Hawkish Fed comments sends London stocks tumbling
London stocks tumbled to a negative close on Friday, after the release of poor data on the outlook for the UK economy and retail sales, and following hawkish comments from Fed chair Jerome Powell overnight.
The FTSE 100 ended the session down 1.39% at 7,521.68, and the FTSE 250 was 1.31% weaker at 20,881.80.
Sterling was also in the red, last trading down 1.38% on the dollar at $1.2850, and weakening 0.92% against the euro to €1.1914.
“Stock markets are in the red because of the hawkish comments made by Fed chair Jerome Powell last night – the central banker stressed the need to tackle rising inflation by hiking interest rates,” said Equiti Capital market analyst David Madden.
“Powell strongly suggested that rates will be lifted by 50 basis points next month.”
Madden noted that there had been growing chatter in recent weeks that the Fed might look to ramp up its rate of policy tightening, with the update from the Fed head making it “very clear” that would happen.
“Good communication skills in this situation are crucial, and Powell gave a very clear signal there will be a 0.5% hike next month.”
On the data front, economic activity in the UK slowed markedly in April amid a record rise in firms’ costs, and a gloomier outlook.
S&P Global‘s flash purchasing managers’ index (PMI) composite output index fell to 57.6 for April, from a March reading of 60.9 and coming in below expectations for 58.5.
The preliminary reading on the headline PMI for just the manufacturing sector edged up, however, to 55.3 from 55.2, although orders received by manufacturers nearly stalled due to an increasing loss of exports.
S&P said the services PMI declined to 58.3 from 62.6, below consensus forecasts for 60.0, and was among the weakest since the lockdowns of early 2021.
“While the start of the year saw businesses in high spirits amid the reopening of the economy, this ebullient mood is being eroded by concerns about the rising cost of living, the Russia-Ukraine war, lingering pandemic disruptions and rising interest rates,” said Chris Williamson, chief business economist at S&P Global.
Elsewhere, Britons’ outlook for the economy sank to its lowest level since the Global Financial Crisis, the results of a closely-followed survey revealed.
Consultancy GfK‘s consumer confidence index for Britain slipped by seven points in April from the month before to reach a reading of -38.0.
Economists had pencilled in a print of -33.0.
“The cost crunch is really hitting the pockets of UK consumers and the headline confidence score has dropped to a near historic low,” said Joe Staton, client strategy director at GfK.
A sub-index tracking views on the economy 12 months out meanwhile retreated by six points to a reading of -55.0.
Still on data, UK retail sales fell more than expected in March, as surging inflation hit demand for food and petrol, according to official data released on Friday.
Retail sales volumes fell by 1.4% last month compared with February, the Office for National Statistics said, worse than expectations for a 0.3% monthly drop.
Sales of food and petrol, where prices have spiralled in recent months, fell sharply, the ONS said.
Online retail sales, which boomed during Covid pandemic lockdowns, also fell, it added.
“In cutting back on their spending, consumers will also have had one eye on the upcoming surge in energy bills, as well as other price rises, which will have hit their wallets in April,” said CMC Markets chief analyst Michael Hewson.
“We also can’t forget to mention the fiscal own goal of the Chancellor of the Exchequer (finance minister) Rishi Sunak in going through with his National Insurance tax hikes, against a chorus of voices urging him to defer them. He can’t say he wasn’t warned.
“However this is spun, this consumer slowdown is very much one of the government’s own makings and is likely to make for a difficult summer for business and consumers alike.”
Hewson said Friday’s figures would also factor into debate among Bank of England policymakers over whether to raise interest rates next month by 50 or 25 basis points.
Sentiment began the day weakly after Fed head Powell said at an event hosted by the International Monetary Fund overnight that “there’s something in the idea of front loading”.
That sent Wall Street stocks below the line and government bond yields higher, with the 10-year US Treasury note yield now close to the psychologically-important 3.0% mark.
In equities, B&M European Value Retail closed down 6.07% after chief executive Simon Arora said he planned to retire in 12 months, after 17 years at the helm of the variety goods chain.
Arora bought the group in December 2004 with his brother Bobby, and expanded its estate to more than 1,100 stores from 21.
Ukraine-focussed mining firm Ferrexpo reversed earlier gains to finish 0.29% weaker, after saying it had been forced to delay a decision on paying a dividend, following Russia’s invasion of the country.
Ferrexpo, which also said it would pause projects not expected to deliver near-term growth, said all its operations in Ukraine were away from the main conflict zones, but highlighted that the war had created many operational and logistical challenges.
Real estate investment trust LXI REIT was 0.27% lower, after reporting a number of transactions, disposing of one property and acquiring another two.
The company disposed of a property let to Premier Inn, B&M, Pure Gym, Pets at Home and Costa for £19.33m, and agreed to purchase an M&S Simply Food store and a MKM trade unit for a combined £9.44m, as well as a food store in North Ayrshire through a pre-let forward funding deal.
Pantheon International was 0.16% weaker, despite reporting a 4% improvement in its unaudited net asset value per share in March to 434.2p.
Anglo American tumbled 5.94% after RBC Capital Markets cut its target price to 3,400.0p from 4,400.0p, and downgraded its view on the stock to ‘sector perform’ from ‘outperform’.
Travel-related stocks were below the waterline on the latest news from the war in Ukraine, with a Russian general reportedly saying one of Moscow’s goals was to control all of Ukraine’s Black Sea coast.
British Airways owner IAG was down 2.34%, easyJet and Wizz Air descended 3.95% and 0.92%, TUI lost 3.92%, Carnival was off 3.02%, and travel caterer SSP Group was 2.97% weaker.
On the upside, Berkeley Group managed gains of 0.39% after Jefferies upgraded its recommendation to ‘buy’ from ‘hold’, and raised its target price to 5,587.0p from 4,703.0p.
HomeServe rocketed 14.88%, meanwhile, after it revealed that it was in talks with Canada’s Brookfield Asset Management over a possible offer.
