(Alliance News) - Stocks in London are set to recover some lost ground on Friday, as investors assess the implications of Thursday's hot US inflation print, and the latest data from China.

IG says futures indicate the FTSE 100 to open up 32.1 points, 0.4%, at 7,608.69 on Friday. The index of London large-caps closed down 75.17 points, 1.0%, at 7,576.59 on Thursday.

According to the Bureau of Labor Statistics, the US yearly inflation rate picked up to 3.4% in December, from 3.1% in November. The reading was hotter than expected. According to FXStreet cited consensus, the annual inflation rate was forecast to only slightly heat up to 3.2%.

Annual core inflation also came in above forecast at 3.9%, against expectations of 3.8%, according to FXStreet. The measure, which excludes food and energy, eased from 4.0% in November.

"This release alone is unlikely to prompt significant shifts in prevailing narratives as there is simply too much dubiety in the various inflation gauges. Rate cuts are still on the table; nobody knows when the Federal Reserve will start or the frequency and speed of those cuts," said SPI Asset Management managing partner Stephen Innes.

According to CME's FedWatch tool, the market is still pricing in the first 25 basis point rate cut at the Fed's March meeting.

The dollar softened overnight against major currencies.

Sterling was quoted at USD1.2775 early Friday, sharply higher than USD1.2703 at the London equities close on Thursday. The euro traded at USD1.0978 early Friday, rising from USD1.0945 late Thursday. Against the yen, the dollar was quoted at JPY145.07, down versus JPY146.07.

In the US on Thursday, Wall Street saw a muted close, with the Dow Jones Industrial Average closing marginally higher, the S&P 500 up 0.1%, and the Nasdaq Composite little changed.

Investors were also considering the latest economic data from Asia's largest economy. Official figures from China revealed deflation continued for the third month in a row, while imports and exports struggled in 2023.

The consumer price index fell 0.3% on-year last month, according to the National Bureau of Statistics. Analysts surveyed by Bloomberg expected a drop of 0.4% last month, having sunk 0.5% in November.

Meanwhile, December also saw an on-year increase of 2.3% in exports, but the data compared with the low base of 2022 when the impact of zero-Covid policies was being felt the most. Exports rose 0.5% in November for the first time since April. Imports rose 0.2% in December from the prior year, after falling 0.6% in November.

Overall, exports fell 4.6% in 2023, the first annual drop since 2016. The report also showed imports dropped 5.5% last year.

In China, the Shanghai Composite was up 0.1%, while the Hang Seng index in Hong Kong was down 0.2%.

In Japan on Friday, the Nikkei 225 index in Tokyo closed up 1.5%, reaching another multi-decade high. The S&P/ASX 200 in Sydney closed down 0.1%.

Gold was quoted at USD2,036.77 an ounce early Friday, higher than USD2,017.55 on Thursday.

Tensions continued to rise in the Middle East, after US and British air strikes pounded targets in rebel-held Yemen. This follows weeks of disruptive attacks on Red Sea shipping by Iran-backed Huthi forces acting in solidarity with Hamas.

The Huthis said there was "no justification" for the air strikes and warned that attacks on Israel-linked shipping would continue.

Brent oil was trading at USD78.97 a barrel, a touch higher than USD78.92.

At 0700 GMT there is a slew of UK data, including a gross domestic product reading, industrial production data, and trade balance. There will be US producer price inflation data at 1330 GMT.

Investors are also looking ahead to the start of the US earnings season with some of the big names in banking reporting results on Friday. There will be results from Citigroup, JPMorgan Chase, Bank of America and Wells Fargo, and asset manager Blackrock.

By Elizabeth Winter, Alliance News deputy news editor

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