Stocks were lower at midday in London on Monday, as the prospect of a pivot in central bank policy away from rate hikes seemed to recede into the future, while a new source of conflict between the US and China was hurting oil prices.
‘Having hit a new all-time high last Friday, the FTSE 100 opened the new trading week with a hangover...Throwing cold water over the party were stronger than expected jobs figures in the US, something closely monitored by the Federal Reserve when making interest rate decisions,’ said Russ Mould, investment director at AJ Bell.
The FTSE 100 index was down 66.60 points, or 0.8%, at 7,835.20. The FTSE 250 was down 259.90 points, or 1.3%, at 20,333.56, and the AIM All-Share was down 6.91 points, or 0.8%, at 882.88.
The Cboe UK 100 was down 0.8% at 783.52, the Cboe UK 250 was down 1.1% at 17,733.98, and the Cboe Small Companies was down 0.8% at 13,773.10.
US employment growth was well ahead of expectations last month, according to figures on Friday. Nonfarm payrolls rose by 517,000 in January, almost double the 260,000 in December. January’s number was well-ahead of market consensus of 185,000.
The figures surprisingly strong figures brought into question whether the US Federal Reserve’s aggressive hiking policy has achieved its desired objective.
The Fed lifted interest rates by 25 basis points on Wednesday last week, as widely expected. The central bank lifted the target range for the federal funds rate to 4.50% to 4.75% from a previous range of 4.25% to 4.50%.
In previous policy meetings, the Fed had raised rates even more aggressively, but AJ Bell’s Mould explained that the ongoing strength in the labour market reduces the chance of the UK central bank taking its foot off the monetary policy brake in future meetings.
‘Markets are desperate for the rate hike cycle to end, and anticipation around this pivot coming soon is a key reason why equities have done so well in the past month or so,’ Mould added.
The dollar continued to make gains in the wake of the jobs data.
The pound was quoted at $1.2028 at midday on Monday in London, lower compared to $1.2093 at the close on Friday. The euro stood at $1.0762, down from $1.0844. Against the yen, the dollar was trading at JP¥132.24, sharply higher compared to JP¥130.94.
Adding to worries about rate hikes on Monday, Bank of England policymaker Catherine Mann said that interest rates in the UK will likely need to rise further despite early signs of a ‘turning point’ in the battle against sky-high inflation.
In a speech at the Lamfalussy Lectures Conference in Budapest, Hungary, Mann said: ‘Uncertainty around turning points should not motivate a wait-and-see approach, as the consequences of under tightening far outweigh, in my opinion, the alternative.
‘We need to stay the course, and in my view, the next step in bank rate is still more likely to be another hike than a cut or hold.’
The Bank of England lifted interest rates by another 50 basis points on Thursday last week. The rate lift took the benchmark bank rate to 4.00% from 3.50%. It was the decision expected by market consensus.
In London, Frasers was down 1.3%.
The Times on Saturday reported that the Sports Direct-owner is considering buying two shopping centres in the UK for a total of £100 million.
The newspaper said Frasers is in advanced talks to buy The Mall in Luton in Bedfordshire, England, from Wells Fargo for £70 million. Frasers also is considering buying the Overgate centre in Dundee, Scotland from another potential seller, for about £30 million.
In the FTSE 250, Plus500 rose 3.2% as it obtained a licence from the Dubai Financial Services Authority to trade in the United Arab Emirates.
The approval in the ‘significant and high growth market’ of the UAE offers a major opportunity for Plus500, the company said.
Vesuvius shares lost 3.4%, as the molten metal flow engineering and technology firm was hit by a cyber incident.
Vesuvius said unauthorised access was gained to its systems, but it added that it has taken the necessary steps to investigate and respond to the breach, including shutting down the affected systems.
Elsewhere in London, Pod Point rose 0.7% as new data shows electrified vehicles are leading the increase in the UK’s new car registrations.
Pod Point is a provider of electric vehicle charging stations in the UK.
According to the Society of Motor Manufacturers & Traders, registrations of hybrid electric vehicles were 41% higher in January than during the same month in 2022.
However, the market share for pure electrics was 13%, down from an average of 16.6% last year. The industry body warned that the rollout of new electric vehicle charge points is failing to keep pace with demand.
In European equities on Monday, the CAC 40 in Paris was down 1.5%, while the DAX 40 in Frankfurt was down 1.1%.
The eurozone’s construction sector started the year still shrinking, though less badly than at the end of 2022, survey results released by S&P Global showed.
The eurozone’s construction purchasing managers’ index jumped to 46.1 points in January from 42.6 in December.
‘January survey data pointed to a softer downturn across the eurozone construction sector, as a softer reduction in new orders contributed to the slowest decline in activity levels since last June,’ said S&P Global economist Usamah Bhatti.
Stocks in New York were called lower. The Dow Jones Industrial Average was called down 0.7%, the S&P 500 index down 0.9%, and the Nasdaq Composite down 1.2%.
Brent oil was quoted at $80.28 a barrel at midday in London on Monday, down from $81.44 late Friday. Gold was quoted at $1,871.15 an ounce, higher against $1,867.11.
A flare-up in tensions between the US and China raised worries about demand for oil, while it meant safe-haven gold was in demand.
The US on Saturday destroyed a suspected Chinese spy balloon that floated over the country for days. China voiced anger on Sunday at the shooting down of the balloon, which it insists was an unmanned weather surveillance aircraft that had veered off course, the AFP reported.
Naeem Aslam at AvaTrade said: ‘If Washington or Beijing, an unlikely scenario, losses their coolness about this situation, it would adversely influence oil demand.’
Still to come on Monday’s economic calendar, the US will publish its employment trends index at 1500 GMT.
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