The FTSE 100 closed lower on Monday, but above early lows, as bond yields continued to creep up and analysts predicted the end of the US rate cutting cycle.
The FTSE 100 index closed down 24.30 points, 0.3%, at 8,224.19. The blue-chip index had fallen as low as 8,192.31.
The FTSE 250 ended 15.57 points lower, 0.1%, at 19,718.37, and the AIM All-Share shed 3.99 points, 0.6%, at 709.39.
The Cboe UK 100 ended down 0.3% at 824.63, the Cboe UK 250 lost 0.4% at 17,123.14, and the Cboe Small Companies declined 0.7% at 15,159.11.
In European equities on Monday, the CAC 40 in Paris closed down 0.3%, while the DAX 40 in Frankfurt declined 0.4%.
Stocks in New York were mixed at the London equities close, with the DJIA up 0.2%, the S&P 500 index down 0.6%, and the Nasdaq Composite 1.3% lower.
Friday’s strong US nonfarm payrolls report prompted further dollar strength and more bond angst as analysts pared expectations for interest rates cuts this year.
‘Following the blowout jobs report, we now think the Fed cutting cycle is over,’ said Bank of America.
‘In our view, the salient issue going forward will be the threshold for hikes. The bar is high since the Fed still thinks rates are restrictive, but hikes will likely be in play if year-on-year core PCE inflation exceeds 3% and/or long-term inflation expectations become unanchored,’ it added.
The pound was quoted lower at $1.2161 at the London equities close Monday, compared to $1.2200 at the close on Friday. The euro fell to $1.0209 against $1.0233.
Against the yen, the dollar was trading lower at JP¥157.66 compared to JP¥157.81 late Friday.
The yield on the UK 10-year bond crept up a further 3 basis points on Monday to 4.88%, while the US 10-year was 3 bps higher at 4.80%.
‘The increase in bond yields is due to multiple factors: inflation fears, public sector deficits and economic policy uncertainty, which are all driving yields higher and draining risk sentiment from financial markets,’ commented Kathleen Brooks at XTB.
Brooks suggested 5% could become the new normal for yields and noted stocks have tended to sell off when Treasury yields have reached this ‘key psychological threshold’.
Attention now switches to inflation prints in the UK and US on Wednesday.
Goldman Sachs expects the headline rate of UK inflation to remain unchanged at 2.6% in December. The core rate is seen easing to 3.4% from 3.5% while closely watched services inflation is projected to ebb to 4.8% from 5.0%, still above the Bank of England’s 4.7% prediction.
In the US, Wells Fargo looks for headline CPI to rise 0.4% on-month in December, pushing the year-over-year rate up to a five-month high of 2.9%.
Excluding food and energy, price growth looks to have been a more moderate 0.2% over December, it thinks, leaving the year-over-year rate at 3.3% for a fourth straight month.
Gains in oil majors and index heavyweights BP and Shell helped limit London’s losses as the oil price rose.
Brent oil was quoted at $81.25 a barrel at the London equities close Monday up from $78.61 late Friday.
On Friday, the US announced sanctions on Russian oil producers Gazprom Neft and Surgutneftegas, plus the blacklisting of 183 vessels involved in Russian energy exports.
‘The US is taking sweeping action against Russia’s key source of revenue for funding its brutal and illegal war against Ukraine,’ said Secretary of the Treasury Janet Yellen on Friday.
Joseph Dahrieh at Tickmill said this reduction in Russian exports ‘could push global crude prices higher at least in the near term, as the market adjusts to the loss of supply from one of the world’s largest oil producers.’
Goldman Sachs agrees, stating Friday’s announcement strengthens its view that the risks to its $70 to $85 Brent range forecast are ‘skewed to the upside’ in the short term.
‘We estimate that Brent could rise just above the top of our range if Russian production briefly falls by 1 million barrels per day and to $90 per barrel in a combined scenario where Iran supply also falls 1 million barrels per say but in a persistent way.’
Oil price strength hit airlines though, on fears of higher fuel costs.
On the FTSE 100, British Airways owner IAG fell 4.2%, while budget airline easyJet declined 2.5%. On the FTSE 250 WizzAir fell 2.2%.
Entain closed up 6.0% after predicting top-end earnings and reiterating guidance for its US joint venture.
The Isle of Man-based bookmaker said loss before interest, tax, depreciation and amortisation is expected to be around $250 million at BetMGM for financial 2024.
BetMGM is a sports betting and iGaming operator across North America, jointly owned by Entain and MGM Resorts International.
The group, which owns Ladbrokes and Coral, expects group Ebitda to be ‘at the top’ of the £1.04 billion to £1.09 billion guidance range, owing to ‘operator friendly’ results in the fourth quarter.
In October, Entain said it expected Ebitda to be ‘towards’ the top of the same range.
Fresnillo eased 3.8% as the gold price gave up some recent strength.
The yellow metal was quoted lower at $2,666.56 an ounce at the London equities close Monday against $2,690.05 at the close on Friday.
Back on the FTSE 250, recruiter PageGroup fell 3.2%.
The firm reported a fourth-quarter gross profit of £196.7 million, down 17% on-year from £237.5 million. For the full year, gross profit fell 16% to £842.5 million from £1.01 billion. The firm noted continued subdued levels of client and candidate confidence.
It said it expects a full-year operating profit in the lower end of its consensus range, of between £49 million and £58.5 million, adding that a high degree of uncertainty remains across most of its markets.
Tuesday’s UK corporate calendar sees half-year results from Warhammer owner Games Workshop, plus trading statements from sports retailer JD Sports and housebuilder Persimmon.
The economic calendar for Tuesday has US wholesale price inflation figures at 1330 GMT.
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