US stocks teetered on both sides of the flatline in early trading on Friday morning as mixed earnings reports and economic data suggest the US is headed for a recession.
Richard Hunter, head of markets at Interactive Investor, added: “Mixed company earnings and softening economic data are keeping a lid on sentiment, as investors ponder the timing and depth of a potential recession."
Deutsche Bank said: “The last 24 hours have seen a stronger risk-off move in markets, thanks to another round of weak data releases that strengthened fears of a US recession once again.”
The FTSE 100 and European stocks were mixed this Friday as in the UK investors mulled the latest UK retail sales and data showing business activity grew for the third month running this month.
The UK's blue chip index gains were limited amid losses in industrial miners, which countered gains in consumer staples and healthcare stocks.
Sentiment was also being weighed down by weak retail data. Figures released by the Office for National Statistics showed that retail sales fell by more than expected in March after wet weather kept shoppers at home.
Retail sales volumes fell by 0.9% in March, following a downwardly-revised increase of 1.1% in February. Most analysts had been looking for a 0.5% decline.
Within that, food store sales volumes eased 0.7%, reversing February’s 0.6% increase, while non-food stores sales were down 1.3%, compared to a 2.4% rise a month previously.
London-listed payment services firm Network International Holdings (NETW.L) was at the centre of a bid battle on Friday morning after it confirmed it had received a second approach from a would-be buyer.
The company said Brookfield Asset Management was offering 400p per share bid, more than the £387p on the table from a rival consortium of suitors made up by CVC Advisers and Francisco Partners Management.
The new bid values Network at around £2.2bn ($2.7bn).
UK private sector grows
The UK private sector grew at its fastest pace in a year, with companies boosted by a pick-up in new orders.
The latest survey of British purchasing managers has found that business activity is growing for the third month running this month, and at the fastest pace since April 2020.
The UK’s dominant service sector is driving the recovery, with companies reporting that consumer spending was resilient. This should cool concerns that the UK risks falling into recession this year.
The monthly flash purchasing managers’ index (PMI) showed a score of 53.9 this month, compared with the 52.5 which had been forecast.
“Flash PMI surveys signalled an acceleration of economic growth to the fastest for a year in April, building on a modest return to growth in the first quarter of the year,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Manufacturing production fell during the month. Goods producers said that demand is reducing as customers decrease the amount of stock they hold and people try to cut costs in a tight economic climate.
But the service sector said consumer spending remained resilient, according to the survey.
“Growth is lopsided, with surging demand for services contrasting with an ongoing downturn in demand for goods,” Williamson said.
“Even within the service sector, growth is dependent on consumers switching spending from goods to services and a revival of financial services activity, both of which are areas susceptible to the impact of higher interest rates and the ongoing cost of living squeeze.
“Business services and manufacturing are clearly struggling."
US and Asia
Across the pond, Cleveland Fed president Loretta Mester told Yahoo Finance on Thursday that interest rates need to rise above 5% given stubborn inflation. The comments came two days before Federal Reserve participants enter their blackout period prior to the next FOMC meeting on 2 May.
Markets are currently pricing in a 84% chance of 25-basis-point rate hike at the next FOMC meeting, according to data from the CME group.
Pound vs dollar
The pound (GBPUSD=X) lost some ground against the US dollar, with sterling trading at $1.2408.
The dollar has been climbing on the foreign exchange markets amid fears that the US Federal Reserve will again lift interest rates soon.
The same was happening against the euro, with sterling (GBPEUR=X) hovering around €1.13.
Meanwhile, Brent crude (BZ=F) lost ground and was trading at around $80 per barrel as softening US economic data and a rise in US gasoline inventories raised concerns about a recession and slower global oil demand.
"Market sentiment remained bearish after the weak U.S. economic data, along with expectations of interest rate hikes, fuelling worries over a recession that could dent oil demand," Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities, told Reuters.