London close: Stocks dip as US interest rate hike expectations grow

London stocks dipped on Monday on growing expectations of an interest rate hike by the Federal Reserve at its next meeting.

Hawkish remarks by Fed policymakers last week fuelled speculation of a rate increase by the US central bank at the 20-21 September policy meeting.

Last Friday, Boston Fed President Eric Rosengren and Dallas Fed President Robert Kaplan both argued that the case for an interest rate rise has strengthened.

Atlanta Fed President Dennis Lockhart on Monday said a "serious discussion" of whether to raise interest rates at next week's meeting was warranted given improving economic conditions. However, he refrained from commenting on the timing of a rate rise.

Investors are now looking ahead to a speech by leading dove Lael Brainard at 1815 BST.

“Brainard’s comments will be of particular interest as she is the only voter on the FOMC this year,” said Craig Erlam, senior market analyst at Oanda.

“Further hawkish commentary and any indication that a rate hike is likely could trigger another wave of repricing for September and December, which in turn could see the dollar and Treasury yields on the rise again and equities coming under pressure.”

Fed speakers are lining up ahead of Tuesday’s September policy meeting blackout.

Fed Minneapolis President Neel Kashkari is also due to speak at 1800 BST.

Linked to the above, analysts at Morgan Stanley said the signals from their economic cycle indicators for developed markets had gone from pointing towards an 'expansion' to flagging a 'downturn'.

The broker's own economists on the other hand were just now flagging upside risks to the macroeconomic outlook.

"But while some aspects of the current environment signal a true cycle peak, others seem to be giving out false signals, muddying the cycle call," they said in a research report published on 11 September.

Worries over a possible US rate hike sent banking stocks into the red including Barclays, Lloyds, Royal Bank of Scotland and Standard Chartered.

Lloyds was also under pressure after two executives left the bank as outgoing chief executive Antonio Horta-Osorio looks to reshape the government-backed bank. Group digital director Miguel Angel Rodriguez-Sola and audit director Mary Hall have decided to leave Lloyds, Sky News.

RBS shares were dragged lower after saying at a conference in New York that it may need to top up provisions for litigation claims, which "could be material".

Primark owner Associated British Food was a top faller on the FTSE 100 after posting an ill-received trading update. The company said it anticipated full year earnings to be slightly ahead of last year's, although like-for-sales at Primark are expected to have deteriorated and news of a sizeable pension deficit set off alarm bells with investors.

Marks & Spencer slumped after announcing Laura Wade-Gery will be stepping down as executive director of Multi-Channel following her maternity leave.

On the upside, Vodafone shares advanced after a Barron’s report which suggested the telecommunications company’s shares could rise 33% as it benefits from a merger with Liberty Global.

Astrazeneca rallied after Jefferies upgraded the stock to ‘buy’ from ‘hold’ and lifted the price target to 5,800p from 5,400p. The broker said it sees a much higher probability of success and larger market opportunity from the MYSTIC study than consensus implies. Fellow pharmaceutical stocks Shire and Hikma Pharmaceutical were also in the black.

In UK macro-economic news, the Bank of England said it was looking to purchase a portfolio of up to £10bn of sterling investment-grade bonds, issued by firms making a "material contribution to the UK economy". The BoE plans to purchase the bonds under the Corporate Bond Purchase Scheme, announced at its 4 August policy meeting.

Meanwhile, oil prices recovered on a weaker dollar with Brent crude up 0.82% to $48.41 per barrel and West Texas Intermediate up 1.05% to $46.37 per barrel at 1648 BST.

Earlier in the session crude prices retreated as OPEC said production from rival producers outside the organisation are going to be stronger than initially expected this year.

Market Movers

FTSE 100 (UKX) 6,703.39 -1.09%
FTSE 250 (MCX) 17,733.01 -0.90%
techMARK (TASX) 3,443.75 -0.16%

FTSE 100 - Risers

Shire Plc (SHP) 4,750.00p 1.00%
AstraZeneca (AZN) 4,858.00p 0.81%
Burberry Group (BRBY) 1,263.00p 0.80%
Carnival (CCL) 3,372.00p 0.69%
Vodafone Group (VOD) 222.40p 0.50%
Morrison (Wm) Supermarkets (MRW) 193.40p 0.47%
Paddy Power Betfair (PPB) 8,950.00p 0.34%
Reckitt Benckiser Group (RB.) 7,201.00p 0.28%
Worldpay Group (WI) (WPG) 288.10p 0.17%
British American Tobacco (BATS) 4,703.00p 0.16%

FTSE 100 - Fallers

Associated British Foods (ABF) 2,820.00p -10.65%
Marks & Spencer Group (MKS) 324.80p -5.47%
Lloyds Banking Group (LLOY) 56.97p -3.95%
Anglo American (AAL) 816.20p -3.59%
Royal Bank of Scotland Group (RBS) 199.30p -3.58%
Standard Life (SL.) 342.10p -3.33%
Standard Chartered (STAN) 619.40p -3.17%
easyJet (EZJ) 1,152.00p -3.03%
ITV (ITV) 196.80p -3.01%
Next (NXT) 5,290.00p -2.76%

FTSE 250 - Risers

SVG Capital (SVI) 649.50p 14.65%
Genus (GNS) 1,925.00p 4.62%
IP Group (IPO) 189.60p 4.18%
Metro Bank (MTRO) 2,753.00p 2.92%
Millennium & Copthorne Hotels (MLC) 436.70p 2.75%
Grafton Group Units (GFTU) 515.00p 2.69%
Euromoney Institutional Investor (ERM) 1,069.00p 2.69%
Dechra Pharmaceuticals (DPH) 1,365.00p 2.32%
HarbourVest Global Private Equity Limited A Shs (HVPE) 957.00p 2.03%
Ocado Group (OCDO) 320.60p 1.78%

FTSE 250 - Fallers

Evraz (EVR) 132.80p -4.80%
Centamin (DI) (CEY) 144.80p -4.23%
Renishaw (RSW) 2,619.00p -4.21%
Hays (HAS) 131.70p -4.08%
Halfords Group (HFD) 349.00p -4.02%
Henderson Group (HGG) 230.70p -4.00%
Amec Foster Wheeler (AMFW) 553.50p -3.91%
Ladbrokes (LAD) 143.50p -3.88%
Keller Group (KLR) 887.50p -3.64%
Tullett Prebon (TLPR) 376.90p -3.31%