European stock markets head lower despite strong UK growth

·3-min read
European stock markets fell on Friday, with the FTSE down 0.1%
European stock markets fell on Friday, with the FTSE down 0.1% after opening, held back by a stronger pound. Photo: Vuk Valcic/SOPA/LightRocket via Getty

European stock markets slipped into the red on Friday, taking their cue from Asia amid fears of faster US interest rate hikes.

In London, the FTSE 100 (^FTSE) fell 0.3% on the day, after a late rollercoaster ride, while the CAC (^FCHI) tumbled 0.8% and the DAX (^GDAXI) was 1.1% lower.

"The FTSE 100 is demonstrating its relative resilience trading down by a modest 0.2% outperforming the wider region," Victoria Scholar, head of investment at Interactive Investor, said. "Candid Fed talk from a number of FOMC members about the threat of inflation rattled the rate sensitive tech sector stateside with investors pinning their hopes on US earnings season as the next potential catalyst to reinvigorate risk appetite.”

It came as the UK economy recovered back to pre-pandemic levels in November, driven largely by Britain’s dominant service sector activity.

According to the latest data from the Office for National Statistics (ONS), gross domestic product (GDP) grew 0.9% during the month, its sharpest growth since June, and ahead of economists expectations of 0.4%.

This means it was 0.7% above its pre-COVID peak in February 2020, while overall GDP grew by 1.1% in the three months to November.

The pound (GBPUSD=X) climbed on the back of the news, extending its longest winning streak in nearly two months against a weakening dollar.

It rose as much as 0.2% against the dollar to $1.3738, continuing its longest run of gains since 18 November. Against the euro, it was trading steady at 83.58p.

Read more: Pound highest level since October as calls grow for Boris Johnson's resignation

Across the pond, the S&P 500 (^GSPC) dipped 0.5% and the tech-heavy Nasdaq (^IXIC) was fairly flat. The Dow Jones (^DJI) edged 0.9% lower at the time of the European close.

The move lower followed hawkish remarks from Federal Reserve officials on Thursday solidified expectations that US interest rates could rise as soon as March, leaving markets braced for tighter monetary conditions.

Investors will also focus on US retail sales for December later during the day. Since August, US retail sales have seen four successive months of gains, although in November this only translated into a 0.3% rise, compared to an October gain of 1.8%.

Watch: Brainard signals Fed could raise rates as early as March

Asian shares turned red on Friday, with the Nikkei (^N225) falling 1.3% in Japan, the Hang Seng (^HSI) losing 0.2%, and the Shanghai Composite (000001.SS) ending 1% lower.

South Korean shares also dropped around 1.4% after the country's central bank raised its benchmark rate 25 basis points to 1.25% as expected, taking it back to the level it was at before the pandemic as it seeks to restrain consumer price rises.

On Friday, China posted a record trade surplus in December and in 2021 overall, with exports growing 20.9% year-on-year, slightly above expectations.

Imports came in at 19.5%, a sharp fall from the big rise of 31.7% seen in November, which was driven by higher demand for coal and copper imports, as industries played catch-up after the earlier shutdowns.

Watch: What is inflation and why is it important?