London close: Stocks weaker as Powell steers clear of hawkishness

(Sharecast News) - London stocks closed in the red on Tuesday, as investors mulled hawkish comments from Federal Reserve officials, including an afternoon speech from US Fed chair Jerome Powell. The FTSE 100 ended the session down 0.39% at 7,694.49, and the FTSE 250 was off 0.45% at 19,390.97.

Sterling was also below the waterline, last trading down 0.25% on the dollar at $1.2153, as it weakened 0.29% against the euro to change hands at €1.1320.

"European markets have spent most of the day on the back foot with some profit taking kicking in after what has been a strong start to the year," said CMC Markets chief market analyst Michael Hewson.

"This week's US CPI report is set to become the latest waypoint in the tug of war currently playing out between the market, which thinks the Fed will have to cut rates this year, and Fed officials who insist nothing even close to that will happen."

Federal Reserve chair Jerome Powell failed to give any clues as to the trajectory of monetary policy in a speech earlier in the afternoon.

Instead, he focussed on the central bank's independence from political to-ing and fro-ing as being key to its battle against rampant inflation.

"Stocks managed to dig out some optimism from behind the sofa following Powell's speech, relieved that he didn't say anything particularly hawkish," said IG's Chris Beauchamp.

"But the respite will be limited; after a quiet day tomorrow the old bugbear of US inflation comes in on Thursday, swiftly followed up by the official beginning of earnings season.

"Perhaps there is hope here - current expectations point towards a decline in income for the reporting season, setting the bar comfortably low.

"Now we have to hope that earnings can step over it and give stocks a reason to move higher again."

In economic news, data released earlier showed retail sales jumping in December, as shoppers splashed out on Christmas food and gifts.

Many in the sector had been concerned that the cost-of-living crisis, widespread rail strikes and the cold snap would weigh on sales during December - one of the most important months of the year for retailers.

But according to the latest BRC-KPMG retail sales monitor, total sales increased by 6.9% last month, compared to 2.1% growth in December 2021.

On a like-for-like basis, they improved 6.5% against a 0.6% rise a year previously.

The increase was driven largely by food sales, which jumped 7.7% in the three months to December.

Non-food sales rose 1.1% over the same period on the same basis.

The strong end to the year helped UK total retail sales increase 3.1% year-on-year in 2022, with food sales ahead 3% and non-food sales up 3.2%.

"After an exceptionally challenging year, which saw inflation climb and consumer confidence plummet, the uptick in spending over Christmas gave many retailers cause for cheer," said Helen Dickinson, chief executive of the British Retail Consortium.

"Nonetheless, despite the strong sales, growth remained below inflation, making December the ninth consecutive month of falling volumes.

"Retail faces further headwinds in 2023: cost pressures show little immediate signs of waning, and consumer spending will be further constrained by increasing living costs."

Elsewhere, industry data showed grocery sales specifically also surging in December, as shoppers splashed out on last-minute festive treats.

According to NielsenIQ, total till value growth increased to 10.9% from 7.6% in November, boosted largely by high food inflation and weak comparatives but also especially strong trading in the seven days leading up to Christmas Eve.

Values sales increased by 19% at grocery multiples in the week before Christmas, NielsenIQ found, with spending topping £4.6bn, making it the highest spending week on record, while volumes sales increased by 8.8%.

"Weak confidence around personal finances and a squeeze on disposable income will have a big impact on demand over the full year," warned Mike Watkins, UK head of retail and business insight at NielsenIQ, looking at the year ahead.

"We estimate today food retail growth in 2023 to be around 5% - a total of £190bn across all channels.

"However, we also expect the recession to start to influence shopper behaviour and reframe overall retail spend."

Across the pond, wholesale inventories in the United States rose 1% month-on-month in November to $933.1bn, according to the Census Bureau, in line with preliminary estimates.

Durable goods inventories rose at a faster pace of 1.1%, up from 0.8% in October, amid a rebound in furniture and professional equipment, while growth also continued at a high pace for machinery, up 2.2% versus 2.9% a month earlier.

Inventories levels also accelerated for non-durable goods, up 0.7% versus 0.3%, largely due to a bounce back in drug stocks at 2.7% and apparel at 2.3%, up from -0.7% and -0.5%.

On an annual basis, wholesale inventories rose 20.9%, slightly below the 21.9% increase registered in the prior month.

Staying stateside, small business confidence in the US fell back to its June lows at the end of 2022, alongside declines in gauges for price pressures and hiring, according to a survey, although salary pressure remained.

The National Federation of Independent Business' small business optimism index slipped to 89.8 in December, from a November reading of 91.1.

Economists had pencilled-in a fall to 91.5.

Last month's reading also remained well below the index's historical average of 98.0 with eight of its 10 components retreating, especially in that for expectations for business conditions, Oxford Economics said.

Finally on the economic front, a dire outlook for the global economy was issued by the World Bank earlier, with officials warning that the planet's financial health was "on a razor's edge".

The US-based international lender said in its latest Global Economic Prospects report that it now expected the world's economy to expand by just 1.7% this year.

That was a serious downgrade from its previous estimate of 2.9% in 2022.

According to the Financial Times, if the World Bank's expectations turned true, the 2020s would become the first decade since the 1930s to undergo two global recessions.

"The risks that we warned of six months ago have materialised and our worst-case scenario is now our baseline scenario," World Bank economist Ayhan Kose said.

"The world's economy is on a razor's edge and could easily fall into recession if financial conditions tighten."

Tuesday's dire warning came on the back of a similarly gloomy outlook from the International Monetary Fund, whose managing director Kristalina Georgieva warned last week that a third of the world's economy would fall into recession in 2023.

On London's equity markets, ITV slid 6.7% after Morgan Stanley cut its price target on shares of the broadcaster.

Recruiters PageGroup and Hays were also in focus, slumping a respective 7.26% and 6.92%, after a profit warning from sector peer Robert Walters.

Miniature wargames manufacturer Games Workshop Group was in the red by 2.52% after it posted a decline in half-year profit.

IT infrastructure and services provider Softcat was knocked 4.82% lower by a downgrade to 'sell' from 'neutral' at UBS.

Online electrical retailer AO World reversed earlier gains to tumble 5.29% by the close, despite lifting its profit guidance for the year ending March.

The company reported that profitability was running ahead of its previous expectations, having taken actions to cut costs and improve margins.

Shipping services firm Clarkson sailed 7.85% lower after a downgrade to 'hold' at HSBC.

RS Group lost 4.83% even after saying it expected full-year profit to be towards the top end of consensus estimates, after third-quarter revenues grew 8% despite a tough economic backdrop.

The distributor of industrial and electronic products said strong trade in EMEA and the US regions offset an 8% fall in Asia-Pacific sales, due to the shortage of computer parts.

Consensus for the year through March was now for a revenue range of £2.71bn to £3.04bn, adjusted operating profit of £356.8m to £384.1m and adjusted pre-tax profit of £350.4m to £374.9m.

On the upside, insurer Admiral Group advanced 2.9% after an upgrade to 'buy' at Deutsche Bank.

Greeting card retailer Card Factory jumped 5.05% after it upgraded its profit guidance for the year, pointing to better-than-expected trading as customers returned to shopping in bricks and mortar stores.

Plus500 rose 4.62% after hailing an "excellent" operational and financial performance throughout 2022.

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

Market Movers

FTSE 100 (UKX) 7,694.49 -0.39% FTSE 250 (MCX) 19,390.97 -0.45% techMARK (TASX) 4,483.27 -0.40%

FTSE 100 - Risers

Admiral Group (ADM) 2,277.00p 3.13% Convatec Group (CTEC) 246.20p 2.07% Rightmove (RMV) 553.20p 1.47% Abrdn (ABDN) 196.60p 1.39% Smith & Nephew (SN.) 1,182.50p 1.20% Burberry Group (BRBY) 2,238.00p 1.18% Antofagasta (ANTO) 1,746.50p 1.16% Whitbread (WTB) 2,840.00p 1.14% M&G (MNG) 196.45p 1.13% Pearson (PSON) 916.00p 1.04%

FTSE 100 - Fallers

RS Group (RS1) 911.00p -4.36% British American Tobacco (BATS) 3,153.50p -3.99% Airtel Africa (AAF) 110.50p -3.49% Ocado Group (OCDO) 720.40p -3.07% Next (NXT) 6,266.00p -2.91% Haleon (HLN) 312.55p -2.78% Rolls-Royce Holdings (RR.) 101.02p -2.64% Anglo American (AAL) 3,493.50p -2.46% Frasers Group (FRAS) 722.00p -2.30% BT Group (BT.A) 125.15p -2.26%

FTSE 250 - Risers

Plus500 Ltd (DI) (PLUS) 1,790.00p 4.62% IntegraFin Holding (IHP) 307.60p 3.15% Savills (SVS) 839.00p 3.13% Darktrace (DARK) 293.40p 3.09% Wizz Air Holdings (WIZZ) 2,623.00p 2.82% SDCL Energy Efficiency Income Trust (SEIT) 98.80p 1.96% Greggs (GRG) 2,486.00p 1.72% Quilter (QLT) 95.18p 1.71% Hipgnosis Songs Fund Limited NPV (SONG) 90.00p 1.69% SSP Group (SSPG) 243.90p 1.62%

FTSE 250 - Fallers

Clarkson (CKN) 2,935.00p -7.85% Pagegroup (PAGE) 441.00p -6.92% Hays (HAS) 113.00p -6.92% ITV (ITV) 76.02p -6.70% International Distributions Services (IDS) 221.60p -5.34% Softcat (SCT) 1,183.00p -4.83% Molten Ventures (GROW) 376.20p -4.76% Synthomer (SYNT) 148.90p -4.67% Hammerson (HMSO) 25.12p -3.35% Warehouse Reit (WHR) 104.60p -3.33%