London close: Stocks weaker as ECB warms up for rate hikes

(Sharecast News) - London stocks closed weaker on Thursday as worries about a slowdown in economic growth and rising inflation continued to dent sentiment, while the European Central Bank began preparing the market for increasing interest rates from next month. The FTSE 100 ended the session down 1.54% at 7,476.21, and the FTSE 250 was 1.17% weaker at 20,073.40.

Sterling was in a mixed state, meanwhile, last trading 0.19% weaker against the dollar at $1.2513, while it strengthened 0.39% on the euro to €1.1749.

"It might be late to the party, but the ECB looks committed to raising rates," said IG chief market analyst Chris Beauchamp.

"This has given fresh impetus to the rush to sell stocks, with Wall Street beginning the day in the red and European markets seeing losses intensify."

Beauchamp said investors could look at current oil prices and conclude that high CPI readings were unlikely to go anywhere, meaning hopes of a cooling in the pace of central bank tightening were "likely to remain unfulfilled".

"But with the growth forecasts being trimmed too, the euro has been on the receiving end of selling too, confirming the pessimistic views of investors."

Indeed, the European Central Bank announced during the afternoon that it will wrap up its asset purchases on 1 July and execute a first rate hike of 25 basis points in the same month, followed by another - possibly larger - increase in September, with more to come thereafter.

It also left the door open to an interest rate hike of more than 25 basis points in September "if the medium-term inflation outlook persists or deteriorates."

Until then, all its main interest rates were being left unchanged, with that for the main refinancing operations, on the marginal lending facility and the deposit facility at 0.00%, 0.25% and -0.50%, respectively.

In its monetary policy statement, the ECB's governing council also said that the bank's staff had upwardly revised their short-to-medium term inflation projections.

The ECB attributed May's significant rise in the headline consumer price index to a surge in energy and food prices, including because of the war in Ukraine.

"These projections indicate that inflation will remain undesirably elevated for some time," it said in its statement.

"However, moderating energy costs, the easing of supply disruptions related to the pandemic and the normalisation of monetary policy are expected to lead to a decline in inflation."

Across the pond, jobless claims in the United States rose by more than expected during the latest week, although the Memorial Day holiday may have been partially to blame.

According to the US Department of Labor, in seasonally adjusted terms, initial unemployment claims rose by 27,000 to reach 229,000 over the week ending on 4 June.

Economists at Barclays Research had forecast a rise to 215,000.

"The week included the Memorial Day holiday and claims data can be noisy around holidays," said Nancy Vanden Houten, Lead US economist at Oxford Economics.

"However, while we think labour markets are still currently quite tight, we can't totally dismiss the notion that the rise in claims is a sign of a modest rise in layoffs."

On home shores, the average cost of filling a family car with petrol hit £100 for the first time in history, with the RAC declaring it "a truly dark day" for British motorists.

The cost of filling a 55-litre tank with petrol reached £100.27 on Thursday, while for diesel it topped out at £103.43 as soaring fuel prices driven by the war in Ukraine and resulting efforts to cut Europe's dependence on Russian oil continued to hammer consumers.

"While fuel prices have been setting new records on a daily basis, households up and down the country may never have expected to see the cost of filling an average-sized family car reach three figures," said RAC spokesman Simon Williams.

Williams also implored Downing Street to offer further financial support to motorists, including a cut in VAT on fuel.

In economic news, UK growth was set to "grind to a halt" this year before falling briefly into contractionary territory, according to the British Chambers of Commerce.

The BCC cut its 2022 growth forecast to 3.5% from 3.6% against "a deteriorating economic outlook".

That was down from 7.5% growth a year earlier, as the business group also said inflation could hit 10% in the final quarter of the year, "comfortably" outpacing average earnings growth.

It said it expected heightened economic uncertainty and rising costs to weaken business investment to 1.8% growth in 2022, down from a previous forecast of 3.5%.

Meanwhile, quarter-on-quarter GDP was expected to flatline with no growth in the second and third quarters, before a contraction of 0.2% in the final quarter of the year.

"This negative outlook reflects a combination of soaring inflation, weak business investment, tax rises and the global economic shocks - initially caused by Covid and then compounded by the war in Ukraine," the BCC said.

On London's stock markets, J Sainsbury was down 1.46%, Primark owner Associated British Foods lost 2.49%, WPP was 2.49% weaker and Johnson Matthey was 1.26% lower as they traded without entitlement to the dividend.

Online trading platform CMC Markets tumbled 20.99% after it reported a drop in full-year pre-tax profit - although it was broadly in line with expectations - and slashed its dividend.

The company said it was targeting 30% growth in net operating income over the next three years.

British American Tobacco reversed earlier gains to close down 1.98%, despite backing its full-year guidance and said its "transformation" was continuing at pace.

Entain also gave up its prior advances, even after JPMorgan - which rates the shares at 'overweight' - said it was "the most appealing equity story" in the European gaming sector, with solid execution and double-digit earnings per share growth.

On the upside, GKN owner Melrose Industries pushed up 4.19% after it launched its £500m share buyback programme.

Mitie Group jumped 6.33% after the detention centre and building facilities operator reinstated its dividend and unveiled a £50m share buyback, as it swung to a full-year profit, boosted by new contract wins.

Tate & Lyle advanced 2.28% after the flavours and sweeteners specialist said it had seen "strong top-line growth" in the year ended 31 March, with both revenue and profits growing on an adjusted basis.

In deal news, private hospital operator Mediclinic rose 2.64% after rejecting a 463p-a-share takeover offer from a consortium comprising of shareholder Remgro and MSC Mediterranean Shipping Company.

Peer Spire Healthcare also gained on the news, closing 4.04% higher.

Passenger transport operator FirstGroup, meanwhile, fell 1.24% after it formally rejected a £1.2bn takeover approach from US private equity firm I Squared, saying it "significantly undervalues" the firm.

The bus and train behemoth added that a conditional cash component did not provide shareholders with enough certainty.

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

Market Movers

FTSE 100 (UKX) 7,476.21 -1.54% FTSE 250 (MCX) 20,073.40 -1.17% techMARK (TASX) 4,345.17 -1.22%

FTSE 100 - Risers

Melrose Industries (MRO) 164.30p 4.19% Airtel Africa (AAF) 145.90p 1.32% Vodafone Group (VOD) 126.00p 1.22% Severn Trent (SVT) 2,902.00p 0.48% Pershing Square Holdings Ltd NPV (PSH) 2,510.00p 0.20% London Stock Exchange Group (LSEG) 7,110.00p 0.17% Coca-Cola HBC AG (CDI) (CCH) 1,775.00p 0.11% BT Group (BT.A) 181.25p 0.03% Diageo (DGE) 3,598.50p -0.04% Whitbread (WTB) 2,761.00p -0.07%

FTSE 100 - Fallers

Sainsbury (J) (SBRY) 209.50p -5.85% WPP (WPP) 871.80p -4.49% Fresnillo (FRES) 738.20p -4.29% Ocado Group (OCDO) 915.40p -3.91% Aveva Group (AVV) 2,372.00p -3.65% Kingfisher (KGF) 246.70p -3.60% RS Group (RS1) 914.50p -3.38% Endeavour Mining (EDV) 1,817.00p -3.35% Associated British Foods (ABF) 1,652.00p -3.28% Intermediate Capital Group (ICP) 1,482.50p -3.21%

FTSE 250 - Risers

Mitie Group (MTO) 65.50p 6.33% Spire Healthcare Group (SPI) 232.00p 4.04% Coats Group (COA) 73.00p 2.96% Mediclinic International (MDC) 436.20p 2.64% Abrdn Private Equity Opportunities Trust (APEO) 477.00p 2.39% Tate & Lyle (TATE) 762.00p 2.28% GCP Infrastructure Investments Ltd (GCP) 115.00p 2.13% Britvic (BVIC) 814.50p 1.88% LXI Reit (LXI) 146.20p 1.67% Hipgnosis Songs Fund Limited NPV (SONG) 115.80p 1.40%

FTSE 250 - Fallers

CMC Markets (CMCX) 239.00p -20.99% Carnival (CCL) 874.60p -9.18% Chrysalis Investments Limited NPV (CHRY) 119.40p -7.44% Wizz Air Holdings (WIZZ) 2,324.00p -7.00% Bridgepoint Group (Reg S) (BPT) 300.20p -6.44% Dr. Martens (DOCS) 257.20p -6.40% IG Group Holdings (IGG) 670.00p -5.77% Aston Martin Lagonda Global Holdings (AML) 655.20p -5.18% Indivior (INDV) 300.80p -4.93% Watches of Switzerland Group (WOSG) 889.50p -4.68%