London close: Stocks fall amid rumours ECB will wind down bond purchases

London stocks fell on Wednesday amid speculation the European Central Bank may start winding down its bond purchases.

Bloomberg reported on Tuesday that the ECB will probably gradually wind down its €80bn monthly bond purchase before ending its quantitative easing programme.

“Rumours of exit plans being drawn up at the ECB highlight the growing feeling that Draghi & co are facing up to a exhaustion of monetary policy policies and effectiveness,” said IG market analyst Joshua Mahony.

Meanwhile, the pound recovered some ground against the dollar after hitting a 31-year low on Tuesday following Prime Minister Theresa May’s announcement that formal Brexit negotiations would begin by March 2017. The pound rose 0.24% to 12759.

Bank of England deputy governor Ben Broadbent said the central bank could raise interest rates if sterling fell sharply enough but so far its decline since the 23 June EU referendum had been "pretty orderly, actually". Speaking at a Wall Street Journal event in London, Broadbent said the drop in the pound reflected markets' longer-term judgements about Britain's economy.

"Could the currency fall far enough, hard enough, fast enough to warrant a reversal of course, and some removal of monetary accommodation? The answer is yes, in principle. That has to be judged in the context of what it does to inflation," Broadbent said.

On the data front, activity in the UK services sector grew more than expected in September.

The final Markit/CIPS UK services purchasing managers’ index fell to 52.6 from 52.9 in August, which was better than the 52.0 reading economists had been expecting and above the 50 mark that separates contraction from expansion.

Markit’s final eurozone composite output index printed at 52.6 in September, in line with the flash estimate but down from August’s reading of 52.9. The final eurozone services business activity index came in at 52.2, a touch higher than the flash estimate of 52.1 but down from 52.8 in August.

Eurozone retail sales dipped 0.1% from July, beating expectations of a 0.3% decline, Eurostat revealed. On the year, however, they were up 0.6%, missing forecasts of a 1.5% increase.

In the US, private US employers added 154,000 jobs in September, according to payroll processor Automatic Data Processing and forecasting firm Moody’s Analytics, missing expectations of 165,000. The previous month was revised down to 175,000 from the initial estimate of 175,000.

The report comes ahead of Friday’s all-important non-farm payrolls, which is expected to show employers added 170,000 jobs in September.

A separate report showed the US service sector improved more than expected in September to a 11-month high. The Institute for Supply Management’s index of non-manufacturing activity rose to 57.1 from 51.4 in August, comfortably beating expectations for a reading of 53.0.

US factory orders grew by 0.2% month-on-month in August to $453.1bn, according to the Commerce Department. Economists had pencilled in a drop of 0.5%.

Orders for durable goods were up 0.1% month-on-month to $227.3bn after rising 3.6% in July, beating estimates for no change.

Meanwhile, oil prices rose after the Energy Information Administration revealed US weekly crude inventories fell by three million barrels last week to 499.7 million barrels.

On Tuesday the American Petroleum Institute said crude inventories dropped 7.6 million barrels last week.

Brent crude jumped 2.07% to $51.93 per barrel and West Texas Intermediate gained 2.2% to $49.83 per barrel at 1630 BST.

In company news, Tesco shares jumped after the supermarket reported a 3.3% rise in group sales in the first quarter, including a pick-up in UK like-for-like sales growth, and chief executive Dave Lewis laid out ambitious plans for raising operating margins.

Tesco led shares in fellow supermarkets Morrison Supermarkets and J Sainsbury higher.

Severn Trent and United Utilities were under the cosh after RBC Capital Markets downgraded both stocks as it took a look at the UK water sector.

The bank cut Severn Trent to ‘underperform’ from ‘sector perform’ on valuation grounds but lifted the price target to 2,300p from 2,200p.

RBC downgraded United Utilities to ‘underperform’ from ‘sector perform’, also on valuation, noting 4% implied total return, but lifted the price target to 1,000 from 975p.

Centamin gained as it reported a 6% increase in quarterly production to 148,674 ounces at its Sukari Gold Mine in Egypt.

Motor insurance company Hastings Group was in the red after saying that a group of investors has agreed to sell 46.17m shares, or a 7% stake, at 216p per share.

Market Movers

FTSE 100 (UKX) 7,036.45 -0.54%
FTSE 250 (MCX) 18,200.52 -0.77%
techMARK (TASX) 3,555.67 -0.66%

FTSE 100 - Risers

Tesco (TSCO) 207.10p 9.75%
Marks & Spencer Group (MKS) 337.70p 2.68%
Anglo American (AAL) 1,011.00p 2.50%
Barclays (BARC) 172.45p 1.89%
Standard Chartered (STAN) 661.40p 1.82%
Antofagasta (ANTO) 539.50p 1.41%
Prudential (PRU) 1,428.00p 1.38%
easyJet (EZJ) 1,003.00p 1.31%
Royal Dutch Shell 'B' (RDSB) 2,125.00p 1.31%
Aviva (AV.) 453.40p 1.30%

FTSE 100 - Fallers

Polymetal International (POLY) 875.00p -5.71%
United Utilities Group (UU.) 951.00p -4.37%
Randgold Resources Ltd. (RRS) 7,040.00p -3.96%
Intu Properties (INTU) 290.00p -3.59%
Imperial Brands (IMB) 3,953.00p -3.35%
Compass Group (CPG) 1,497.00p -3.29%
British American Tobacco (BATS) 4,881.00p -3.19%
Severn Trent (SVT) 2,417.00p -3.17%
Land Securities Group (LAND) 1,022.00p -3.04%
Fresnillo (FRES) 1,675.00p -2.84%

FTSE 250 - Risers

Aldermore Group (ALD) 186.90p 6.13%
Electrocomponents (ECM) 364.20p 3.35%
Hunting (HTG) 503.00p 3.31%
OneSavings Bank (OSB) 292.30p 2.63%
Spectris (SXS) 2,110.00p 2.63%
Ascential (ASCL) 289.30p 2.30%
Tullow Oil (TLW) 261.80p 2.11%
JD Sports Fashion (JD.) 1,573.00p 2.08%
DFS Furniture (DFS) 278.00p 2.06%
Essentra (ESNT) 508.50p 2.01%

FTSE 250 - Fallers

Euromoney Institutional Investor (ERM) 1,090.00p -7.23%
Hochschild Mining (HOC) 259.50p -6.32%
PayPoint (PAY) 1,058.00p -4.94%
Countrywide (CWD) 216.40p -3.52%
Domino's Pizza Group (DOM) 367.50p -3.29%
Pennon Group (PNN) 865.50p -3.13%
Capital & Counties Properties (CAPC) 282.00p -3.09%
Workspace Group (WKP) 687.50p -2.96%
Big Yellow Group (BYG) 771.00p -2.90%
Stagecoach Group (SGC) 209.90p -2.82%