London close: Stocks drop on 'higher-for-longer' interest rate outlook

Global stock markets tanked on Thursday, with London's FTSE 100 no exception, after closely watched meetings at the Federal Reserve and Bank of England clouded the outlook for interest rates over the coming months.

Both the Fed and BoE chose to keep interest rates on hold, but indicated that they are still prepared to tighten monetary policy if needed and are content with a 'higher-for-longer' approach for now.

Despite a brief moment in positive territory following the BoE decision at midday, the FTSE 100 had slumped by the close and finished 0.7% lower at 7,679. A big drop from Ocado and falls in the blue chip mining sector were weighing heavily on the index.

The Monetary Policy Committee kept the Bank Rate at 5.25% following 14 consecutive meetings to tighten monetary policy since November 2021. But it was a close call, with four of the nine members of the committee voting in favour of raising rates.

In the run-up to the decision, economists had widely expected the MPC to hike rates again, but a surprise drop in inflation on Wednesday seems to have been the deciding factor.

Analysts at TD Securities labelled it a "very hawkish hold", but actually reckons this is the peak of the hiking cycle. "Constructive price dynamics will leave the BoE on hold from here, with Bank Rate at 5.25% until May 2024", they said.

Wall Street stocks were also under selling pressure on Thursday after comments made by the Federal Open Market Committee the previous evening. While the Fed left the Federal Funds Rate at the 5.25-5.5% range, the majority of voting members said another hike before the end of the year was probable.

"So far, a mostly resilient economy has provided a strong backdrop for policymakers to lean aggressively against inflation risks. However, with the mounting impact of past rate hikes and inflation now falling fast, policymakers are growing more cautious about the economic risks associated with their current monetary policy stance," said Kallum Pickering, senior economist at Berenberg.

Retailers rise, miners drop

Back in London, retail stocks were on the rise after results from both JD Sports Fashion and Next impressed the market.

JD Sports Fashion saw shares surge 9% after beating forecasts with its first-half results. Organic sales rose 12% year-on-year while pre-tax profit surged 26%, as the sportswear retailer reiterated its annual earnings guidance.

High street peer Next also impressed as it lifted full-year targets for the third time in four months after better-than-expected summer sales. Pre-tax profits are now forecast to come at £875m from previous guidance of £845m.

Sectors peers Marks & Spencer and Kingfisher were also putting in a decent performance.

On the downside, online grocery group Ocado saw shares plummet 20% just days after the company impressed the market with a solid third-quarter trading update. Exane Paribas analysts were providing further downward pressure after cutting the stock from 'neutral' to 'underperform' on Thursday, saying the risk-reward is now more balanced after a doubling in the share price since June.

Meanwhile, a stronger dollar was hitting commodity prices hard, with gold falling 1.4%, silver dropping 0.9% and copper tanking 2.3%. The dollar index yesterday hit its highest level since early-March after comments made by the Fed.

As a result, mining stocks were out of favour, with Antofagasta, Glencore, Rio Tinto, Anglo American and Fresnillo notching heavy losses.

Market Movers

FTSE 100 (UKX) 7,678.62 -0.69%
FTSE 250 (MCX) 18,638.55 -0.39%
techMARK (TASX) 4,368.20 -0.86%

FTSE 100 - Risers

JD Sports Fashion (JD.) 144.90p 8.99%
Next (NXT) 7,350.00p 3.43%
Convatec Group (CTEC) 223.00p 3.15%
Kingfisher (KGF) 220.40p 2.18%
Marks & Spencer Group (MKS) 236.10p 2.16%
Frasers Group (FRAS) 813.00p 2.01%
Centrica (CNA) 172.45p 1.71%
DCC (CDI) (DCC) 4,652.00p 1.59%
Admiral Group (ADM) 2,444.00p 1.20%
B&M European Value Retail S.A. (DI) (BME) 584.60p 0.97%

FTSE 100 - Fallers

Ocado Group (OCDO) 647.80p -19.87%
Flutter Entertainment (CDI) (FLTR) 14,105.00p -3.49%
Croda International (CRDA) 4,881.00p -3.46%
Antofagasta (ANTO) 1,409.00p -3.16%
Melrose Industries (MRO) 471.60p -2.96%
Rio Tinto (RIO) 5,140.00p -2.73%
Anglo American (AAL) 2,235.00p -2.66%
Glencore (GLEN) 452.05p -2.55%
Halma (HLMA) 2,025.00p -2.46%
Experian (EXPN) 2,725.00p -2.29%

FTSE 250 - Risers

Essentra (ESNT) 153.40p 3.93%
NB Private Equity Partners Ltd. (NBPE) 1,698.00p 3.03%
Direct Line Insurance Group (DLG) 181.35p 2.63%
ITV (ITV) 74.30p 2.43%
Wetherspoon (J.D.) (JDW) 729.50p 2.39%
Coats Group (COA) 79.40p 2.32%
Hays (HAS) 110.10p 2.13%
Marshalls (MSLH) 278.00p 2.06%
Great Portland Estates (GPE) 433.00p 2.03%
W.A.G Payment Solutions (WPS) 94.00p 1.95%

FTSE 250 - Fallers

Ceres Power Holdings (CWR) 347.80p -9.62%
SSP Group (SSPG) 225.00p -8.01%
Aston Martin Lagonda Global Holdings (AML) 285.00p -6.43%
NCC Group (NCC) 103.00p -4.98%
IG Group Holdings (IGG) 640.50p -4.55%
FDM Group (Holdings) (FDM) 511.00p -3.95%
BlackRock World Mining Trust (BRWM) 584.00p -3.63%
Mobico Group (MCG) 85.55p -3.44%
Drax Group (DRX) 489.50p -3.11%
Crest Nicholson Holdings (CRST) 185.50p -2.78%