Stocks in London slipped at the close on Tuesday, joining the pound, which failed to pack a punch against the dollar amid political uncertainty.
The FTSE 100 index slumped 99.42 points, 1.2%, at 8,025.77. The FTSE 250 closed down 295.73 points, 1.4%, at 20,427.80. The AIM All-Share fell 7.07 points, 1.0%, at 730.86.
The Cboe UK 100 declined 1.2% at 805.89, the Cboe UK 250 retreated 1.6% at 17,865.50 and the Cboe Small Companies fell 0.6% to 16,076.13.
The Bank of England is still concerned about ‘underlying inflationary pressures’, chief economist Huw Pill said at a conference in London today.
‘As we saw in the labour market data that was released this morning, pay growth remains quite sticky at elevated levels and levels that, given the outlook for productivity growth in the UK, are hard to reconcile with the UK inflation target,’ Pill said during a discussion at a UBS conference.
Pill was referring to figures which showed hotter-than-expected wage growth and a surprise rise in the unemployment rate.
According to the Office for National Statistics, the ILO unemployment rate rose to 4.3% in the three months to September from 4.0% in the three months to August, surpassing the FXStreet-cited consensus of 4.1%.
Wage growth slowed down slightly, with average earnings excluding bonuses rising 4.8% annually in the three months to September from 4.9% in the August quarter. However this was stronger than consensus expectations for a 4.7% rise.
Average earnings including bonuses rose 4.3%, the same pace of growth seen in the three months to August, but much stronger than the 3.9% consensus.
ING James Smith noted UK wage growth appears stuck in the 4.5% to 5% area, despite falling private sector employment and lower vacancy rates.
‘Further declines in wage growth are coming, but not immediately. For the time being, the Bank of England will remain cautious,’ he thinks.
The more muted outlook on interest rates weighed on housebuilders. Vistry fell 5.6%, Barratt Redrow slid 2.7% and Taylor Wimpey dipped 2.4%.
The downbeat mood spread to Europe where political uncertainty and weak data dragged equities lower.
The CAC 40 in Paris slid 2.7% and the DAX 40 in Frankfurt dipped 2.1%.
Weighing on Frankfurt, a 15% drop in Bayer.
The Leverkusen, Germany-based pharmaceutical and biotech company cut 2024 earnings guidance and predicted another tough year ahead.
Looking further ahead to 2025, Chief Financial Officer Wolfgang Nickl said: ‘Overall, we expect a muted outlook on top and bottom line next year with likely declining earnings.
Elsewhere a survey showed Germany’s economic outlook has weakened.
The ZEW institute’s economic expectations index for Germany declined by 5.7 points to positive 7.4 in November from 13.1 in October. FXStreet-cited market consensus had anticipated a positive 12.8 point reading.
Meanwhile, the corresponding current situation index slipped 4.5 points to negative 91.4 in November, exceeding consensus of negative 86 points, from negative 86.9 the prior month.
Economic expectations for Germany have been damped by Donald Trump’s election victory in the US and the collapse of Chancellor Olaf Scholz’s Social Democrat-led coalition government in Germany last week.
Meanwhile the political situation in Germany remains uncertain with an election set for February following the collapse of Chancellor Olaf Scholz’s three-party coalition collapsed last week.
Scholz’s Social Democrats, SPD, now in a minority government with the Greens, hammered out the compromise date with the conservative opposition Christian Democrats, CDU, and their Bavarian allies CSU.
In the US, markets fell back after their record breaking run. The Dow Jones Industrial Average was down 0.6%, the S&P 500 fell 0.3%, and the Nasdaq Composite was 0.2% lower.
In contrast, the dollar remained on the front foot as US bond yields rose ahead of inflation figures on Wednesday.
Bank of America forecast that headline CPI rose by 0.1% on-month in October, which would leave the annual unchanged at 2.4%. Energy prices likely fell again, it thinks, owing in part to a drop in petrol prices.
Meanwhile, BofA expects a 0.3% on-month increase in core CPI, which would also leave the annual rate unchanged at 3.3% for a third consecutive month.
‘In short, inflation is moving sideways after a period of substantial disinflation,’ BofA explained.
ING’s Warren thinks what we have seen so far this week are ‘early signs of active engagement in a new dollar bull trend’.
‘Traded levels of volatility are rising notably as it seems the market is actively positioning (investors) or hedging (corporate treasurers) in expectation of a stronger dollar. All we would say here is not to fight this emerging trend,’ Warren added.
The pound was quoted at $1.2739 late on Tuesday afternoon in London, compared to $1.2875 at the equities close on Monday.
The euro stood at $1.0600, down against $1.0654. Against the yen, the dollar was trading higher at JP¥154.69 compared to JP¥153.81.
In London, ConvaTec soared 22% trading statement provided relief after a tricky 2024 for the outlook of one of its key products.
The London-based medical products and technologies company raised its 2024 outlook for organic sales growth to 7.25% to 8.0%, previously 6.0% to 7.0%. It projects a constant currency adjusted operating margin of at least 21.5%, previously at least 21.0%.
The firm said it is on-track to deliver double-digit growth in adjusted earnings per share and free cash flow to equity in the financial year.
‘Today‘s statement should reassure, with guidance increasing and the company making it clear that it expects any Innovamatrix headwinds to be transitory,’ said Panmure Liberum.
DCC also shone, surging 14%, after announcing plans to sell its DCC Healthcare arm to focus on the energy sector.
DCC also said it will review options for its third division, DCC Technology, within the next two years, and it will return cash from business disposals to shareholders.
RBC Capital Markets said the ‘surprise’ announcement to pivot to a pure play Energy business over the next couple of years has the potential to unlock ‘material value’ for shareholders.
Not such a good day for investors in Vodafone, down 6.2%, as results failed to impress, with Germany a weak feature.
‘Quarterly performance was marred by a weak showing for its German business, its biggest market, where a previously flagged issue around the government barring housing associations from bundling TV with rent is impacting performance,’ Russ Mould at AJ Bell noted.
AstraZeneca endured an up-and-down trading session, eventually closing up 0.1%.
Third-quarter results beat consensus expectations, boosted by a strong oncology performance, but unease about ongoing problems in China may keep a lid on the share price for now, analysts said.
‘We take the matters in China very seriously,’ Chief Executive Pascal Soriot said, adding that, if requested, ‘we will fully cooperate with the authorities.’
‘To the best of the company’s knowledge, the investigations include allegations of medical insurance fraud, illegal drug importation and personal information breaches. Recently Leon Wang, [executive vice president] International and AstraZeneca China president was detained. The company has not received any notification that it is itself under investigation.’
Pharmaceuticals peer, GSK was in the red, down 2.0% after Jefferies downgraded to ’hold’ from ’buy.
Despite the recent Zantac settlement, the broker sees few nearterm catalysts to ‘rebuild belief, suggesting the value disconnect may
persist.’
Brent oil rose to $72.02 a barrel at the time of the London equities close on Tuesday, up from $71.76 late Monday.
The price of gold was quoted at $2,600.44 an ounce late Tuesday afternoon, down from $2,617.20 at the same time on Monday.
Wednesday’s local corporate calendar sees half-year results from electricity generator SSE and credit checking agency Experian.
The global economic calendar US consumer price inflation figures at 1330 GMT.
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