London close: Stocks finish weaker after rate rise trifecta

(Sharecast News) - London stocks were still weaker by the close on Thursday, after the Bank of England sated expectations with a 50-basis point interest rate hike to tackle surging inflation, while central bankers in Europe and the United States made similar decisions. The FTSE 100 ended the session down 0.93% at 7,426.17, and the FTSE 250 was off 0.76% at 18,893.79.

Sterling was in the red as well, last trading down 1.96% on the dollar at $1.2182, as it weakened 1.19% against the euro to change hands at €1.1494.

"The inflation-led rebound seen on Tuesday seems a distant memory today, with the S&P 500 slumping into a fresh five-week low in early trade," said IG senior market analyst Joshua Mahony.

"The collapse in equity valuations comes as traders face up to an impending economic collapse where central banks seek to exacerbate rather than remedy the situation.

"Higher for longer is the message from the likes of the FOMC, BoE and ECB, with all concerns cast aside in a bid to combat elevated prices."

Mahony said the difficulty for bulls was that this current outlook remained "difficult to swallow", despite a favourable backdrop of declining commodity prices.

He added that the FTSE 100, however, was proving to be a bit of an outperformer on Thursday, as the collapse in Europe and US equity markets brought 2% declines across the board.

"Not so for the FTSE 100, with the resurgence in the dollar helping to drive sterling-dollar lower.

"The inverse correlation between sterling-dollar and the FTSE 100 should help mitigate much of the downside seen elsewhere, although it also limits the size of any recovery.

"With the VIX on track to post its biggest daily gain in almost three-months, we are seeing signs that equity markets could be on the cusp of rolling over here."

Central bank action dominated the headlines, with the Bank of England lifting rates by an expected 50-basis points at lunchtime, as it looked to tackle surging inflation.

It was the BoE's ninth increase in a row, leaving rates at 3.5% - their highest level since the financial crisis in October 2008.

Last month, the Bank hiked rates by 75-basis points, which was the biggest increase for 33 years.

Thursday's decision was not unanimous, however, with policymakers Swati Dhingra and Silvana Tenreyro opting to keep the rate at 3%, and Catherine Mann in favour of a 75-basis point hike.

"The labour market remains tight and there has been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justifies a further forceful monetary policy response," the Bank of England's statement read.

"The majority of the Committee judges that, should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target."

It said there were "considerable uncertainties" over the outlook.

"The Committee continues to judge that, if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary."

Data released on Wednesday by the Office for National Statistics showed that consumer price inflation eased to 10.7% in November from October's 41-year high of 11.1%, as transport costs fell back.

That was also below consensus expectations of 10.9%.

On the continent, meanwhile, the European Central Bank hiked interest rates by 50-basis points as well, which was also expected, in the face of surging inflation.

The deposit and refinancing rates were lifted to 2.00% and 2.5%, respectively.

Following the decision, the ECB said that based on "the substantial upward revision to the inflation outlook", it expected to raise rates further going forward.

"In particular, the Governing Council judges that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target," it said.

The ECB said it now expected inflation in the eurozone to come in at 6.3% next year, 3.4% in 2024 and 2.3% in 2025.

It was also expecting the economy to grow 3.4% this year, 0.5% in 2023, 1.9% in 2024 and 1.8% in 2025.

Eurozone inflation dropped to 10.0% in November from a record high of 10.6% in October.

Rate-setters in Washington kicked off the round of major rate decisions overnight, shifting down their pace of interest rate hikes to 50-basis points as expected, but also pushing back on expectations that policy could start to be loosened in the back half of 2023.

In its policy statement, the Federal Open Market Committee described job gains over recent months as "robust" while prices were said to still be "elevated".

Federal Reserve chair Jerome Powell said in his post-meeting press conference that the central bank would not be looking at cutting rates until it was "confident" that inflation was headed down towards 2% "in a sustained way".

He added that the Fed wanted strong wage growth, but at a level consistent with 2% inflation.

In economic news from across the pond, US first-time unemployment claims fell by 20,000 in the week ended 10 December, dropping to 211,000 - the lowest level since the end of September and well below market expectations of 230,000.

According to the Labor Department, jobless claims fell by 39,095 to 248,881 on a seasonally unadjusted basis, while the four-week moving average, which aims to strip out week-to-week volatility, fell by 3,000 to 227,250.

Continuing claims, on the other hand, edged up by 1,000 to 1.67m in the week ended 3 December.

Industrial production growth in the US meanwhile fell short of forecasts last month due to the drag from factory and mining activity.

According to the Department of Commerce, total industrial production slipped at a seasonally-adjusted month-on-month pace of 0.2% in November.

That compared to economists' forecasts for a rise of 0.2%.

Elsewhere, Americans unexpectedly reined in their spending in November, with the US Commerce Department reporting that seasonally-adjusted retail sales volumes fell at a month-on-month pace of 0.6% to reach $689.4bn.

Economists had pencilled in a flat reading, after a 1.3% jump in October.

Finally on data, factory activity in the US mid-Atlantic region continued to shrink at the end of 2022, albeit at a slower clip, according to the latest results of a closely-watched survey.

The Philadelphia Fed's manufacturing sector index rebounded to -13.8 in November, from a reading of -19.4 for October.

Economists had forecast a print of -10.0.

On London's equity markets, DS Smith was down 3.83%, Associated British Foods lost 3.5% and Burberry Group was off 3.14% as they all traded without entitlement to the dividend.

Technology and electricals retailer Currys slid 5.74% after it cut its full-year profit outlook and swung to a loss in the first half, as its international business took a hit amid heavy discounting from competitors.

In an update for the six months ended 29 October, the firm said it now expected 2023 adjusted pre-tax profit between £100m and £125m, down from previous guidance for £125m to £145m on a like-for-like basis.

Government outsourcer Serco Group lost 1.2% even after it lifted its 2022 revenue guidance slightly, adding that revenue the following year would increase.

On the upside, Great Portland Estates gained 0.98%, Land Securities Group rose 0.6%, and Big Yellow Group advanced 2.17% after rating upgrades from Goldman Sachs.

Shipping services firm Clarkson was 3.84% higher after an upgrade to 'overweight' at JPMorgan.

Housebuilders were also on the rise, having fallen on Wednesday on the back of a note on the sector by JPMorgan Cazenove.

Barratt Developments was up 1.19%, Berkeley Group added 1.19% and Taylor Wimpey gained 1.12%.

Miner Rio Tinto Group was also in the black, closing 0.62% higher after being knocked lower on Wednesday by a downgrade from JPMorgan as well.

Elsewhere, energy generator Drax Group was lifted 3.11% after it flagged full-year earnings slightly above the top-end of analyst expectations, on the back of higher prices and a strong pumped storage and hydroelectric performance in the second half.

The company's own compiled consensus for 2022 adjusted core earnings was £668m, with a range of £651m to £681m.

Reporting by Josh White for Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesti, Iain Gilbert and Alexander Bueso.

Market Movers

FTSE 100 (UKX) 7,426.17 -0.93% FTSE 250 (MCX) 18,893.79 -0.76% techMARK (TASX) 4,396.40 -0.79%

FTSE 100 - Risers

International Consolidated Airlines Group SA (CDI) (IAG) 134.06p 2.12% Berkeley Group Holdings (The) (BKG) 3,867.00p 1.39% Barratt Developments (BDEV) 408.40p 1.19% Taylor Wimpey (TW.) 103.40p 1.12% Pearson (PSON) 921.40p 0.92% Rio Tinto (RIO) 5,657.00p 0.62% Land Securities Group (LAND) 639.40p 0.60% British American Tobacco (BATS) 3,285.00p 0.52% GSK (GSK) 1,449.40p 0.39% BAE Systems (BA.) 837.40p 0.38%

FTSE 100 - Fallers

Ocado Group (OCDO) 660.00p -4.15% Smith (DS) (SMDS) 313.80p -3.83% SEGRO (SGRO) 795.00p -3.52% Associated British Foods (ABF) 1,571.50p -3.50% Barclays (BARC) 155.20p -3.16% Burberry Group (BRBY) 2,069.00p -3.14% Convatec Group (CTEC) 229.60p -3.04% Next (NXT) 5,742.00p -3.04% Rightmove (RMV) 543.60p -2.89% Flutter Entertainment (CDI) (FLTR) 11,595.00p -2.89%

FTSE 250 - Risers

Aston Martin Lagonda Global Holdings (AML) 169.65p 4.53% Clarkson (CKN) 2,975.00p 3.84% Octopus Renewables Infrastructure Trust (ORIT) 100.00p 3.20% Drax Group (DRX) 646.00p 3.11% Redrow (RDW) 468.20p 2.45% QinetiQ Group (QQ.) 352.80p 2.44% Just Group (JUST) 77.75p 2.37% Big Yellow Group (BYG) 1,178.00p 2.17% Direct Line Insurance Group (DLG) 220.70p 1.94% Vistry Group (VTY) 627.50p 1.87%

FTSE 250 - Fallers

Helios Towers (HTWS) 100.90p -7.00% National Express Group (NEX) 143.80p -6.50% Molten Ventures (GROW) 363.40p -5.81% Currys (CURY) 61.55p -5.74% Syncona Limited NPV (SYNC) 185.80p -5.69% Hochschild Mining (HOC) 66.95p -5.04% ASOS (ASC) 510.50p -4.58% FDM Group (Holdings) (FDM) 752.00p -4.33% Bridgepoint Group (Reg S) (BPT) 192.00p -3.95% Ascential (ASCL) 193.60p -3.87%