Slowing economic growth and rising interest rates continued eat away at investment appetite as the new week began, with the report on Monday of an unexpected decline in UK output in April adding to concerns ahead of key monetary policy announcements.
‘This week is squarely and firmly all about the [US Federal Open Market Committee] meeting on Wednesday...Without the recent Fed guidance, 75bps would be firmly on the table for Wednesday. This is highly unlikely this week, but our economists think they could break cover from their own guidance and leave the door open for 75bps in July,’ said Deutsche Bank.
The US Federal Reserve will be followed by decisions from the Bank of England on Thursday and the Bank of Japan on Friday.
The FTSE 100 index was down 80.41 points, or 1.1%, at 7,237.11 early Monday. The mid-cap FTSE 250 index was down 373.73 points, or 1.9%, at 19,299.59. The AIM All-Share index was down 11.56 points, or 1.2%, at 939.36.
The Cboe UK 100 index was down 1.0% at 721.60. The Cboe 250 was down 2.2% at 17,013.97, and the Cboe Small Companies down 0.1% at 14,545.71.
In mainland Europe, the CAC 40 in Paris was down 1.5%, while the DAX 40 in Frankfurt was down 1.3% early Monday.
As worries over inflation, global growth and central bank tightening rolled over into a new week, another disappointing UK GDP reading dented sentiment further.
Data from the Office for National Statistics on Monday showed gross domestic product contracted by 0.3% in April on a month before, badly missing FXStreet-cited market consensus of 0.2% growth. The reading also marked a deterioration from March's 0.1% fall.
Services activity shrank by 0.3% in April - the largest contributor to April's drop in GDP - reflecting a substantial decrease in human health and social work, where there was a ‘significant reduction’ in NHS Test & Trace activity. Production fell by 0.6%, driven by a fall in manufacturing, and construction activity fell 0.4%.
‘A big drop in the health sector due to the winding down of the Test & Trace scheme pushed the UK economy into negative territory in April. Manufacturing also suffered with some companies telling us they were being affected by rising fuel and energy prices,’ said Darren Morgan, director of Economic Statistics at the ONS.
The ONS added that this is the first time that all main sectors have contributed negatively to a monthly GDP estimate since January 2021.
The data comes ahead of Thursday's Bank of England meeting, with markets expecting the central bank to raise interest rates again.
Sterling was quoted at $1.2265 early Monday, slumping from $1.2321 at the London equities close on Friday.
The euro traded at $1.0484, down from $1.0518 late Friday. Against the yen, the dollar was quoted at JP¥134.73, up versus JP¥134.13, having earlier Monday topped JP¥135.
In Asia on Monday, the Japanese Nikkei 225 index ended down 3.0%. In China, the Shanghai Composite closed down 0.9%, while the Hang Seng index in Hong Kong was down 3.4% in late trade. Financial markets in Australia were shut on Monday for a holiday.
In London, precious metals miner Fresnillo topped the FTSE 100 in morning trade, up 7.1%.
Gold was quoted at $1,862.07 an ounce early Monday, flat against $1,862.37 on Friday. However, earlier on Monday, the safe-haven asset hit a high of $1,878.75.
Brent oil was trading at $119.90 a barrel, softening from $120.90 late Friday. Oil major BP was down 1.8% and peer Shell down 2.1%.
Jet engine maker Rolls-Royce rose 1.6% after Morgan Stanley upgraded the stock to Overweight from Equal Weight.
Mid-cap stock Euromoney Institutional Investor also was benefiting from an upgrade, shares rising 3.7% after UBS lifted the stock to Buy from Neutral.
Ferrexpo fell 4.8% after saying it will lower production for a period of time as the war in Ukraine blocks its export routes.
The iron ore miner in Ukraine said it had produced 4.4 million tonnes of iron ore pellets so far in 2022 as of the end of May, down 8% from the same point in 2021.
Ferrexpo has seen a total 400,000 tonne increase in iron ore inventories across the months of March, April and May, which it will seek to reduce as logistics constraints ease.
‘The group continues to receive deliveries of key consumables sufficient for the planned level of pellet output. However, as a result of the damage to infrastructure and increase in inventories of iron ore pellets referenced above, the group will lower production for a period of time, until an alternative logistics route is agreed, damaged infrastructure is reopened and/or Ukraine's Black Sea ports resume activities,’ said Ferrexpo.
Chief Executive Jim North said the company will look to increase production when it has ‘greater clarity’ on logistics.
‘It is a credit to our operators and marketing team that our year to date production in the first five months of 2022 was only 8% below the same level seen in 2021, demonstrating Ferrexpo's collective flexibility despite exceptional circumstances,’ he added.
By Lucy Heming; lucyheming@alliancenews.com
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