The FTSE 100 was sent back down to earth on Tuesday after it outperformed at the start of the week, with fears that the Federal Reserve will keep rates higher for longer hurting investor sentiment.
With a week to go before the US central bank’s next policy meeting, traders are digesting a somewhat bullish reading of the US services sector, while also dealing with the fallout of the Friday’s strong US jobs report.
Among London shares, mining stocks weakened, hitting the FTSE 100.
The FTSE 100 index ended down 46.15 points, or 0.6%, at 7,521.39 on Tuesday in London. The blue-chip index advanced 6.7% last month, but December is proving to be trickier for equities. The FTSE has lost 0.7% so far this month.
The FTSE 250 closed down 229.50 points, or 1.2%, at 19,100.08. The AIM All-Share closed down 10.53 points, or 1.2%, at 840.19.
The Cboe UK 100 lost 0.5% at 753.60, the Cboe UK 250 ended down 1.1% at 16,540.31, and the Cboe Small Companies shed 0.1% at 13,073.73.
In European equities on Tuesday, the CAC 40 in Paris fell 0.1%, while the DAX 40 in Frankfurt lost a heftier 0.7%.
At the time of the European close, stocks in New York were also lower. The Dow Jones Industrial Average was down 0.8%, the S&P 500 was 1.1% lower and the Nasdaq Composite shed 1.4%.
‘The problem with crystal balls is that even if you happen to have one reading it accurately is likely to be more an art than a science. For investors trying to position their portfolios to make the most of next week’s Fed rate hike it might be better to ditch the fortune telling entirely as the economic data that‘s swirling around seems to lurch from good news to bad, and working out which good news is actually bad is even more complicated,’ AJ Bell analyst Danni Hewson commented.
‘After yesterday’s data suggesting that the US service sector is holding up rather better than had been expected sent the market rollercoaster hurtling down the tracks, today’s news that the country’s trade deficit has widened hasn’t acted as much of brake.’
The Fed meets next week, concluding its two-day policy meeting with an interest rate decision on Wednesday. While Chair Jerome Powell got equity market hopes up by saying the central bank may put the brakes on the monetary policy tightening pedal, Monday’s services data and Friday’s non-farms print suggested the Fed may keep rates higher for longer.
The Institute for Supply Management’s tracker picked up, figures on Monday showed.
ISM’s services PMI rose to 56.5 points last month, from 54.4 in October. November’s reading came in ahead of the consensus of 53.1 points.
All eyes will be on whether the data, and Friday’s hot US jobs report, forces the Fed to enact another chunky rate hike.
Analysts at Deutsche Bank think it is unlikely that the Fed will ‘quibble’ after the ‘quirky jobs report’.
‘While we always caution against reading too much into one particular payroll report, the November release may warrant an extra grain of salt,’ analysts at the German bank said.
The dollar was largely weaker at the time of the European equities close, returning some of the gains it achieved over the past 24 hours.
The pound was quoted at $1.2243 late on Tuesday in London, up from $1.2189 at the London equities close on Monday. The euro stood at $1.0519, up slightly against $1.0515 late Monday. Against the yen, the dollar was trading at JP¥136.46, marginally higher from JP¥136.42.
In London, Phoenix Group rose 2.6%, among the best FTSE 100 performers. The insurance services provider said it expects to achieve strong organic growth in 2022, with £1.2 billion of new business to be delivered in the year.
Phoenix said its £1.2 billion long-term cash generation comprises around £900 million from its Retirement Solutions business, and £300 million from its Pensions & Savings, Europe and SunLife businesses.
Mining stocks wilted on Tuesday, returning gains from Monday and hitting the London’s large-cap benchmark.
Advances from the likes of Glencore and Anglo American had shielded the FTSE 100 from the declines seen from European blue-chip index peers on Monday. Glencore and Anglo fell 1.0% and 0.4% on Tuesday, however.
Also putting pressure on the FTSE 100 were bearish broker updates.
Mondi dropped 4.7%. It was the worst blue-chip performer after Credit Suisse cut the paper and packaging firm firm to ’underperform’ from ’outperform’.
Utility stocks Pennon, United Utilities and Severn Trent were also lower, ending down 1.7%, 1.9% and 1.5%, respectively. They were placed on ’negative catalyst watch’ by Jefferies.
Elsewhere in London, Paragon Banking added 4.7%. For the financial year that ended on September 30, the Solihull, England-based lender and savings bank said pretax profit nearly doubled to £417.9 million from £213.7 million the year before.
The bank raised its total dividend by 9.6% to 28.6 pence per share, from 26.1p.
Looking ahead, Paragon noted the current volatile operating environment and the cost of living increases, while hailing the ‘swift’ reaction capabilities of its business in the face of a changing environment.
On AIM, Oxford Metrics added 12% as it reported weaker annual earnings, but said it believes supply chain pressures are abating.
The software company said pretax profit in the financial year that ended September 30 was £2.7 million, down 25% from £3.6 million a year earlier. Revenue was up 4.5% to £28.8 million from £27.6 million.
‘We enter a new financial year with our largest ever set of orders-in-hand and demand for our systems remains buoyant,’ Chief Executive Nick Bolton said.
Oxford Metrics added that ‘demand remains strong and we believe supply chain constraints are gradually easing’.
Ferguson rose 2.9%. The plumbing and heating products supplier said pretax profit for the three months that ended October 31 rose 11% to $792 million from $711 million a year prior.
Net sales also grew, up 17% to $7.93 billion from $6.08 billion the previous year.
Looking ahead, Ferguson’s guidance for the financial year remains unchanged. It expects adjusted operating margin of 9.3% to 9.9%.
Gold was priced at $1,774.71 an ounce at the time of the London equities close on Tuesday, down slightly from $1,776.79 late Monday. Brent oil was quoted at $80.35 a barrel, lower against $84.95.
Wednesday’s economic calendar has a Halifax UK house price index reading at 0700 GMT, and a eurozone gross domestic product reading at 1000 GMT.
The local corporate calendar has annual results from pub firm Mitchells & Butlers and a half-year report from greetings card seller Moonpig.
Moonpig shares slumped 7.0% ahead of the report.
AJ Bell’s Hewson commented: ‘Online greeting card seller Moonpig will update markets tomorrow, but even if its previous guidance stands there’s enough doubt about how consumer Christmas spend will be impacted by the cost-of-living crisis and disruption to deliveries that investors are wary.’
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