London close: Stocks mixed after Japan's policy surprise

London stocks were mixed by the close on Tuesday, as investors mulled a surprise policy shift from the Bank of Japan and a slowing down in corporate news ahead of the holidays.

The FTSE 100 ended the session up 0.13% at 7,370.62, while the FTSE 250 was down 0.56% at 18,544.76.

Sterling was in the red as well, last trading down 0.11% on the dollar at $1.2136, while it weakened 0.26% against the euro to change hands at €1.1424.

“European markets initially opened sharply lower in the wake of the Bank of Japan’s decision to relax its yield curve control criteria, however over the course of the day we’ve pulled off the lows of the day, with the FTSE 100 outperforming and pushing into the green in the afternoon session,” said CMC Markets chief market analyst Michael Hewson.

“Bond yields have still spiked higher as investors look to price in further tightening next year, however the initial knee jerk reaction has been tempered by the fact that this was likely to happen in the new year anyway, and it’s the timing that has surprised.

“Nonetheless the die has been cast, setting into a motion of train of events that makes the Bank of Japan much less of a global outlier, and points to the prospect of further tightening in rates heading into 2023, with the higher yields helping to lift banking stocks like HSBC, Lloyds, and NatWest.”

In economic news, train drivers announced another one-day strike set down for 5 January, after members at 15 train operators voted for more walk-outs in a long-running dispute over pay.

The ASLEF union said the strike would bring services on affected routes to a halt on the day before other rail worker members of the RMT union were planning another 48-hour strike.

Between the two strikes, Britain’s rail network will effectively shut down for three days on 5, 6 and 7 January.

“We don’t want to go on strike but the companies have pushed us into this place,” said ASLEF general secretary Mick Whelan.

“They have not offered our members at these companies a penny - and these are people who have not had an increase since April 2019.

“That means they expect train drivers at these companies to take a real-terms pay cut - to work just as hard for considerably less - when inflation is running at north of 14%.”

Elsewhere, house prices looked likely to fall by 5% next year according to lender Nationwide, as borrowers faced higher interest rates and a squeeze on earnings.

Publishing its review of the current year alongside forecasts for 2023, the building society said the UK housing market had been "remarkably resilient" during the first three quarters of 2022.

However, the government’s ill-received mini budget in September represented a "major shock", causing house prices to start to fall.

The budget included £45bn of unfunded tax cuts but no spending plans or economic forecasts.

In response, the pound plunged while mortgage rates and bond yields spiked, with the Bank of England forced to step in.

“The financial market turbulence represented a major shock to the housing market,” said Robert Gardner, Nationwide’s chief economist.

“The number of mortgage applications slumped to lows seen at the start of the pandemic as a spike in long term interest rates quickly fed through to mortgage rates and fundamentally changed the affordability dynamic for prospective buyers.”

Earlier in the global day, the Bank of Japan shocked markets as it held its benchmark interest rates steady, but said it was widening its yield target range.

The Bank left the policy balance rate unchanged at -1.0% and the 10-year yield control target unchanged at zero.

However, it announced a surprise tweak to the yield control curve policy meaning that it would now allow the 10-year bond yield to fluctuate in a range of 0.5% above or below zero, compared to the previous 0.25%.

The BoJ said in its statement that the change to the yield curve control policy was expected to "enhance the sustainability of monetary easing".

The yen strengthened and bonds sold off after the announcement.

“The Bank argued that the functioning of the bond market had deteriorated in recent months, which had negatively impacted corporate financing conditions,” said Marcel Thieliant at Capital Economics.

“One reason is that the Bank had to buy sizable amounts of bonds to defend its yield target this year and the share of bonds owned by the Bank has hit a fresh record high in recent weeks.”

Thieliant said there was nothing in the statement that suggested the decision heralded a “wholesale tightening” of monetary policy.

“For one thing, the Bank’s assessment of current economic conditions as well as its outlook over coming quarters was little changed from the October meeting.”

On the mainland, the People’s Bank of China kept its benchmark interest rates on hold for the fourth month in a row meanwhile, in line with expectations.

The Bank left the one-year loan prime rate at 3.65% and the five-year LPR at 4.3%.

Last week, the central bank held its medium-term policy rate at 2.75%.

Finally on data, the pace of housebuilding activity in the United States held up better than expected last month according to government data, but the finer details pointed to a further slowdown ahead.

According to the Department of Commerce, the annual rate of housing starts slipped to a seasonally-adjusted 1.427 million in November, from 1.434 million in October .

Economists were expecting an annualised rate of 1.404 million for November, down from a preliminary estimate of 1.425 million for October.

On London’s equity markets, with only days to go until Christmas, there was just a smattering of corporate news.

Petrofac lost 3.25% after the oilfield services provider warned that it expected a full-year group EBIT loss of around $100m, due to challenges in the engineering and construction segment.

Software firm Sage Group was also under pressure, losing 2.8% after a downgrade to ‘sell’ at UBS.

Distribution specialist Bunzl slipped 0.42% after announcing the sale of its UK healthcare division to Mediq, as well as the acquisition of four other businesses.

Irn Bru maker AG Barr was off 0.19% after it said it had taken full ownership of plant-based milks business Moma Foods, buying the remaining 38.2% stake from founder Tom Mercer and other minority shareholders for £3.4m.

On the upside, Hilton Food Group added 3.26% after signing a long-term collaboration in Singapore with Country Foods.

Miners were on the rise, with Glencore up 2.09% and Antofagasta ahead 3.23%, likely on the back of China reopening hopes.

Banks also rallied, with HSBC, Lloyds Banking Group and NatWest Group adding 1.42%, 1.16% and 1.12%, respectively.

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

Market Movers

FTSE 100 (UKX) 7,370.62 0.13%
FTSE 250 (MCX) 18,544.76 -0.56%
techMARK (TASX) 4,323.01 -0.49%

FTSE 100 - Risers

Antofagasta (ANTO) 1,518.50p 3.23%
Centrica (CNA) 94.38p 2.61%
Glencore (GLEN) 548.00p 2.09%
Endeavour Mining (EDV) 1,729.00p 1.82%
HSBC Holdings (HSBA) 502.80p 1.42%
Beazley (BEZ) 658.00p 1.39%
Lloyds Banking Group (LLOY) 45.52p 1.16%
NATWEST GROUP (NWG) 262.20p 1.12%
Rio Tinto (RIO) 5,663.00p 0.96%
Shell (SHEL) 2,307.50p 0.90%

FTSE 100 - Fallers

Sage Group (SGE) 749.60p -2.80%
Hargreaves Lansdown (HL.) 831.80p -2.23%
Airtel Africa (AAF) 110.10p -2.21%
JD Sports Fashion (JD.) 113.25p -2.08%
Schroders (SDR) 428.90p -2.05%
Scottish Mortgage Inv Trust (SMT) 714.00p -2.03%
Ocado Group (OCDO) 621.60p -1.96%
International Consolidated Airlines Group SA (CDI) (IAG) 127.84p -1.71%
SEGRO (SGRO) 751.80p -1.70%
St James's Place (STJ) 1,073.00p -1.69%

FTSE 250 - Risers

Drax Group (DRX) 661.00p 6.27%
Hilton Food Group (HFG) 538.00p 3.26%
Bank of Georgia Group (BGEO) 2,545.00p 3.03%
Lancashire Holdings Limited (LRE) 618.50p 2.74%
Volution Group (FAN) 341.50p 2.56%
Currys (CURY) 55.70p 2.30%
TBC Bank Group (TBCG) 2,190.00p 2.09%
BH Macro Ltd. GBP Shares (BHMG) 4,600.00p 1.88%
Ferrexpo (FXPO) 162.00p 1.69%
Centamin (DI) (CEY) 109.85p 1.67%

FTSE 250 - Fallers

Aston Martin Lagonda Global Holdings (AML) 168.00p -5.08%
Helios Towers (HTWS) 102.50p -3.85%
Marshalls (MSLH) 267.80p -3.60%
Warehouse Reit (WHR) 103.00p -3.56%
Shaftesbury (SHB) 350.60p -3.52%
National Express Group (NEX) 131.60p -3.45%
Hammerson (HMSO) 22.60p -3.34%
Molten Ventures (GROW) 339.00p -3.31%
Discoverie Group (DSCV) 732.00p -3.30%
Intermediate Capital Group (ICP) 1,104.00p -3.29%