London close: Stocks manage small gains after lacklustre session

London's stock markets overcame initial losses to close slightly higher on Tuesday, having earlier fallen on the back of an unexpected interest rate increase from the Reserve Bank of Australia.

That negative sentiment was further compounded by uninspiring retail sales data.

The FTSE 100 index ended the day up 0.37% at 7,628.10 points, while the FTSE 250 also showed signs of resilience, closing ahead 0.54% at 19,217.22.

In the currency markets, sterling was last 0.14% weaker on the dollar, trading at $1.2420, while it managed gains of 0.04% on the euro to change hands at €1.1612.

“It’s been a lacklustre trading session for European markets with higher rates and disappointing economic data weighing on sentiment throughout the day, although we are edging higher into the close,” said CMC Markets chief market analyst Michael Hewson.

“It’s becoming increasingly difficult to determine an overall direction for markets at this point with little in the way of a catalyst one way or the other.

“A surprise rate hike from the Reserve Bank of Australia - the second month in succession they’ve done this - along with another poor German factory orders number for April has tempered risk appetite and raised concerns about the economic outlook, while oil prices have given up all their Saudi production cut gains from yesterday.”

Triple bank holidays fail to spark retail sales

In economic news, retail sales growth in the UK decelerated in May, despite a series of bank holiday weekends that were expected to stimulate consumer spending, according to the latest BRC-KPMG retail sales monitor.

Retail sales grew by 3.9% in May - or 3.7% on an adjusted basis - a recovery from the same period in 2022, when sales slipped by 1.1% and 1.5% respectively.

However, the uptick fell short of the three-month average and significantly trailed April's 5.1% growth rate of 5.2% on a like-for-like basis.

Food sales witnessed a robust 9.8% growth, while non-food sales experienced a modest 0.5% increase.

“The trio of bank holidays failed to get shoppers spending, as sales growth slowed to its lowest level in six months,” said Helen Dickinson, chief executive of the British Retail Consortium.

“While food sales got a boost from the coronation weekend, this was not sustained for the rest of the month.

“With consumer confidence still recovering from record delays, and continued tightening of household incomes, we are unlikely to see substantial sales growth in the coming months.”

Meanwhile, the UK construction industry saw an increase in activity in May, though higher interest rates placed a strain on house building.

Data from the S&P Global/CIPS UK construction purchasing managers' index (PMI) showed an improvement to 51.6 from 51.1 in April, exceeding market expectations of 50.8.

Commercial building and civil engineering spearheaded the rise with PMI scores of 54.2 and 53.9 respectively, amid speedy decision-making on new projects and a boost in customer confidence.

However, the residential construction sector suffered, posting its sixth consecutive month of decline due to elevated interest rates.

“Rising demand among corporate clients and contract awards on infrastructure projects underpinned the fastest rise in new orders since April 2022,” said Tim Moore, economics director at S&P Global Market Intelligence.

“However, cutbacks to new residential building projects, in response to rising interest rates and subdued housing market conditions, resulted in the sharpest drop in housing activity for three years.”

On the continent, the construction sector faced a setback, with the HCOB eurozone construction PMI total activity index sliding from 45.2 in April to 44.6 in May, marking the steepest decrease this year.

The downturn came despite an ease in input price growth.

At the same time, eurozone retail sales remained static in April, according to Eurostat data, failing to meet expectations of modest growth.

The volume of seasonally-adjusted retail trade recorded 0.0% change in the eurozone, following a 0.4% contraction in March.

Furthermore, April saw an unexpected fall in German factory orders as large-scale orders dwindled, reported Destatis.

Orders dropped by 0.4%, following a revised 10.9% plunge in March, defying expectations of a 3% increase.

When excluding large-scale orders, April registered a 1.4% increase.

Lastly, the Reserve Bank of Australia (RBA) surprised markets by increasing interest rates – its 12th hike in slightly over a year.

Citing persistent inflation concerns, the RBA raised the cash rate by 25 basis points to 4.1% - a level not seen in 11 years.

The move went against economists' expectations of the Bank maintaining steady rates.

Asos tumbles as Chemring and Paragon surge

On London’s equity markets, shares of BP and Shell saw slight decreases of 0.36% and 0.5%, respectively, after surging on the back of rising oil prices on Monday.

Primark owner Associated British Foods slipped 0.11% after announcing that it had acquired dairy technology firm National Milk Records for £48m.

Fashion retailer Asos tumbled 5.12%, having rallied on Monday amid speculation that the company could be a takeover target.

Mike Ashley's Frasers Group reported an increase in its stake in Asos, moving from 7.4% to 8.8% - a significant increase from its 5% stake in October 2022.

On the upside, defence technology company Chemring Group surged 9.12%, despite reporting a drop in interim profit and revenue.

Paragon Banking Group also saw substantial gains, jumping 9.43% after it increased its full-year guidance for net interest margin and mortgage lending, as well as expanding its buyback programme.

British American Tobacco (BAT) finished the day ahead by 1.5% after the cigarette and vaping product maker maintained its full-year revenue and profit guidance, noting trading would be weighted towards the second half of the year.

BAT said it was projecting a 3% to 5% increase in organic revenue on a constant currency basis for 2023 and mid-single digit growth in adjusted earnings.

However, it warned that the timing of the transfer of its Russian and Belarusian businesses could impact its performance.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 7,628.10 0.37%
FTSE 250 (MCX) 19,217.22 0.54%
techMARK (TASX) 4,597.82 0.19%

FTSE 100 - Risers

Ocado Group (OCDO) 358.40p 4.37%
Abrdn (ABDN) 218.50p 4.05%
Melrose Industries (MRO) 503.20p 2.71%
Legal & General Group (LGEN) 240.30p 2.52%
3i Group (III) 2,000.00p 2.28%
Standard Chartered (STAN) 671.60p 1.94%
Hargreaves Lansdown (HL.) 828.80p 1.74%
Scottish Mortgage Inv Trust (SMT) 700.00p 1.71%
Burberry Group (BRBY) 2,208.00p 1.70%
Severn Trent (SVT) 2,791.00p 1.68%

FTSE 100 - Fallers

Flutter Entertainment (CDI) (FLTR) 15,540.00p -1.58%
Vodafone Group (VOD) 76.92p -1.28%
Centrica (CNA) 118.85p -1.04%
Haleon (HLN) 327.55p -0.80%
Convatec Group (CTEC) 206.60p -0.77%
BT Group (BT.A) 144.05p -0.76%
Hiscox Limited (DI) (HSX) 1,154.00p -0.69%
Johnson Matthey (JMAT) 1,792.50p -0.67%
Unilever (ULVR) 4,044.50p -0.65%
CRH (CDI) (CRH) 3,842.00p -0.64%

FTSE 250 - Risers

Paragon Banking Group (PAG) 551.00p 9.43%
Chemring Group (CHG) 293.50p 9.12%
Indivior (INDV) 1,681.00p 5.72%
Abrdn Private Equity Opportunities Trust (APEO) 442.00p 4.42%
Bakkavor Group (BAKK) 95.80p 4.13%
OSB Group (OSB) 536.50p 4.07%
IntegraFin Holding (IHP) 258.00p 3.45%
IWG (IWG) 160.10p 3.35%
Pennon Group (PNN) 790.00p 2.93%
Investec (INVP) 449.70p 2.51%

FTSE 250 - Fallers

Warehouse Reit (WHR) 96.80p -6.48%
ASOS (ASC) 356.00p -5.12%
Urban Logistics Reit (SHED) 137.40p -2.28%
Hunting (HTG) 220.00p -2.00%
Harbour Energy (HBR) 239.60p -2.00%
Coats Group (COA) 70.00p -1.96%
Tullow Oil (TLW) 25.52p -1.92%
Molten Ventures (GROW) 297.00p -1.92%
Currys (CURY) 51.60p -1.81%
Ferrexpo (FXPO) 95.40p -1.80%