The UK’s FTSE 100 on Friday lost its initial momentum, dragged down by energy majors Shell PLC and BP PLC, while investors also assessed the likelihood for more Bank of England (BOE) monetary policy tightening following strong business activity figures for last month.
The blue-chip FTSE 100 gained 3.07, or 0.04 percent, to close mostly flat at 7,947.11, while the more domestically focused FTSE 250 midcap index added 74.12, or 0.37 percent, to close at 19,925.77.
For the week, the indices logged weekly gains — the FTSE 100 rose 0.87 percent, while the FTSE 250 was up 1.16 percent — boosted by optimism about a likely end to the BOE’s rate-hiking cycle and larger-than-expected expansion in top metals consumer China’s manufacturing activity.
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Data showed that Britain’s services sector grew at the fastest pace in eight months last month on the back of stronger business confidence and an improved economic outlook.
Also weighing on equities was a firm pound after the robust economic data likely raised fears over the need for continued interest rate hikes to tame stubborn inflation.
“Even though rates are probably likely to go a little bit higher, the economy is in a much better shape,” CMC Markets chief market analyst Michael Hewson said.
This came on the heels of BOE Governor Andrew Bailey indicating a possible end to rate hikes, while chief economist Huw Pill also highlighted a pickup in the British economy and improving pay growth.
With Shell and BP losing about 1 percent each, oil and gas was among the worst-performing sector indices on Friday.
Meanwhile, gains in miners like Glencore PLC and Rio Tinto Group kept the FTSE 100 afloat, tracking higher metal prices on hopes of a demand recovery in China. Similar hopes on the STOXX 600 helped mining stocks rise 2.2 percent.
The STOXX 600 mining index climbed more than 7 percent this week, its biggest weekly gain since May 2021 and outpacing other major sectors such as defensive plays in utilities, real estate and healthcare.
The continent-wide STOXX 600 rose 4.24, or 0.9 percent, to 464.26, with rate-sensitive tech stocks up 1.8 percent, on hopes that the US Federal Reserve could adopt a measured approach to rate hikes. The index was up 1.43 percent for the week.
Overnight, Atlanta Fed President Raphael Bostic said he favored “slow and steady” rate hikes moving forward and a pause by mid or late-summer.
Policy meetings from the Fed and the European Central Bank, and US jobs data are scheduled for the next two weeks, while China’s annual parliament session is today, when Beijing is to set its economic goals for the year.
China’s reopening has also been key for luxury stocks, including LVMH and Kering, which have driven much of the year’s gains for European markets along with banks and miners.
“European consumer stocks are set to benefit from a recovery in European and Chinese spending,” Mark Haefele, chief investment officer at UBS Global Wealth Management wrote in a client note.
“With wage growth starting to pick up, inflation past the peak and less hawkish central banks, we expect disposable income to rise and consumer sentiment to rebound,” he said.
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