London midday: Stocks fall further but Shell in the black on results

(Sharecast News) - London stocks had extended losses by midday on Thursday amid renewed concerns about the US bank sector, as investors mulled the latest rate hike from the Federal Reserve, looked ahead to a policy announcement from the European Central Bank and waded through a deluge of earnings. The FTSE 100 was down 0.9% at 7,716.28.

Worries about US banks were playing on investors' minds again as PacWest Bancorp tumbled 50% in after-hours trading after saying it was considering its strategic options, including a sale.

Russ Mould, investment director at AJ Bell, said: "Investors have been praying for central banks to stop raising interest rates for some time, but the strongest possible hint yet from the Federal Reserve that it will stop increasing the cost of borrowing doesn't seem enough to put them in a good mood," says Russ Mould, investment director at AJ Bell.

"The Fed's 0.25 percentage point hike last night was widely expected, so that won't have been the cause of putting markets in a bad mood. However, the central bank did send signals that it may pause further increases in rates against uncertainties regarding the state of the economy and the banking sector.

"So why didn't stock markets rally? Many investors thought falling inflation would be the principal reason why the Fed would pivot. That's not the case now. Under the current circumstances, the Fed is more likely to pause rate hikes because the US faces the prospect of a recession and in light of more banks struggling. Therefore, not a reason to celebrate.

"The state of the banking sector is the one to watch as that has been the key worry point for markets this year. Just as we thought the crisis was past its worst, PacWest shares tumbled yesterday, raising the prospect that it might be the next US bank to seek a buyer or raise new capital. This news is enough to have put a chill on the markets."

On home shores, a survey showed the service sector saw its fastest growth in a year in April.

The S&P Global/CIPS purchasing managers' index for the sector rose to 55.9 from 52.9 in March, coming in above the first estimate of 54.9. This marked the fastest rate of growth since April last year.

Survey respondents said that stronger consumer spending was a factor boosting business activity, especially those operating in the travel, tourism and leisure sub-sectors. There were also reports citing a turnaround in demand for business services, despite pressure on budgets from intense cost inflation.

Elsewhere, data from the Bank of England revealed that mortgage approvals jumped in March, indicating that the housing market was starting to stabilise.

According to the BoE's latest money and credit report, mortgage lending to individuals fell from a net flow of £0.7bn in February to net zero in March, the lowest level outside of the pandemic since June 2011.

But net mortgage approvals - a key indicator of future borrowing - rose significantly, to 52,000 from 44,100 in February. Consensus had been for around 46,000 net mortgage approvals.

In equity markets, St James's Place, Glencore, Hiscox and Admiral all fell as they traded without entitlement to the dividend.

BAE Systems also lost ground even as the defence contractor said that trading so far this year has been in line with expectations, with "continued good operational performance".

Virgin Money was under the cosh as it posted lower first-half profit due to an increase in impairment charges for bad debts and higher investment costs.

On the upside, Hargreaves Lansdown rallied after a well-received first-quarter update, while clothing and homeware retailer Next rose as it backed full-year guidance and posted a smaller-than-expected drop in first-quarter sales.

Oil giant Shell gained as it beat forecasts to post a first-quarter net profit of $9.65bn, although down 2% year-on-year due to lower oil and gas prices.

Trainline surged to the top of the FTSE 250 after saying it saw full-year sales and profits recover to above their pre-Covid levels, driven by a rebound in UK consumer and international consumer net ticket sales.