London midday: Stocks nudge lower ahead of Fed announcement

(Sharecast News) - London stocks had nudged into the red by midday on Wednesday as investors erred on the side of caution ahead of the latest policy announcement from the US Federal Reserve. The FTSE 100 was down 0.1% at 7,312.78.

Russ Mould, investment director at AJ Bell, said: "The broad expectation is the Fed will sit on its hands for now, so all the focus is likely to be drawn to any hints dropped about the future direction of monetary policy.

"Given the volatile economic and geopolitical backdrop, Jerome Powell will have to weigh any words in the accompanying statement carefully if he wants to avoid giving investors the jitters."

On the macro front, a survey out earlier showed the UK construction sector continued to struggle in October, with both output and new orders on the back foot.

October's S&P Global CIPS manufacturing purchasing managers' index was 44.8, marginally up on September's 44.3 but below both consensus and the earlier flash estimate for 45.2. A balance above the neutral 50.0 level indicates growth, while one below it suggests contraction.

The output component of the index edged down to 44.3 from 44.6 a month earlier, the longest run of contractions since the financial crisis.

Respondents also pointed to lower new orders and employment, while business optimism fell to a 10-month low. A total of 54% of respondents expect output to rise in the coming year while 36% forecast stagnation.

Rob Dobson, director at S&P Global Market Intelligence, said: "The UK manufacturing downturn continued at the start of the final quarter of the year, meaning the factor sector remains a weight dragging on an economy already skirting with recession.

"Production volumes contracted for the eighth consecutive month, the longest sequence of continual decline since 2008/09, as weak demand at home and overseas led to a further retrenchment of new order intakes."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "Businesses are responding to the surge in borrowing costs and the improvement in supply chains by reducing their inventors of finished goods and by refraining from placing new orders with suppliers.

"This process likely has many months left to run, given that in the second quarter, the economy-wide stock of inventory was equivalent to 9.7% of GDP, well above its 9.1% average in the second half of the 2010s.

"Accordingly, we doubt that manufacturing output will start to recover until early next year."

Elsewhere, the latest survey from Nationwide showed that house prices unexpectedly rose in October amid "constrained" supply.

House prices ticked up 0.9% on the month following a 0.1% increase in September, beating expectations for a 0.4% decline.

On the year, house prices were down 3.3% in October following a 5.3% slump in September.

The average price of a home now stands at £259,423.

Nationwide chief economist Robert Gardner said that nevertheless, housing market activity has remained "extremely weak", with just 43,300 mortgages approved for house purchase in September, around 30% below the monthly average prevailing in 2019.

"This is not surprising as affordability remains stretched. Market interest rates, which underpin mortgage pricing, have moderated somewhat but they are still well above the lows prevailing in 2021," he said.

"The uptick in house prices in October most likely reflects the fact that the supply of properties on the market is constrained. There is little sign of forced selling, which would exert downward pressure on prices, as labour market conditions are solid and mortgage arrears are at historically low levels."

Market participants were also digesting the latest data out of China, which showed that the manufacturing industry contracted in October for the first time in three months.

The Caixin manufacturing PMI fell to 49.5 last month from 50.6 in September, surprising analysts who had expected a pick-up to 50.8.

Manufacturing production saw a renewed fall, with companies linking cuts in output to muted sales, particularly from abroad, Caixin said. Purchasing activity also fell as firms made greater usage of current stocks to help control costs. Manufacturing employment also continued its recent decline, with the employment sub-index falling to its lowest since May.

Meanwhile, input cost inflation increased to a nine-month high, with firms citing higher prices for raw materials and oil.

In equity markets, Next was the standout gainer on the FTSE 100 after the retailer boosted its full-year guidance as third-quarter trading beat internal expectations. Marks & Spencer also gained.

Shares in Smurfit Kappa rose as the packaging group reported a further deterioration in sales in the third quarter, but a stabilisation in box demand.

On the downside, Aston Martin Lagonda tumbled as it posted a wider-than-expected third-quarter loss and downgraded its volume outlook due to ramp-up delays for the DB12 model.

Mining engineering company Weir was also in the red as it reiterated its guidance for "strong growth" this year despite orders slipping in the third quarter.

GSK reversed earlier gains despite lifting its full-year profit outlook. It now expects turnover to increase by 12% to 13%, up from previous guidance of 8% to 10%, and adjusted operating profit growth of 13% to 15%, up from 11% to 13%. Adjusted earnings per share are set to grow between 17% and 20%, versus previous guidance of 14% to 17%.

BP was knocked lower by a downgrade to 'underweight' from 'neutral' at JPMorgan, while Great Portland Estates fell after a downgrade to 'sell' from 'neutral' at Citi.

Market Movers

FTSE 100 (UKX) 7,312.78 -0.12% FTSE 250 (MCX) 16,996.88 -0.50% techMARK (TASX) 4,004.95 -0.35%

FTSE 100 - Risers

Next (NXT) 7,106.00p 3.22% Centrica (CNA) 161.55p 2.70% Airtel Africa (AAF) 116.20p 2.56% Marks & Spencer Group (MKS) 221.50p 2.17% Pearson (PSON) 966.40p 1.56% 3i Group (III) 1,963.50p 1.50% Melrose Industries (MRO) 473.70p 1.43% Smurfit Kappa Group (CDI) (SKG) 2,722.00p 1.42% Associated British Foods (ABF) 2,052.00p 1.28% Imperial Brands (IMB) 1,773.00p 1.26%

FTSE 100 - Fallers

Croda International (CRDA) 4,221.00p -3.59% SEGRO (SGRO) 688.80p -3.37% Endeavour Mining (EDV) 1,656.00p -2.59% JD Sports Fashion (JD.) 124.55p -2.31% IMI (IMI) 1,436.00p -1.98% Fresnillo (FRES) 543.40p -1.88% Barclays (BARC) 129.20p -1.82% Taylor Wimpey (TW.) 108.90p -1.71% Ocado Group (OCDO) 457.80p -1.61% Coca-Cola HBC AG (CDI) (CCH) 2,099.00p -1.55%

FTSE 250 - Risers

TP Icap Group (TCAP) 161.60p 2.86% IP Group (IPO) 45.00p 2.62% Cranswick (CWK) 3,560.00p 1.89% ICG Enterprise Trust (ICGT) 1,110.00p 1.83% Baltic Classifieds Group (BCG) 201.00p 1.82% Quilter (QLT) 81.35p 1.81% Jupiter Fund Management (JUP) 79.90p 1.78% Essentra (ESNT) 151.20p 1.75% NextEnergy Solar Fund Limited Red (NESF) 79.00p 1.67% JTC (JTC) 649.00p 1.64%

FTSE 250 - Fallers

Aston Martin Lagonda Global Holdings (AML) 192.50p -12.02% Liontrust Asset Management (LIO) 532.50p -4.74% Great Portland Estates (GPE) 373.00p -4.36% Mobico Group (MCG) 60.00p -4.00% CLS Holdings (CLI) 84.30p -2.77% Keller Group (KLR) 755.00p -2.58% Digital 9 Infrastructure NPV (DGI9) 45.45p -2.57% OSB Group (OSB) 292.20p -2.54% Coats Group (COA) 65.90p -2.51% CAB Payments Holdings (CABP) 59.75p -2.37%