London close: Stocks lower on downbeat Fed sentiment

London stocks remained in negative territory by the close on Friday as US rate hike fears continued to weigh on sentiment, with NatWest under the cosh after results.

The FTSE 100 ended the session down 0.1% at 8,004.36, and the FTSE 250 was off 0.46% at 20,088.93.

Sterling was in the green, meanwhile, last trading up 0.29% on the dollar at $1.2028, and strengthening 0.18% against the euro to €1.1254.

“Equities look to be heading into the weekend on a largely downbeat tone, with recent concerns over slowing US disinflation shifting rate expectations,” said IG senior market analyst Joshua Mahony.

“While most had seen the Federal Reserve soon ending their tightening phase after a historic surge in rates, the higher-than-expected retail sales, payrolls, and inflation figures provide the basis for yet more monetary tightening from the Fed.”

Mahony noted that the Fed’s Michelle Bowman provided another reminder that the recent market exuberance could be “somewhat misplaced”, citing the need to continue raising rates until more progress was seen.

"With markets now pricing in another 25-basis point hike at each of the next three FOMC meetings, investors have begun scaling back their exposure in anticipation of a potential market pullback.”

In economic news, UK retail sales unexpectedly rose in January, although the outlook remained weak overall according to the Office for National Statistics.

Retail sales were up 0.5% on the month following a 1.2% decline in December - economists had been expecting a 0.3% fall.

Non-food stores sales rose 0.6% over the month following a 2.5% decline in December 2022.

Feedback from retailers suggested that growth was supported by sales promotions, the ONS said, although sales still remained 2.9% below their pre-pandemic levels.

Non-store - mainly online - retail sales were also said to have been boosted by promotions, up 2%.

On the year, retail sales were down 5.1% in January following a 6.1% decline the month before and versus expectations for a 5.5% fall.

The ONS said sales volumes were 1.4% below their pre-pandemic February 2020 level.

“After December’s steep fall, retail sales picked up slightly in January, although the general trend remains one of decline,” said ONS director of economic statistics Darren Morgan.

“In the latest month, as prices continue to fall at the pumps, fuel sales have risen.

“Meanwhile, discounting helped boost sales for online retailers as well as jewellers, cosmetic stores and carpet and furnishing shops.”

However, Morgan said that after four months of consecutive growth, clothing store sales fell back sharply.

Paul Dales, chief UK economist at Capital Economics, noted that on the face of it, the data added to the view that activity was holding up fairly well.

“But there are two reasons not to get too carried away.

“First, retail sales were very weak last year but overall consumer spending held up due to stronger non-retail spending - particularly in restaurants.”

Dales said that when household finances were under pressure, it was possible that any improvement in retail sales would be met by a softening in non-retail spending.

“Second, although the biggest falls in real incomes are now behind us, the full drag on activity from higher interest rates has yet to be felt.

“As such, it is too soon to conclude that the retail sector is coming out of its funk and that the economy won’t yet fall into a recession.”

Across the pond, fresh data showed import price gains in the US slowed by more than expected in January.

According to the Department of Labor, the country's import price index slipped at a seasonally-adjusted month-on-month pace of 0.2%, against consensus expectations for a 0.1% contraction.

Fuel import prices were the main drag, retreating by 4.9% on the month, while those of non-fuel imports were up by 0.3%.

In year-on-year terms, import prices were ahead by 0.8%, below the 1.3% analysts at Barclays had pencilled in.

Export prices, meanwhile, increased by 0.8% compared to December, with those of agricultural goods dipping by 0.2% and those of non-agricultural products rising by 0.8%.

On London’s equity markets, NatWest Group tumbled 6.87% even after it said annual profits rose by more than a third.

The bank also unveiled an £800m share buyback as it cashed in on surging interest rates, despite a net impairment charge of £337m.

“While the group continues to guide to a return on tangible equity of 14% to 16% in the 2023 financial year, and is now suggesting this should be sustainable over the medium-term, we think the market may be disappointed by what appears to be a downgrade to pre-provision profit forecasts - offset by lower impairments,” noted Shore Capital.

Sector peer Lloyds Banking Group also fell sharply, ending the day 3.83% lower.

On the upside, Segro jumped 3.59% after it said full-year adjusted pre-tax profits rose 8.4% to £386m as demand for its warehouses remained high.

British Gas owner Centrica managed gains for the second day in a row, ending the day ahead 0.82% after its bumper full-year results on Thursday.

Bank of Georgia Group gained 3.41% as well on the back of stellar results on Thursday, with compatriot TBC Bank Group up 4.65% on the sentiment.

Dunelm Group stock recovered by 1.49% after a sharp fall on Thursday, when the furniture and homewares retailer warned of an uncertain outlook in the year ahead.

Reporting by Josh White for Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesti and Alexander Bueso.

Market Movers

FTSE 100 (UKX) 8,004.36 -0.10%
FTSE 250 (MCX) 20,088.93 -0.46%
techMARK (TASX) 4,651.52 0.58%

FTSE 100 - Risers

SEGRO (SGRO) 866.20p 3.59%
Imperial Brands (IMB) 2,037.00p 2.96%
Flutter Entertainment (CDI) (FLTR) 13,745.00p 2.61%
Coca-Cola HBC AG (CDI) (CCH) 2,110.00p 2.08%
National Grid (NG.) 1,070.00p 2.05%
GSK (GSK) 1,484.20p 2.01%
Severn Trent (SVT) 2,807.00p 1.81%
Beazley (BEZ) 683.50p 1.64%
United Utilities Group (UU.) 1,050.50p 1.45%
SSE (SSE) 1,755.50p 1.36%

FTSE 100 - Fallers

NATWEST GROUP (NWG) 284.60p -6.87%
Lloyds Banking Group (LLOY) 50.91p -3.83%
Scottish Mortgage Inv Trust (SMT) 737.40p -3.10%
Rightmove (RMV) 577.40p -2.14%
Shell (SHEL) 2,541.00p -1.80%
Ashtead Group (AHT) 5,630.00p -1.78%
Anglo American (AAL) 3,209.50p -1.59%
Hargreaves Lansdown (HL.) 853.60p -1.48%
F&C Investment Trust (FCIT) 963.00p -1.43%
Weir Group (WEIR) 1,863.50p -1.40%

FTSE 250 - Risers

TBC Bank Group (TBCG) 2,590.00p 4.65%
4Imprint Group (FOUR) 4,580.00p 4.09%
Bank of Georgia Group (BGEO) 2,885.00p 3.41%
Babcock International Group (BAB) 319.40p 2.63%
Urban Logistics Reit (SHED) 143.00p 2.14%
Redde Northgate (REDD) 420.00p 1.94%
Investec (INVP) 546.40p 1.75%
Hammerson (HMSO) 30.45p 1.73%
Currys (CURY) 74.15p 1.71%
Inchcape (INCH) 931.00p 1.69%

FTSE 250 - Fallers

Hipgnosis Songs Fund Limited NPV (SONG) 87.10p -4.29%
Carnival (CCL) 848.20p -4.20%
Harbour Energy (HBR) 294.90p -4.04%
Allianz Technology Trust (ATT) 229.00p -3.78%
Digital 9 Infrastructure NPV (DGI9) 82.00p -3.76%
Tullow Oil (TLW) 33.44p -3.69%
Edinburgh Worldwide Inv Trust (EWI) 174.40p -3.54%
Moonpig Group (MOON) 118.90p -3.33%
Auction Technology Group (ATG) 703.00p -3.03%
Polar Capital Technology Trust (PCT) 1,964.00p -3.01%