London close: Fed hike expectations drag FTSE lower

Financials did best on Monday although by the end of trading the wider market was tracking the large losses on Wall Street - which some analysts linked to profit-taking - as government bond yields edged higher after Friday's US jobs report.

The FTSE 100 ended the day off by 58.67 points or 0.92% to 6,295.11 while the 250 index retreated 0.31%, finishing at 17,112.65.

The prospect of rising rates Stateside should not worry investors. Quite the opposite, it shows improved sentiment is sustainable, analysts at JP Morgan said.

"Citigroup's US economic surprise index (CESI) is close to breaking above zero, for the first time this year, and historically this pointed to market gains ahead. In addition, market internals could be helped, US Banks show a positive correlation with the bond yields," the US bank explained in a research note.

Morgan Stanley's strategy chipped in saying: "Markets have come back a long way from recent lows. Whether the rally can continue looks increasingly tied to whether headline inflation, DM earnings growth and China data can inflect higher from a 3Q15 nadir. We think the market will welcome a December hike as long as it comes with better data."

MS still expected a "modest growth acceleration" in global growth and forecast an increase from 3.4% year-on-year in 2016 to 3.7% in 2017.

In its twice-yearly econmic outlook, the Organisation for Economic Cooperation and Development flagged the slowdown in emerging economies and world trade as a near-term source of uncertainty.

As regards the Bank of England, Citi said on Monday that the BoE's rate decisions tend to fall somewhere in between the US and the Eurozone.

"The UK probably faces a longer period of low-flation than the US, while the BoE faces less pressure than the US Fed to hike rates on macro-prudential grounds," the American broker said.

Whatever the case, HSBC's head of technical analysis, Murray Gunn, recommended clients go short on the pound versus the US dollar, saying the currency pair will move towards 1.40.

Acting as a backdrop, investors initially seemed to brush off news that China’s exports fell 6.9% year-on-year in October while imports dropped by another 18.8%. Economists had penciled in year-on-year declines of 3.2% and 15%, respectively.

In Eurozone news, Reuters reported that four European Central Bank governing council members had said a consensus was forming around the need for a reduction in its deposit rate. One of them even argued for it to be lowered by more than the 10 basis points which had already been priced into markets.

FTSE 100: Financials higher, InterContinental and utilities drag

Aberdeen Asset Management, Standard Chartered, Barclays and HSBC were all boosted by the possibility of a US rate-rise in December following last week’s US jobs data. CMC Markets analyst Jasper Lawler said the consumer banks and fund managers were rallying as investors expect better lending margins once rates rise.

Inmarsat also had a good start to the week after it signed its second major airline for its GX Aviation on-board internet service. The satellite communications services company announced it had signed a deal with Singapore Airlines. It follows on from its 10-year contract with Lufthansa signed last month.

The biggest loser of the day was InterContinental Hotels, after it said it is not considering a potential sale or merger of the company. It followed market speculation on Friday that it was mulling the possibility of a sale or merger, when Bloomberg had cited "people familiar with the matter" as saying that IHG was in discussions with financial advisers about whether to sell itself or merge with a competitor as the sector consolidates.

Utility groups took a major hit on the back of downgrades from a number of investment banks. Societe Generale cut its rating for United Utilities from 'buy' to 'hold', citing the recent rise in bond yields, while Centrica slid even further on an HSBC downgrade.

FTSE 250: Tullow Oil pops higher and then sags

Tullow Oil was the standout gainer after Copenhagen-based A.P. Moller-Maersk A/S agreed to buy half of Africa Oil Corp.’s shares in licenses in Kenya and Ethiopia, where Tullow operates some blocks. “The news for Tullow is very positive and has brought buyers back today,” said Atif Latif, director of trading at Guardian Stockbrokers, adding that it gives more potential upside to Tullow’s assets in the region.

Temporary power provider Aggreko also racked up healthy gains as it maintained its full-year profit expectations despite a challenging market backdrop and a fall in third quarter sales. In a trading update for 1 July to 8 November, the company said underlying revenue for the period was 7% behind last year, with reported revenue down 6%. This was partly a result of the continuing weak economic backdrop in Brazil.

On the downside, investors were hanging up on TalkTalk after HSBC downgraded the stock to ‘hold’ from ‘buy’ and slashed the price target to 260p from 430p. It said the data breach that occurred in October will have lasting consequences on the telecommunications company.

Shares in Capital & Counties Properties slid after it confirmed it was conducting a strategic review that could lead to the sale of its venues business, centred around the Olympia hall. “Following the successful transition of shows from the former Earls Court Exhibition Centres and a major refurbishment programme, Capco confirms that it is conducting a strategic review which may or may not lead to a sale of its venues business.”

Fund managers Henderson and Jupiter also rose on the back of rumours that US giant Wells Fargo was eyeing a London acquisition.

Market Movers

FTSE 100 (UKX) 6,318.03 -0.56%
FTSE 250 (MCX) 17,120.94 -0.26%
techMARK (TASX) 3,079.26 -0.60%

FTSE 100 - Risers

Barclays (BARC) 236.00p 1.55%
Aberdeen Asset Management (ADN) 352.80p 1.50%
Rio Tinto (RIO) 2,308.50p 1.16%
Travis Perkins (TPK) 1,998.00p 1.06%
Inmarsat (ISAT) 1,015.00p 1.00%
Royal Mail (RMG) 445.90p 0.88%
Prudential (PRU) 1,557.00p 0.78%
Standard Chartered (STAN) 619.30p 0.75%
Meggitt (MGGT) 386.70p 0.57%
Royal Bank of Scotland Group (RBS) 320.90p 0.50%

FTSE 100 - Fallers

Glencore (GLEN) 110.50p -4.62%
InterContinental Hotels Group (IHG) 2,655.00p -4.29%
Centrica (CNA) 217.30p -3.29%
Severn Trent (SVT) 2,125.00p -2.75%
Morrison (Wm) Supermarkets (MRW) 164.50p -2.43%
Intu Properties (INTU) 329.00p -2.37%
Hammerson (HMSO) 601.00p -2.36%
United Utilities Group (UU.) 936.00p -2.25%
BHP Billiton (BLT) 954.50p -2.10%
Whitbread (WTB) 4,678.00p -1.87%

FTSE 250 - Risers

Serco Group (SRP) 105.10p 5.79%
Hunting (HTG) 361.50p 5.00%
Aggreko (AGK) 972.50p 4.35%
Premier Oil (PMO) 77.85p 4.01%
Tullow Oil (TLW) 226.70p 3.90%
Aldermore Group (ALD) 278.60p 3.41%
Entertainment One Limited (ETO) 226.70p 2.91%
Wizz Air Holdings (WIZZ) 1,867.00p 2.41%
Jimmy Choo (CHOO) 155.60p 2.37%
Dignity (DTY) 2,508.00p 2.03%

FTSE 250 - Fallers

Supergroup (SGP) 1,590.00p -5.02%
TalkTalk Telecom Group (TALK) 215.20p -4.82%
Aveva Group (AVV) 2,005.00p -4.43%
Petra Diamonds Ltd.(DI) (PDL) 68.40p -3.93%
Drax Group (DRX) 261.30p -3.83%
Vedanta Resources (VED) 463.30p -3.01%
Rotork (ROR) 186.30p -2.82%
IP Group (IPO) 238.30p -2.69%
Daejan Holdings (DJAN) 6,020.00p -2.59%
Crest Nicholson Holdings (CRST) 509.50p -2.58%