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FTSE 100 falls as recession fears dent sentiment

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The FTSE 100 struggles to fight as interest rate hikes dim investors sentiment. Photographs: Getty
The FTSE 100 struggles to fight as interest rate hikes dim investors sentiment. Photographs: Getty

European markets closed mixed on Friday as a flurry of interest rate hikes, rampant inflation and growth concerns rock global stocks and investor sentiment.

The FTSE 100 (^FTSE) fell 0.7% after brief gains in afternoon trade, putting it on course for its worst weekly performance since March.

France’s CAC (^FCHI) was 0.1% lower on the day and the DAX (^GDAXI) jumped 0.7% in Frankfurt.

"Another bumpy week for stocks is coming to a close, and there is little sign of the mood improving among investors," said Chris Beauchamp, chief market analyst at online trading platform IG. "After a brief recovery, stocks are coming off once again."

It comes as the Bank of England, the Federal Reserve and Swiss National Bank all lifting interest rates this week, with the European Central Bank also hinting to start raising rates next month.

On Thursday, the BoE delivered the fifth consecutive rate raise, the key rate was lifted by a quarter-point to 1.25%, the highest level since 2009.

Read more: Bank of England raises UK interest rates to 13-year high of 1.25%

Threadneedle Street revised its forecast for inflation as well, warning prices could soar to 11% in October due to energy, food and fuel costs. Britains's inflation rate is currently running at a 40-year high of 9%.

The Swiss central bank surprised markets on Thursday with its first rate rise for the first time since 2007 after inflation in Switzerland hit a 14-year high last month.

The Federal Open Market Committee raised its key rate by 75 basis points on Wednesday after the latest inflation gauge showed consumer prices jumped to 8.6% in May, beating economists' forecasts of 8.3%.

"The sun is shining bright, the weekend is here, yet all investors can think about is medicine to calm the motion sickness after one of the most chaotic five days for stocks and shares in a long time," said Russ Mould, investment director at AJ Bell.

"Rising inflation, rising interest rates and a rising chance of a recession have all served to turn stomachs in equity-land."

Read more: UK firms feel strain from rocketing inflation and staff shortages

Across the pond, US benchmarks were mixed on Friday after a sharp fall in the previous session as volatility dented investors' sentiment.

The Fed's 0.75% rate increase was its largest in 28 years but lined up with market expectations as the Fed races to control inflation. Recent data also showed consumer inflation in May reached its highest in more than four decades.

Wall Street’s S&P 500 (^GSPC) advanced 3.92 points, or 0.1%, to 3670.69, while the tech-heavy Nasdaq (^IXIC) rebounded, up 1.1% from a 4.1% crash.

The bluechip Dow Jones (^DJI) fell 0.1% after dipping below 30.000 points for the first time since January 2021 on Thursday.

Richard Hunter, head of markets at Interactive Investors, said: "In the year to date, the flagship S&P 500 has now declined by 23% and the Nasdaq by 32%.

"The Dow Jones is down by 17.6% and, if measured from its recent high earlier in the year, the index has lost 19%, putting it on the cusp of joining the other two indices in bear market territory."

Asian stocks were mixed overnight with the Nikkei (^N225) down 1.8% in Tokyo, while the Hang Seng (^HSI) edged 0.9% higher in Hong Kong and the Shanghai Composite (000001.SS) gained 1%.

Watch: How does inflation affect interest rates?

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