London close: Stocks mixed ahead of this week's Fed decision

London stocks closed in a mixed state on Monday as investors started to close their pocketbooks ahead of the US Federal Reserve’s policy announcement later in the week, amid a raft of corporate updates.

The FTSE 100 ended the session up 0.41% at 7,306.30, while the FTSE 250 was off 0.11% at 19,802.99.

Sterling was in positive territory, last trading up 0.41% on the dollar at $1.2048, and strengthening 0.42% against the euro to €1.1798.

“UK banking stocks are enjoying a welcome boost today, despite the looming earnings risk that could soon see such gains eroded later in the week,” said IG senior market analyst Joshua Mahony.

“With the Fed expected to raise rates by 75 to 100 basis points on Wednesday, we are set for a timely reminder that banking margins will continue to improve as we move throughout this year.

“However, while banking stocks typically benefit from higher rates as they often come against a strong economic backdrop, financial stocks are at risk given the looming recession that is widely anticipated.”

In economic news, a fresh survey showed UK industrial output growing at the slowest pace in more than a year in the three months to July, reflecting softer demand domestically and internationally.

The Confederation of British Industry’s industrial trends survey revealed that its output balance dropped to +6 for July from +19 in April.

"The manufacturing sector has been an economic bright spot in recent months, but output and orders have softened amid ongoing cost pressures, supply challenges and a generalised weakening in economic conditions both in the UK and globally," CBI deputy chief economist Anna Leach said.

Concerns over shortages of labour and shortages of components and materials remained acute, but off their recent highs.

The CBI's figures showed a large fall in the balance for manufacturers' average expected prices for the next three months to +48 from +71.

On the continent, Germany looked set to be on the brink of recession, according to a survey released earlier by the Ifo Institute.

It found that business sentiment deteriorated significantly in July amid surging energy prices and worries about gas supply.

The business climate index fell to 88.6 from 92.2 in June, hitting its lowest point since June 2020.

Ifo said the current situation index, meanwhile, declined to 97.7 from 99.4 and the expectations index slumped to 80.3 in July from 85.5 in June.

“Higher energy prices and the threat of a gas shortage are weighing on the economy,” said Ifo president Clemens Fuest.

“Germany is on the cusp of a recession."

The manufacturing gauge fell to -7.1 in July from 0.0 in June, while the index for the service sector declined to 0.9 from 10.9.

Ifo said the index for trade printed at -21.6 from -14.7 and the gauge for construction was -17.0 versus -9.7 in June.

Pantheon Macroeconomics noted that it saw no reason to change its view that Germany’s economy was now likely entering a technical recession.

“We expect data on Friday to show that the economy contracted in the second quarter, and today’s Ifo release suggests it will do so again in the third quarter,” Pantheon said.

“If, as we expect, further disruption to gas flows leads to energy rationing, the fourth quarter will be no better.”

On London’s equity markets, banks were above the waterline with Standard Chartered up 3.18%, NatWest Group rising 2.27%, HSBC ahead 2.19%, and Lloyds Banking Group 1.34% firmer ahead of trading updates later in the week.

Molten metal flow engineer Vesuvius surged 9.91% after saying that full-year trading profit was set to be towards the top of the range of analyst expectations following better-than-expected trading in May and June.

Ferrexpo was boosted 14.18% by an upgrade to 'outperform' at Credit Suisse, while Oxo and Mr Kipling owner Premier Foods rallied 1.77% after agreeing to buy Asian meal kits and accompaniments brand ‘the Spice Tailor’ for an initial £43.8m in cash.

Airtel Africa advanced 2.37% after its Kenyan subsidiary bought 60-megahertz of additional spectrum for $40m as part of an effort to support its 4G network capacity expansion in the market for both mobile data and fixed wireless home broadband capabilities.

Elsewhere, telecoms giant Vodafone Group closed flat after it announced a rise in first-quarter revenues, driven by growth in the UK, but reported a fall in its biggest market of Germany.

On the downside, online grocer and warehouse technology firm Ocado fell 4.04% after Berenberg cut its price target on the shares to 1,290p from 1,415p to reflect the capital raise and lower value attributed to its half-owned Ocado Retail division, but maintained its ‘buy’ rating.

"On 20 June, Ocado announced a £575m capital raise as well as a new £300m credit facility, providing £2bn of liquidity," Berenberg noted.

"While an equity raise came as a surprise, particularly as previous messaging had indicated capital would be raised via debt, yields of unsecured debt have risen through 2022, and reducing the net debt provides more financial and strategic flexibility, in our view."

Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk and Frank Prenesti.

Market Movers

FTSE 100 (UKX) 7,306.30 0.41%
FTSE 250 (MCX) 19,802.99 -0.11%
techMARK (TASX) 4,380.20 -0.24%

FTSE 100 - Risers

Harbour Energy (HBR) 343.00p 3.38%
Standard Chartered (STAN) 591.00p 3.18%
Glencore (GLEN) 432.80p 2.51%
Anglo American (AAL) 2,729.00p 2.38%
Airtel Africa (AAF) 168.60p 2.37%
NATWEST GROUP PLC ORD 100P (NWG) 230.20p 2.27%
HSBC Holdings (HSBA) 526.50p 2.19%
Tesco (TSCO) 264.80p 2.08%
Barclays (BARC) 160.72p 1.82%
Rio Tinto (RIO) 4,850.00p 1.63%

FTSE 100 - Fallers

Endeavour Mining (EDV) 1,550.00p -4.26%
Ocado Group (OCDO) 759.60p -4.04%
Fresnillo (FRES) 648.60p -3.19%
Dechra Pharmaceuticals (DPH) 3,594.00p -3.02%
Intertek Group (ITRK) 4,384.00p -2.94%
Howden Joinery Group (HWDN) 654.20p -2.88%
Flutter Entertainment (CDI) (FLTR) 8,060.00p -2.61%
Aveva Group (AVV) 2,332.00p -2.55%
RS Group (RS1) 988.50p -2.51%
Scottish Mortgage Inv Trust (SMT) 812.80p -2.24%

FTSE 250 - Risers

Ferrexpo (FXPO) 151.40p 14.18%
Vesuvius (VSVS) 355.00p 9.91%
TBC Bank Group (TBCG) 1,298.00p 4.01%
Tullow Oil (TLW) 46.72p 3.96%
ICG Enterprise Trust (ICGT) 1,182.00p 3.87%
Volution Group (FAN) 400.50p 3.49%
Beazley (BEZ) 537.00p 2.87%
ITV (ITV) 72.12p 2.74%
4Imprint Group (FOUR) 3,200.00p 2.73%
IG Group Holdings (IGG) 795.50p 2.65%

FTSE 250 - Fallers

Jupiter Fund Management (JUP) 133.50p -6.45%
Chrysalis Investments Limited NPV (CHRY) 99.00p -4.81%
Carnival (CCL) 659.20p -4.74%
Bridgepoint Group (Reg S) (BPT) 228.20p -3.96%
Hochschild Mining (HOC) 74.00p -3.65%
888 Holdings (DI) (888) 151.10p -3.27%
Darktrace (DARK) 365.90p -3.20%
ASOS (ASC) 1,121.00p -3.11%
TUI AG Reg Shs (DI) (TUI) 129.45p -2.96%
National Express Group (NEX) 177.30p -2.74%