London close: Stocks fall as investor jitters return

London markets closed in negative territory on Tuesday, with the FTSE 350 falling into the red during afternoon trading.

The FTSE 100 finished the day down 1.24% at 7,773.03, while the FTSE 250 dropped 0.57% to 19,314.23.

Investors started the day faced with a heavy flow of data and corporate updates on their return from the long weekend.

In currency markets, sterling weakened against both the dollar and the euro, and was last trading down 0.18% on the former at $1.2474, while it retreated 0.39% against the latter to change hands at €1.1341.

“Last week saw risk appetite revive on better earnings from tech giants, but a host of worries about interest rates, further bank crises, the US debt ceiling and of course pre-Fed nerves have conspired to prompt a reversal in equity markets,” said IG chief market analyst Chris Beauchamp.

“European and US indices are down sharply, as investors’ nerves get the better of them.”

Beauchamp added that those same concerns seemed “ready-made” for gold to move higher, calling it a “perfect safe haven” from the turmoil of the US debt ceiling.

“After the choppy trading of the last month a clearer path higher now beckons for the commodity.”

Manufacturing sector contracts further, food inflation reaches new high

In economic news, data released earlier showed that the UK's manufacturing sector continued to contract in April.

The S&P Global/CIPS manufacturing purchasing managers' index (PMI) fell to 47.8 - a marginal decrease from the prior month's reading of 47.9, and remaining below the 50-point level that separates expansion from contraction.

While the reading was above the flash estimate of 46.6, output, new orders, employment and stocks of purchases all contracted while vendor lead times improved.

“The UK manufacturing sector remained in the doldrums at the start of the second quarter,” said Rob Dobson, director at S&P Global Market Intelligence.

“Output and new orders contracted, as manufacturers felt the impacts of client uncertainty, destocking and tightening cost controls.”

Dobson said there was “no escape” from the subdued mood of the market, with both domestic and export customers remaining reticent to commit to new contracts.

“There was better news on supply chains, as supplier lead times have now shortened in each of the past three months, providing welcome news in terms of improved resource availability and helping drive down raw material price pressures.”

Elsewhere, food inflation in the UK hit another record high in April, according to the latest BRC-NielsenIQ shop price index.

The report revealed that food inflation rose to 15.7%, up from 15.0% in March, marking the highest inflation rate in the food category on record.

However, broader shop price annual inflation eased slightly to 8.8% in April from 8.9% in the previous month due to spring discounting, although it remains near record highs.

Non-food inflation decreased to 5.5% from 5.9% in March, while fresh food inflation rose to 17.8% from 17.0%, marking the highest inflation rate in the fresh food category on record.

The report also showed that ambient food inflation accelerated to 12.9% in April from 12.4% in March, marking the fastest rate of increase in the category on record.

“Overall shop price inflation eased slightly in April due to heavy spring discounting in clothing, footwear, and furniture,” said Helen Dickinson, chief executive of the British Retail Consortium.

“However, food prices remained elevated given ongoing cost pressures throughout the supply chain.”

Dickinson said the knock-on effect from increased production and packaging costs meant ready meals became more expensive, while coffee prices were also up due to the high cost of coffee beans, as well as key producer nations exporting less.

“Meanwhile, the price of butter and vegetable oils started to come down as retailers passed on cost savings from further up the supply chain.”

Nationwide's latest figures meanwhile revealed that UK house prices edged up in April, following seven consecutive months of declines.

The average house price increased by 0.5% on the month to £260,441, following a 0.7% decline in March.

Year-on-year, house prices decreased by 2.7% in April, slightly less than the 3.1% drop in the previous month.

Nationwide chief economist Robert Gardner said that while annual house price growth remained negative, “there were tentative signs of a recovery" with the monthly uptick”.

“April’s monthly increase follows seven consecutive declines and leaves prices 4% below their August 2022 peak,” he noted.

On the continent, new data from Eurostat showed that eurozone inflation increased slightly in April, primarily driven by a rise in energy prices.

The headline consumer price inflation rose to 7% year-on-year from 6.9% in March, in line with consensus estimates.

However, the core inflation rate, which excludes food, alcohol, tobacco, and energy, unexpectedly eased to 5.6% in April from 5.7% the previous month, despite analysts expecting it to remain unchanged.

Meanwhile, eurozone factory activity contracted last month, but not as much as previously estimated, according to S&P Global.

The PMI dropped to 45.8 in April from 47.3 in March, beating the preliminary reading of 45.5 but remaining below 50 for the 10th consecutive month.

The output prices index also fell to a 29-month low of 51.6 from 53.4 as demand remained weak, despite input costs decreasing at the fastest pace since May 2020.

Across the pond, the number of job openings continued to decline in March, along with a decrease in the number of Americans choosing to change their employment, according to the Department of Labor.

Job openings fell by 3.9% month-on-month to 9.59 million, while voluntary separations, or quits, decreased by 3.2% on the month to 3.851 million.

Finally, the Reserve Bank of Australia surprised markets by raising its key interest rate by 25 basis points to 3.85% at its monthly meeting.

The move came as the bank battled to combat persistent inflation, with RBA governor Philip Lowe warning that although inflation in Australia had passed its peak at 7%, it was still too high and will take some time before it returns to the target range.

The decision to raise rates came against expectations of a second consecutive pause.

Pearson tumbles on AI fears, housebuilders manage gains

On London’s equity markets, education publisher Pearson fell 14.99% following a warning from US firm Chegg over the impact of artificial intelligence (AI) chatbots on its homework-help services.

"We now believe it’s having an impact on our new customer growth rate," Chegg said.

Oil giant BP tumbled 8.62%, despite reporting a better-than-expected first-quarter profit of $5bn, as investors reacted to a fall in oil prices.

On the upside, housebuilders were among the top gainers following the release of Nationwide data, with Persimmon, Taylor Wimpey, Barratt, Berkeley, Vistry, and Redrow all higher.

HSBC rallied by 3.5% after it reinstated its dividend and announced a new round of share buybacks, after tripling its first-quarter profits due to rising interest rates.

“HSBC has seen profits soar, and investors should be reasonably happy with the restored quarterly dividend and $2bn buyback that looks likely to be completed over the next quarter," said Matt Britzman, equity analyst at Hargreaves Lansdown.

“Whether this is enough to quell the voices of those adamant that splitting HSBC up is the best course of action for investors remains to be seen, but certainly, one gripe has been the lack of returns given the strong capital position.”

Ashtead Group gained by 1.81% after announcing it had started a share buyback of up to $500m.

Carnival and TUI also advanced, following positive read-across from Norwegian Cruise Line, which lifted its annual profit forecast and posted better-than-expected first-quarter results.

Low-cost airline Wizz Air Holdings reported carrying 4,927,076 passengers in April, representing a 32.3% increase compared to the same month in 2022.

In broker note action, Rightmove was boosted by an upgrade to 'buy' at HSBC, rising by 0.56%.

Reporting by Josh White for Sharecast.com.

FTSE 100 -97.54 (-1.24%) 7,773.03
FTSE 250 -110.91 (-0.57%) 19,314.23
FTSE techMARK -6.75 (-0.14%) 4,734.07

FTSE 100 risers
Persimmon +5.52% 1,386.5p
HSBC Holdings +3.5% 593.9p
Carnival +2.75% 672.4p
J Sainsbury +2.53% 283.4p
Ashtead Group +1.81% 4,660p
Berkeley Group Holdings +1.28% 4,504p
InterContinental Hotels Group +1.14% 5,522p
Auto Trader Group +1.04% 642.2p
Barratt Developments +1.04% 505.2p
GSK +0.98% 1,455.2p

FTSE 100 fallers
BP -8.62% 488.35p
Relx -5.1% 2,511p
Shell -4.47% 2,342.5p
ITV -3.86% 77.66p
Barclays -3.09% 154.94p
Anglo American -3.05% 2,370.5p
Standard Chartered -2.83% 610.6p
Intermediate Capital Group -2.69% 1,266.5p
Legal & General -2.69% 227.8p
Rio Tinto -2.65% 4,915p

FTSE 250 risers
Restaurant Group +14.32% 46.3p
James Fisher and Sons +6.77% 347p
Hilton Food +5.01% 712p
PureTech Health +5.01% 220p
FirstGroup +4.09% 117p
Sabre Insurance +3.48% 130.8p
888 Holdings +2.94% 82.35p
Ferrexpo +2.77% 111.1p
FDM +2.67% 691p
Howden Joinery +2.63% 702.6p

FTSE 250 fallers
Aston Martin Lagonda -7.77% 223.2p
Man Group -7.17% 210.9p
Hunting -6.41% 219p
Tullow Oil -5.22% 26.5p
Trainline -5.05% 236.8p
Harbour Energy -4.97% 235p
Ascential -4.47% 243.8p
Synthomer -4.35% 114.4p
Capita -3.8% 33.42p
IP Group -3.38% 54.4p