London open: Stocks fall on US rate worries; Direct Line surges

(Sharecast News) - London stocks fell in early trade on Thursday following downbeat US and Asian sessions, as investors fretted over the prospect of more rate hikes from the Federal Reserve. At 0830 BST, the FTSE 100 was down 0.3% at 7,404.30.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "The twin worries of China's slowdown and the prospect of higher interest rates in the US are proving hard to shift, spreading fresh unease among investors. Lacklustre trading is set to be the order of the day given there is so little to pin more optimistic hopes on right now. But there could be a glimmer of light for UK borrowers and domestically focused stocks, after the governor of the Bank of England indicated the interest rate medicine is working, and the end of hikes is in sight.

"Comments from Andrew Bailey have sent the pound sharply lower, below $1.25 to a level not seen since June. Speaking to MPs, he said the UK is much nearer now to the top of the cycle. So, not only is the Bank of England forecast to go softer on rate hikes going forward, with this month's expected increase now potentially the last, the bets are that the Fed might step back on the pedal after a brief pause.

"This marks a considerable reversal of expectations compared to just a few weeks ago, as data has filtered through showing a sharper weakening of business activity in the UK, while in the US the services sector is still pumping."

Data released earlier by Halifax showed that annual house prices in the UK suffered their worst fall in August since 2009 amid rising mortgage costs.

House prices fell 4.6% on the year following a 2.5% decline in July. On the month, house prices were down 1.2% in August - the largest monthly fall since November 2022 - following a 0.4% dip a month earlier.

A typical home now costs £279,569, down by around £14,000 over the last year and back to the level seen in early 2022.

Halifax said Southern England and Wales are seeing the most downward pressure on property prices, while Scotland is showing greater resilience.

Kim Kinnaird, Director, Halifax Mortgages, said: "Market activity levels slowed during August, and while there is always a seasonality effect at this time of year, it also isn't surprising given the pace of mortgage rate increases over June and July. While these did ease last month, rates remain much higher compared to recent years. This may well have prompted prospective buyers to defer transactions in the hope of some stability, and greater clarity on the future direction of rates in the coming months.

"The market will continue to rebalance until it finds an equilibrium where buyers are comfortable with mortgage costs in a higher range than seen over the previous 15 years. We do expect further downward pressure on property prices through to the end of this year and into next, in line with previous forecasts."

In equity markets, insurance group Beazley was in the red as it said it remains on track to hit guidance after delivering record profits in the first half, but its combined ratio jumped.

London Stock Exchange Group was also down after investors Blackstone and Thomson Reuters raised around £2.75bn from the sale of its shares.

Paper and packaging company Smurfit Kappa lost ground as it confirmed it is in merger talks with US peer WestRock. No financial details were given but a report by the Wall street Journal suggested the combined group could be worth around $20bn.

Pets at Home was under the cosh after the Competition and Markets Authority said it was launching a probe into the veterinary services market for household pets.

Synthomer tanked as it announced a £276m rights issue, while Prudential, Admiral, DS Smith, Derwent London, Harbour Energy and TBC Bank all fell as they traded without entitlement to the dividend.

On the upside, Melrose Industries rallied after it lifted its annual outlook and said trading has been ahead of expectations, partly due to higher-than-expected margins at the engines division.

Direct Line surged as the insurer announced wider first-half losses but said improved motor margins should provide a platform to support an improvement in operating profit into 2024. Investors also welcomed the sale of its commercial lines business for £520m.

Market Movers

FTSE 100 (UKX) 7,404.30 -0.29% FTSE 250 (MCX) 18,398.20 -0.29% techMARK (TASX) 4,242.31 -0.26%

FTSE 100 - Risers

Melrose Industries (MRO) 544.20p 6.92% Mondi (MNDI) 1,329.00p 2.55% Rolls-Royce Holdings (RR.) 217.80p 1.44% Weir Group (WEIR) 1,934.50p 1.26% Convatec Group (CTEC) 233.60p 1.04% BAE Systems (BA.) 1,023.00p 0.89% International Consolidated Airlines Group SA (CDI) (IAG) 155.00p 0.81% Shell (SHEL) 2,497.00p 0.32% DCC (CDI) (DCC) 4,301.00p 0.28% Barclays (BARC) 149.52p 0.20%

FTSE 100 - Fallers

Beazley (BEZ) 489.60p -9.50% London Stock Exchange Group (LSEG) 8,058.00p -2.49% Admiral Group (ADM) 2,357.00p -1.96% Anglo American (AAL) 2,045.50p -1.94% Prudential (PRU) 917.00p -1.74% Smith (DS) (SMDS) 299.50p -1.64% Rio Tinto (RIO) 4,904.00p -1.50% Glencore (GLEN) 423.40p -1.41% Smurfit Kappa Group (CDI) (SKG) 3,176.00p -1.31% JD Sports Fashion (JD.) 137.60p -1.22%

FTSE 250 - Risers

Direct Line Insurance Group (DLG) 169.65p 13.02% 4Imprint Group (FOUR) 5,130.00p 4.80% Volution Group (FAN) 374.00p 4.35% Kainos Group (KNOS) 1,275.00p 3.57% Ibstock (IBST) 149.50p 2.40% Balfour Beatty (BBY) 329.20p 2.05% Playtech (PTEC) 535.00p 2.00% Moneysupermarket.com Group (MONY) 252.80p 1.94% Clarkson (CKN) 2,750.00p 1.85% ITV (ITV) 71.76p 1.67%

FTSE 250 - Fallers

Synthomer (SYNT) 49.36p -18.82% Pets at Home Group (PETS) 344.20p -9.09% Energean (ENOG) 1,067.00p -4.48% Genus (GNS) 2,136.00p -4.39% TBC Bank Group (TBCG) 2,660.00p -4.32% Harbour Energy (HBR) 245.40p -3.42% Hilton Food Group (HFG) 660.00p -2.94% Close Brothers Group (CBG) 802.00p -2.43% Jupiter Fund Management (JUP) 94.65p -2.42% Derwent London (DLN) 1,831.00p -2.29%