London close: Stocks turn red on US inflation data

(Sharecast News) - London stocks had swung into the red by the close on Friday, as investors digested a key US inflation reading and mulled a better-than-expected UK consumer confidence survey. The FTSE 100 ended the session down 0.37% at 7,878.66, and the FTSE 250 was off 0.47% at 19,696.53.

Sterling was also below the waterline, and was last down 0.55% on the dollar at $1.1947, as it weakened 0.1% against the euro to trade at JPY 1.1330.

"US inflation looks to be a problem that will not be going away anytime soon according to the latest data released this afternoon," said IG chief market analyst Chris Beauchamp.

"With the core PCE price index widely heralded as the Fed's favoured inflation gauge, today's rise of 0.6% for the month of January has sparked a surge in pricing for a 50-basis point hike at next month's meeting.

"Perhaps more worrying than a slightly higher terminal rate is the sticky nature of inflation, with yesterday's pricing for a first rate cut in December 2023 now delayed into 2024.

"Not all markets are losers under the weight of a higher for longer monetary policy stance, with forex traders enjoying a fresh resurgence for the dollar after months of declines."

In economic news, UK consumer confidence rebounded from historic lows in February according to a survey from GfK.

The long-running consumer confidence index rose seven points to -38, with all five confidence measures up.

That was the highest level since April 2022, and ahead of analysts' expectations for a reading of -43.

The index measuring changes in personal finances during the last 12 months was five points higher at -26, while the index for personal finances over the next year was up nine points at -18.

GfK's measure for the general economic situation of the country in the last year was six points higher at -65, while the same index but for the next 12 months rose 11 points to -43.

The major purchase index ticked up three points to -37 and the savings index - which measures how likely people are to save - increased five points to +19.

That index is not included in the overall GfK measure.

"Despite widely reported headwinds of inflation continuing to outstrip wage rises, and the ongoing household challenge from the cost-of-living crisis, consumers have suddenly shown more optimism about the state of their personal finances and the general economic situation, especially for the coming year," said Joe Staton, client strategy director at GfK.

"While it's too early to talk about 'green shoots of recovery', the uptick across all measures should be welcomed.

"But what's happening? Are people simply fed up with hearing bad news? Do they see a milder recession than the pundits predicted? Do they sense the most worrying phase of the energy crisis is over?"

Staton noted that the headline consumer confidence score was still seriously depressed, as the mood as well as the economy remained a long way off pre-lockdown levels, but added that some consumer resilience might be needed to soften any downturn in 2023.

"However, many challenges remain and this may be nothing more than a bubble of hope - and bubbles always burst."

Elsewhere, the UK government marked the first anniversary of war in Ukraine by announcing further sanctions against Russia.

The internationally-coordinated package of sanctions and trade measures, announced on Friday, included export bans on all items used by Russia in the war to date, including aircraft parts, radio equipment and electronic components.

Senior executives at state-owned nuclear power company Rosatom have also been sanctioned, along with 34 executives connected to state-owned defence companies Rostec and Almaz-Antey Corporation.

Relief from months of railway strikes and industrial action looked to be on the horizon meanwhile, as members of the TSSA union accepted offers from train operators.

The union said the agreement covered pay, job security, and conditions, and was supported by a significant majority of members in an online ballot.

It said the two-year pay deal would provide a 5% increase, or a minimum of £1,750, in the first year, and a further 4% increase in the second year.

Across the pond, American consumers splashed out with abandon at the start of 2023, with the Department of Commerce reporting that personal incomes grew at a month-on-month clip of 0.6% in January, while personal consumption expenditures shot up 1.8%.

Economists had pencilled in increases of 1.0% for both incomes and spending.

The annual rate of increase in the price deflator for personal consumption expenditures meanwhile edged higher from 5.3% to 5.4%.

At the core level, the annual increase in PCE also ticked up by one-tenth of a percentage point to 4.7%.

Headline and core PCE prices both rose by 0.6% on the month, versus economists' forecast for a rise of 0.4%.

"The Fed's new obsession, core PCE services ex-energy, rose 0.58%, the biggest increase since November 2021," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

"Accordingly, we can't rule out a return to 50-basis point rate hikes, but it is not our base case.

"We expect the payroll, retail sales, and CPI numbers due before the FOMC meeting to assuage some of the market's fears that the economy is not responding to the Fed's tightening. It is."

Consumer confidence in the US meanwhile improved for a third consecutive month, boosted by an improved short-run outlook for the economy, according to a closely-followed survey.

The University of Michigan's headline consumer confidence index for the end of February edged up to 67.0 points, against a preliminary print of 66.4 and 64.9 points at the end of January.

Finally on data, the German economy shrank by more than expected in the last three months of 2022 according to official data, increasing the prospect of the country falling into recession.

According to the Destatis federal statistics office, GDP declined by 0.4% in the fourth quarter compared to the third on a price, seasonal and calendar-adjusted basis - a sharp reversal on the 0.5% growth seen in the third quarter.

Both Destatis and analysts had estimated there would be a 0.2% contraction.

On London's equity markets, British Airways owner IAG flew 6.46% lower despite saying it swung to a full-year profit as international travel recovered from the Covid pandemic.

The company also said it had agreed to buy out the 80% of Air Europa it did not already own for €400m, in a move to turn Madrid into a major airport hub.

IAG, which also owns Iberia and Aer Lingus, reported an operating profit of €1.25bn in 2022 as Covid travel restrictions were lifted, compared with a loss of €2.7bn a year earlier.

On the upside, Jupiter Fund Management surged 7.98% despite reporting a slump in both assets under management and profits after a "difficult" year for the City fund manager.

Broker Peel Hunt said the final results were "significantly better than expected, including surprisingly positive flows in the second half".

Jupiter posted a drop in underlying pre-tax profit to £77.6m from £216.7m, but Peel said that was ahead of its estimate and consensus expectations of £63m.

Outside the FTSE 350, Cineworld Group plunged 43.15% after saying it had received non-binding proposals for some or all of the group's businesses, but that none of them included an all-cash bid for the entire business, with any sale set to provide no recovery for shareholders.

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

Market Movers

FTSE 100 (UKX) 7,878.66 -0.37% FTSE 250 (MCX) 19,696.53 -0.47% techMARK (TASX) 4,615.95 -0.36%

FTSE 100 - Risers

M&G (MNG) 211.30p 6.99% Rolls-Royce Holdings (RR.) 136.04p 2.21% BAE Systems (BA.) 917.80p 1.77% Airtel Africa (AAF) 123.60p 1.48% Frasers Group (FRAS) 795.00p 1.34% Centrica (CNA) 103.85p 1.32% Pearson (PSON) 918.00p 1.10% Standard Chartered (STAN) 771.20p 1.07% Imperial Brands (IMB) 2,070.00p 1.02% British American Tobacco (BATS) 3,216.50p 1.02%

FTSE 100 - Fallers

International Consolidated Airlines Group SA (CDI) (IAG) 154.76p -6.46% Flutter Entertainment (CDI) (FLTR) 13,065.00p -6.18% Anglo American (AAL) 2,852.00p -5.43% Entain (ENT) 1,306.50p -3.58% Burberry Group (BRBY) 2,397.00p -3.07% Rio Tinto (RIO) 5,667.00p -2.90% Antofagasta (ANTO) 1,540.00p -2.69% Ocado Group (OCDO) 621.80p -2.57% Experian (EXPN) 2,865.00p -1.92% WPP (WPP) 1,031.50p -1.90%

FTSE 250 - Risers

Jupiter Fund Management (JUP) 144.80p 7.98% Hunting (HTG) 334.00p 3.73% BBGI Global Infrastructure S.A. NPV (DI) (BBGI) 152.60p 3.25% Spectris (SXS) 3,472.00p 3.18% Harbour Energy (HBR) 290.00p 2.73% Energean (ENOG) 1,205.00p 2.55% Liontrust Asset Management (LIO) 1,216.00p 2.53% Babcock International Group (BAB) 334.80p 2.51% Balanced Commercial Property Trust Limited (BCPT) 86.90p 2.48% Trainline (TRN) 246.00p 2.24%

FTSE 250 - Fallers

TUI AG Reg Shs (DI) (TUI) 1,542.60p -5.54% Domino's Pizza Group (DOM) 272.20p -5.42% Molten Ventures (GROW) 366.40p -3.98% Helios Towers (HTWS) 103.60p -3.81% Wizz Air Holdings (WIZZ) 2,522.00p -3.45% Investec (INVP) 518.20p -3.36% Genus (GNS) 2,840.00p -3.34% Future (FUTR) 1,383.00p -3.15% Vietnam Enterprise Investments (DI) (VEIL) 558.00p -2.96% Fidelity China Special Situations (FCSS) 256.00p -2.85%