Markets took fright after another supersized 75-basis-point interest rate hike by the Federal Reserve was put back on the table by a fresh indicator of strength in the US service sector.
The FTSE 100 index opened down 6.11 points, 0.1%, at 7,561.43 on Tuesday. The FTSE 250 was down 71.36 points, 0.4%, at 19,258.22, and the AIM All-Share was down 4.29 points, 0.5%, at 846.43.
The Cboe UK 100 was down 0.2% at 756.25, the Cboe UK 250 was down 0.5% at 16,648.44, and the Cboe Small Companies was marginally lower at 13,089.14.
In European equities on Tuesday, the CAC 40 index in Paris was down 0.4%, while the DAX 40 in Frankfurt was down 0.4%.
Investors were somewhat downbeat, following a strong US service sector print from the Institute for Supply Management on Monday.
The ISM services index rose to 56.5% last month, well above the 50% threshold indicating growth and defying expectations that activity would slow as US consumers draw down their savings. In contrast, the similar S&P Global US services PMI painted a bleaker picture, fading to 46.2 points in November from 47.8 in October and indicating continued contraction.
The ISM print caused investors to worry that the Federal Reserve may not yet take its foot off the monetary policy tightening pedal. Previously, following recent remarks by US Fed Chair Jerome Powell, the market had been starting to count on a 0.50% hike.
Deutsche Bank noted that the strong ISM survey reading added to positive economic signals from the US nonfarm payrolls report on Friday. Markets now are ‘sceptical that the Fed would be easing off any time soon with numbers like these’.
Stocks in New York fell in response on Monday, with the Dow Jones Industrial Average ending down 1.4%, the S&P 500 down 1.8%, and the Nasdaq Composite down 1.9%
Sterling was quoted at $1.2190, flat from $1.2189 at the London equities closer on Monday. The euro traded at $1.0483, lower than $1.0515. Against the yen, the dollar was quoted at JP¥136.91, up versus JP¥136.42.
UK grocery price inflation eased slightly, according to new figures from Kantar. It edged down to 14.6% in November from 14.7% in October, the first slowdown price rises in 21 months.
German discount supermarkets were seeing strong year-on-year growth in total till roll consumer spend. In the 12 weeks to November 27, consumer spend was up by 24% for Aldi and 22% for Lidl, compared to the previous year. Tesco and Sainsbury saw 3.9% and 4.3% growth in sales respectively, while their market share remained steady.
‘December looks set to be a record-breaking month with sales going above the £12 billion mark for the first time,’ said Kantar’s Kevin McKevitt.
Tesco and Sainsbury shares both were down 0.2%.
Among other FTSE 100 stocks, Ashtead added 3.1%, as it reported strong revenue and profit growth in its second quarter.
In the three months to October 31, the industrial equipment rental company said revenue grew by 28% to $2.54 billion from $2.03 billion a year before. Pretax profit jumped 40% to $658 million from $474 million.
In the first half as a whole, revenue rose 26% to $4.80 billion and pretax profit grew by 35% to $1.19 billion. Ashtead now expects annual results ahead of its previous guidance.
‘Our business is performing well with clear momentum in robust end markets. We are in a position of strength and, with increased market clarity, have the operational flexibility to capitalise on the opportunities arising from the market and economic environment we face,’ Ashtead said.
Ashtead raised its interim dividend by 20% to 15 cents per share.
Phoenix Group rose 1.0%.
The insurer said it expects to deliver around £1.2 billion in incremental new business long-term cash generation in 2022, mostly via its Standard Life branded businesses. Phoenix said it also remains on track to deliver cash generation at the top end of its target range of £1.3 billion to £1.4 billion in 2022.
‘It is shaping up to be another outstanding year for Phoenix Group,’ said CEO Andy Briggs.
At the other end of the large-cap index was Mondi, down 4.1%. The packaging company’s stock was cut to ’underperform’ by Credit Suisse.
Utility stocks Pennon, United Utilities and Severn Trent were also lower, down 3.0%, 2.1% and 2.0%, respectively. They were placed on ’negative catalyst watch’ by Jefferies.
London’s heavyweight energy stocks also were performing poorly, with BP down 1.6% and Shell down 1.5%.
Brent oil fetched $83.22 a barrel, lower than $84.95, while gold was quoted at $1,772.73 an ounce early Tuesday, lower than $1,776.79 on Monday.
In the FTSE 250, SSP added 2.3% in early trade.
The travel-focused food outlet operator said revenue jumped to £2.19 billion in the financial year that ended September 30 from £834.2 million the year prior. It swung to a pretax profit of £25.2 million from a loss of £411.2 million.
The recovery is being led by the domestic and leisure travel market across both air and rail sectors. Business and commuter travel is recovering, albeit more slowly, SSP noted.
Looking ahead, SSP said it is confident in its ability to manage macro-economic headwinds, and anticipates a further recovery in the medium term. It expects annual revenue to be between £2.9 billion and £3.0 billion in the current financial year.
‘We see significant potential for further expansion in North America - a $6 billion market in which we currently only have a 10% market share,’ CEO Patrick Coveney noted.
On AIM, Croma Security Solutions jumped 21%.
The security services provider announced it plans to dispose of its Vigilant guarding division, to refocus on developing its high margin and cash generative Locks and Systems businesses.
‘The strategy of combining Locks and Systems with the Vigilant manned guarding division has not generated the opportunities for cross-marketing and cross-sales that had been expected,’ Croma explained.
Croma’s executive chair, Sebastien Morley, is part of Vigilant’s management team, which has expressed an interest in acquiring the division. To pursue this, Morley has agreed to step down from the board at the end of the day’s annual general meeting.
In Asia on Tuesday, the Japanese Nikkei 225 index closed up 0.2%. In China, the Shanghai Composite was marginally higher, while the Hang Seng index in Hong Kong was down 0.6%. The S&P/ASX 200 in Sydney closed down 0.5%.
Tuesday’s economic calendar has a UK construction PMI at 0930 GMT, and US trade data at 1330 GMT.
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