Market confidence that the US Federal Reserve next week would begin to slow the pace of its interest rate hikes was shredded by a fresh indication of a hot economy, sending stock markets lower on Tuesday and widening US Treasury yields.
‘We’re very much in looking-glass territory again with investors desperate for the Fed to ease up on rate hikes and therefore taking any bit of good news about the economy as bad news because it will delay the longed-for pivot,’ said AJ Bell’s Russ Mould.
The Fed will announce its next interest rate decision on Wednesday next week. At its last meeting in November, the central bank lifted US interest rates by 75 basis points, in-line with expectations.
Prior to new economic data on Monday, a smaller 50-basis-point hike had been expected from this month’s meeting, after the Fed Chair Jerome Powell last week said the Fed could ease its pace of increases ‘as soon as’ December.
The FTSE 100 index was down 23.23 points, or 0.3%, at 7,544.31 midday Tuesday in London. The FTSE 250 was down 117.57 points, or 0.6%, at 19,212.01. The AIM All-Share was down 9.48 points, or 1.1%, at 841.24.
The Cboe UK 100 was down 0.4% at 754.40, the Cboe UK 250 was down 0.8% at 16,598.95, and the Cboe Small Companies was down 0.5% at 13,216.69.
On Monday, the Institute for Supply Management reported that the US service sector picked up in November.
ISM’s services PMI rose to 56.5 points last month from 54.4 in October. November’s reading came in ahead of consensus of 53.1 points. It was the 30th month of growth for the US service sector, according to ISM.
The data fuelled Fed hawks, with the data hinting, according to Swissquote’s Ipek Ozkardeskaya, that economic activity in the US continues to grow ‘un-ideally faster-than-expected despite the Federal Reserve’s efforts to cool it down’.
Ricardo Evangelista at ActivTrades agreed: ‘US PMI data revealed that the country’s economy is still running hot, creating scope for more interest rate hikes.’
The dollar was mixed at midday on Tuesday. The euro stood at $1.0516, flat against $1.0515 late Monday. Against the yen, the dollar was trading at JP¥136.34, down from JP¥136.42.
‘There has been little follow-through dollar buying today after yesterday’s rebound,’ commented Bannockburn Global Forex. ‘The Canadian dollar and sterling are trading heavier, while most of the other G10 currencies are a little firmer.’
The pound was quoted at $1.2212 at midday on Tuesday in London, up from $1.2189 at the London equities close on Monday.
Growth in the UK’s construction sector slowed by more than expected in November, according to the latest figures from S&P Global.
The S&P Global/CIPS UK construction purchasing managers’ index fell to 50.4 in November from 53.2 in October. Falling close to the 50.0 no-change mark, it shows that growth in the sector has slowed to almost a standstill.
The reading came in lower than FXStreet-cited market consensus of 52.0 points.
Meanwhile, the rate of grocery price inflation in the UK has slowed for the first time in nearly two years, the latest market survey from Kantar revealed.
In the four-weeks to November 27, price inflation eased to 14.6% from the record high 14.7% in the four-weeks to October 30. This marked the first slowdown in price rises in 21 months.
In London, Phoenix Group rose 2.9% to the top of the FTSE 100. The insurance services provider said it expects to achieve strong organic growth in 2022, with £1.2 billion of new business to be delivered in the year.
Phoenix said its £1.2 billion long-term cash generation comprises around £900 million from its Retirement Solutions business, and £300 million from its Pensions & Savings, Europe and SunLife businesses.
Ashtead was up 0.4% after it reported strong revenue and profit growth in its second quarter. It also raised its interim dividend and upped its rental revenue outlook.
In the three months that ended October 31, the industrial equipment rental company said revenue grew by 28% to $2.54 billion from $2.03 billion a year before. Pretax profit jumped 40% to $658 million from $474 million.
Ashtead now expects annual results ahead of its previous guidance. ‘Our business is performing well with clear momentum in robust end markets. We are in a position of strength and, with increased market clarity, have the operational flexibility to capitalise on the opportunities arising from the market and economic environment we face,’ Ashtead said.
For the whole group, Ashtead expects rental revenue growth of 18% to 21%, up from 15% to 17% previously.
Mondi dropped 4.3%, the worst blue-chip performer at midday after Credit Suisse cut the paper and packaging firm firm to ’underperform’ from ’overperform’.
In the FTSE 250, SSP was up 3.4% after it swung to an annual profit and multiplied its revenue due to a recovery in domestic and leisure travel in the aviation and rail sectors.
The travel food and beverage outlet operator said pretax profit for the financial year that ended September 30 was £25.2 million, swinging from a loss of £411.2 million a year prior. Revenue also multiplied to £2.19 billion from £834.2 million.
SSP said this was due to a recovery in passenger numbers in airports and rail transport hubs.
Elsewhere in London, Schroder European Real Estate Investment Trust was up 1.3% as the property investor reported a 77% surge in pretax profit to €16.6 million for the financial year to September 30 from €9.4 million in the prior year.
On AIM, Vela Technologies jumped 17% following the disposal of 568,653 shares in electronic chip maker EnSilica, between May 24 and December 2.
The early-stage investment firm generated £349,469 in net proceeds from the disposal, which it said will be used to make further investments.
Gold was priced at $1,778.30 an ounce at midday on Tuesday, up from $1,776.79 late Monday. Brent oil was quoted at $81.46 a barrel, lower against $84.95.
Oil majors BP and Shell fell 2.2% and 2.0%, respectively, tracking oil’s lower price.
In European equities on Tuesday, the CAC 40 in Paris and the DAX 40 in Frankfurt were both 0.3% lower. Stocks in New York were set for a mixed open on Tuesday, with the Dow Jones called 0.1% lower, the S&P 500 called flat, and the Nasdaq called up 0.1%.
Still to come on Tuesday, the US will publish its goods and services trade balance at 1330 GMT. Canada will publish export and import data at the same time.
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