A share price decline for NatWest following the lender’s annual results and hawkish remarks by a US central banker combined to send the FTSE 100 index back below 8,000 points early Friday.
A positive surprise from UK retail sales figures was quickly discounted by analysts.
London’s benchmark index opened down 44.58 points, or 0.6%, at 7,967.95. The FTSE 250 was down 177.71 points, or 0.9%, at 20,003.74, and the AIM All-Share was down 3.76 points, or 0.4%, at 865.83.
The Cboe UK 100 was down 0.7% at 796.74, the Cboe UK 250 was down 0.8% at 17,405.64, and the Cboe Small Companies was down 0.7% at 13,947.64.
UK retail sales rose in January from the month before, according to an estimate released by the Office for National Statistics.
Retail sales volumes are estimated to have increased by 0.5% in January from December, reversing a revised fall of 1.2% in December from November. Markets had expected retail sales volumes to fall by 0.3% monthly, according to FXStreet.
Analysts at ING explained that January’s increase in retail sales ‘wasn’t enough to reverse a steep fall around Christmas’, and added that ‘the big picture’ is that sales have been on a downward trend.
Against a year prior, retail sales volumes are estimated to have fallen by 5.1% in January. In December, retail sales volumes fell by 6.1% year-on-year.
Markets had expected a steeper annual decline in retail sales volumes in January, anticipating a 5.5% fall.
Danni Hewson, head of financial analysis at AJ Bell said: ‘Retailers will view January’s figures with mixed emotions. The fact people have been spending in what’s often a difficult month will be welcome, but sales do little to bolster margins.’
Certainly the pound was seeing no benefit. It was quoted at $1.1922 at early on Friday in London, sharply lower compared to $1.2004 at the stock market close on Thursday.
The dollar was making gains across the board on Friday. Chris Turner at ING said the move has ‘clearly been driven by the re-assessment of the Fed cycle, where the ’higher for longer’ camp is in the ascendancy.’
He said: ‘Yesterday, it was the turn of Loretta Mester and James Bullard to outline how they had favoured a 50 basis point hike earlier this month instead of the 25bp which was delivered. Equally, they both implied they could support a 50bp hike at the 22 March meeting.’
The euro stood at $1.0637 early on Friday, lower against $1.0674 at the London equities close on Thursday. Against the yen, the dollar was trading at JP¥134.93, higher compared to JP¥134.08.
In the US on Thursday, Wall Street ended sharply lower, with the Dow Jones Industrial Average down 1.3%, the S&P 500 down 1.4% and the Nasdaq Composite down 1.8%.
On top of the hawkish rhetoric, fresh data revealing US producer price inflation picked up on a monthly basis in January weighed on the US stock market.
On a monthly basis, the producer price index for final demand increased 0.7% in January from December, reversing a 0.2% decline in December from November, according to data from the US Bureau of Labor Statistics. This came above market expectations, according to FXStreet, for a 0.4% increase in January.
On an annual basis, the index for final demand rose 6.0% in January, slowing from a 6.5% increase in December. Markets had expected producer price inflation to cool to 5.4%.
In London early Friday, NatWest was the worst blue-chip performer, down 8.4% despite announcing a rise in annual operating profit and a fresh £800 million share buyback programme.
The bank reported pretax operating profit of £5.13 billion in 2022, up from £3.84 billion the previous year.
This came as net interest income jumped to £9.84 billion from £7.53 billion, and non-interest income climbed to £3.31 billion from £2.89 billion.
NatWest said its return on tangible equity in the year was 12.3%. Its CET1 ratio was 14.2%, 170 basis points lower than at January 1, 2022, reflecting distributions and linked pensions accruals of around 310 basis points, it said.
In the FTSE 250, Direct Line fell 1.7%. It named former Moneysupermarket.com chief executive officer Mark Lewis as an independent non-executive director. Lewis will join the board of the Bromley, England-based insurance company on March 30.
Shares in Moneysupermarket were down 1.1%.
Elsewhere in London, Kingspan climbed 3.2%. The building materials firm reported a sharp rise in annual revenue and a jump in profit in 2022.
Pretax profit rose to €746.6 million from €689.0 million in 2021, while revenue climbed 28% to €8.34 billion from €6.50 billion.
Looking forward, Kingspan said it expects to deliver a ‘broadly similar’ trading profit in the first quarter of 2023 to that of 2022 but said it was ‘mindful’ of a more demanding comparative to come in the second quarter.
In European equities on Friday, the CAC 40 in Paris was down 1.0%, while the DAX 40 in Frankfurt was down 1.2%.
In Asia on Friday, the Nikkei 225 index closed down 0.7%. In China, the Shanghai Composite closed down 0.8%, while the Hang Seng index in Hong Kong closed down 1.3%. The S&P/ASX 200 in Sydney ended down 0.9%.
Brent oil was quoted at $83.45 a barrel at early in London on Friday, down from $85.13 late Thursday. Gold was quoted at $1,819.66 an ounce, sharply lower against $1,835.31.
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