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FTSE 100 closes lower as US stocks remain under pressure

FTSE  A trader works on the floor of the New York Stock Exchange (NYSE) as a screen shows Federal Reserve Board Chairman Jerome Powell during a news conference following a Fed rate announcement, in New York City, U.S., February 1, 2023. REUTERS/Andrew Kelly
Wall Street and FTSE traders have been gripped by inflation fears. Photo: Andrew Kelly/Reuters (Andrew Kelly / reuters)

The FTSE 100 and European stocks finished lower on Monday after US markets were forced to reassess their view on interest rates following Friday’s US payrolls report.

The FTSE 100 (^FTSE) dropped 0.9% to close at 7,831 points, while the CAC 40 (^FCHI) in Paris lost 1.5% to 7,124 points. In Germany, the DAX (^GDAXI) fell 0.9% to 15,335.

Across the pond, stocks were lower as investors faced another medley of earnings and evaluated the outlook for interest rates following January's blowout jobs report.

The Dow Jones (^DJI) lost 0.2% to 33,872 points. The S&P 500 (^GSPC) retreated 0.4% to 4,121 points and the tech-heavy NASDAQ (^IXIC) fell 0.5% to 11,925.

Back in London, the blue-chip index fell back after its record-breaking run on Friday that saw the market close at an all-time high.

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On Friday, the FTSE climbed over its previous record high, set in May 2018, to closed at a record 7,901.80 as the index was lifted by hopes that world central banks will slow the pace of interest rate rises as inflation pressures cool. It also reached an all-time intraday high of 7,906.58.

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Victoria Scholar, head of investment at Interactive Investor, said: The FTSE 100 closed at a record high on Friday driven by expectations of a dovish tilt from the Bank of England ahead, a weaker pound after a very strong US jobs report and its favourable sectoral mix which benefited the index over the last year.

"However this morning, the FTSE 100 is giving back some of its gains after the US downed an alleged Chinese spying balloon, putting a strain on US-China relations and raising concerns about geopolitical instability.

"Plus, a strong US jobs report on Friday has indicated that the Federal Reserve may have more work to do on interest rates, pressurising global equity markets. Safe-haven assets such as precious metals like gold and silver are staging gains as investors look for a place to hide from the uncertainty."

Prudential (PRU.L) was the biggest faller of the session, down 4.80%, followed by Hargreaves Lansdown (HL.L), down 3.45% and Ocado (OCDO.L), which lost 3.33%

Russ Mould, investment director at AJ Bell, said: "Having hit a new all-time high last Friday, the FTSE 100 opened the new trading week with a hangover, pulling back 0.6% to 7,856. Throwing cold water over the party were stronger than expected jobs figures in the US, something closely monitored by the Federal Reserve when making interest rate decisions.

“Ongoing strength in the labour market theoretically reduces the chances of the central bank taking its foot off the pedal when it comes to rate rises. Markets are desperate for the rate hike cycle to end, and anticipation around this pivot coming soon is a key reason why equities have done so well in the past month or so.”

Meanwhile, Brent crude (BZ=F) lost ground and was trading at around $80/barrel, as the prospects of a rebound in fuel demand in China weren't enough to offset concerns about a recession.

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In Asia, Tokyo’s Nikkei 225 (^N225) closed higher, climbing 0.67% to 27,693 points, while the Hang Seng (^HSI) in Hong Kong tumbled 2.26% to 21,170. The Shanghai Composite (000001.SS) also lost ground, slipping 0.76% to 3,238 points.

Watch: This is a classic sign of a stagflationary recession: Economist

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