for the pound, amid worries the UK has hurtled into recession, as the cost-of-living crisis intensifies and confidence in the government’s ability to prompt an economic turnaround fades,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
“It’s a chilling repeat of the dismal day, 30 years ago, when sterling faced another crisis and spectacularly crashed out of the European Exchange-Rate Mechanism.”
Having touched 7,247 early on Friday, the FTSE 100 rallied to trade in positive territory as the pound sank, but the gains proved to be unsustainable and the FTSE 100 closed the week out at 7,236.
Asset Managers rally
The FTSE 100’s dollar earners were among the outperformers on Friday while asset managers Abrdn, M&G and Hargreaves Lansdown provided some support for the index as bargain hunters stepped in. Hargreaves Lansdown is down 37% year-to-date as short sellers target the stock.
As US exchanges opened, selling accelerated across the wider markets on a stark warning from Fedex they were experiencing low volumes. Fedex shares were down over 23% in US trade on Friday and is seen as a bellwether for the US economy, thus the health of the global economy.
The major drag on the FTSE 100 came from mining stocks feeling the pressure of Asian volatility and general concerns of global growth. Glencore, Rio Tinto, Anglo American and Antofagasta shed between 1-3% on Friday.