London close: Stocks turn red on Powell's hawkish comments

London stocks closed in the red on Tuesday, as investors turned their attention to the testimony of US Federal Reserve chair Jerome Powell before Congress.

The FTSE 100 index was down 0.13% to 7,919.48, while the FTSE 250 index dropped 0.54% to 19,956.61.

Sterling meanwhile saw declines against major currencies, down 1.36% on the dollar at $1.1861 and losing 0.41% against the euro to €1.1211.

“It had been a fairly subdued session for European markets for most of the day, chopping between positive and negative territory amidst a backdrop of caution ahead of today’s comments from Jerome Powell, chairman of the Federal Reserve, where he struck a more hawkish tone in contrast to his last post FOMC press conference,” said CMC Markets chief market analyst Michael Hewson.

“Even allowing for the timing of today’s testimony which isn’t great given the closeness of this week’s payrolls report, next week’s CPI, and the next Fed meeting, which is in two weeks’ time, today’s remarks contrasted to the tone of Powell’s press conference back in February.”

Hewson said that, while being careful not to prejudge the upcoming data when he spoke to lawmakers this afternoon, Powell still had to acknowledge how much better than expected recent data had been, saying the central bank was prepared to increase the pace of rate hikes if needed, and that the likely rate peak could well be higher than expected.

“This change of tone saw yields pop higher and European stocks head towards the lows of the day, although today’s weakness has been fairly contained.”

The head of the Federal Reserve, Jerome Powell, kept the possibility of larger rate hikes open, citing recent stronger-than-expected economic data.

In remarks prepared for his speech before the US Senate's Banking Committee, Powell acknowledged that warmer weather contributed to recent improvements in employment, consumption, and inflation.

Despite that, he emphasised that inflationary pressures are higher than anticipated, as shown by the broad-based reversal of economic trends and revisions to the previous quarter.

Powell noted that while core goods prices fell, core services inflation, excluding housing, showed few signs of disinflation, and it accounted for over half of core consumer expenditures.

Moreover, labour supply has continued to lag behind the "very strong" hiring, with job openings per unemployed person remaining close to their all-time high.

“We will continue to make our decisions meeting by meeting, taking into account the totality of incoming data and their implications for the outlook for economic activity and inflation,” Powell said.

“We will continue to make our decisions meeting by meeting, taking into account the totality of incoming data and their implications for the outlook for economic activity and inflation.”

On home shores, UK house prices rose by 1.1% month-on-month in February in data from Halifax, reaching £285,476, due to falling mortgage rates and improved consumer confidence.

Annual growth was unchanged at 2.1% for the third consecutive month.

“Recent reductions in mortgage rates, improving consumer confidence, and a continuing resilience in the labour market are arguably helping to stabilise prices following the falls seen in November and December,” said Kim Kinnaird, director at Halifax Mortgages.

“Still, with the cost of a home down on a quarterly basis, the underlying activity continues to indicate a general downward trend.

“In cash terms, house prices are down around £8,500, or 2.9%, on the August 2022 peak but remain almost £9,000 above the average prices seen at the start of 2022 and are still above pre-pandemic levels, meaning most sellers will retain price gains made during the pandemic.”

Across the pond, wholesale inventories in the US declined 0.4% month-on-month in January to $929.0bn, erasing the prior month's revised 0.1% increase, and sales of merchant wholesalers rose 1.0% month-on-month to $693.8bn.

On the continent, January factory orders recorded an unexpected 1% increase in Germany, with foreign orders increasing by 5.5% while domestic orders fell by 5.3%, due to a sharp rise in the capital goods sector.

Finally on data, China's foreign trade surplus over the first two months of 2023 was $116.9bn, higher than expected, as exports rebounded and import growth lagged behind, with exports shrinking at a year-on-year rate of 6.8% and imports falling by 10.2%.

On London’s equity markets, Melrose Industries was among the top performers on Tuesday, with its shares rising by 3.86% after Bank of America Merrill Lynch upgraded its rating from 'neutral' to 'buy'.

The bank cited a better outlook for Melrose's aerospace business and increased its price target from 160p to 181p.

Ashtead, the equipment rental firm, jumped 2.23% after reporting strong third-quarter results and suggesting that full-year results would be ahead of expectations.

John Wood Group also surged, rising by 12.26%, after rejecting a fourth takeover approach from Apollo Global Management.

Elsewhere, Just Group rose by 11.11% after reporting a 19% growth in full-year underlying profits, while Premier Foods, the owner of Mr Kipling, gained 10.43% after upgrading its full-year profit expectations.

IWG, the serviced offices provider, rose by 2.02% after reporting that its pre-tax losses had narrowed in 2022 and expressing cautious optimism for 2023.

On the downside, Fresnillo, the gold and silver miner, lost 6.84% after reporting a more than 50% drop in profits in 2022.

Spirent Communications, the networking solutions provider, tumbled by 14.45% after reporting a more challenging first half of 2023 despite posting a rise in full-year profit and revenue.

Keller Group, the geotechnical engineering company, fell by 6.54% after reporting a decline in full-year earnings due to inflation, higher costs, and the war in Ukraine.

Finally, Greggs, the high street baker, was down 2.18% after reporting a 2% rise in annual profits due to inflation and higher costs affecting the bottom line, despite like-for-like sales in company-managed shops increasing by 18.8% in the first nine weeks of 2023, in line with expectations.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 7,919.48 -0.13%
FTSE 250 (MCX) 19,956.61 -0.54%
techMARK (TASX) 4,667.36 -0.32%

FTSE 100 - Risers

Melrose Industries (MRO) 162.95p 3.86%
Ashtead Group (AHT) 5,874.00p 2.23%
Beazley (BEZ) 623.00p 2.05%
Flutter Entertainment (CDI) (FLTR) 14,250.00p 1.97%
Rentokil Initial (RTO) 520.00p 1.68%
HSBC Holdings (HSBA) 624.30p 1.05%
Smith & Nephew (SN.) 1,220.50p 0.99%
Haleon (HLN) 320.05p 0.96%
Taylor Wimpey (TW.) 119.90p 0.84%
Legal & General Group (LGEN) 265.80p 0.83%

FTSE 100 - Fallers

Fresnillo (FRES) 708.40p -6.84%
Ocado Group (OCDO) 505.00p -4.68%
Glencore (GLEN) 479.50p -4.58%
Endeavour Mining (EDV) 1,685.00p -3.33%
Antofagasta (ANTO) 1,591.00p -2.90%
Anglo American (AAL) 2,851.00p -2.75%
Vodafone Group (VOD) 98.70p -2.49%
Weir Group (WEIR) 1,967.00p -2.19%
British Land Company (BLND) 444.30p -2.05%
Land Securities Group (LAND) 669.60p -2.05%

FTSE 250 - Risers

Wood Group (John) (WG.) 217.90p 12.26%
Just Group (JUST) 91.00p 11.11%
Premier Foods (PFD) 127.00p 10.43%
Aston Martin Lagonda Global Holdings (AML) 297.00p 7.57%
W.A.G Payment Solutions (WPS) 83.00p 3.75%
Mitchells & Butlers (MAB) 167.20p 3.15%
Senior (SNR) 172.20p 2.74%
Jlen Environmental Assets Group Limited NPV (JLEN) 119.60p 2.22%
Genus (GNS) 3,168.00p 2.19%
Essentra (ESNT) 224.00p 2.05%

FTSE 250 - Fallers

Spirent Communications (SPT) 180.50p -14.45%
Keller Group (KLR) 757.00p -6.54%
Baltic Classifieds Group (BCG) 149.80p -5.43%
Clarkson (CKN) 3,190.00p -5.20%
Ferrexpo (FXPO) 139.80p -5.09%
Future (FUTR) 1,280.00p -4.90%
Centamin (DI) (CEY) 99.08p -4.50%
Network International Holdings (NETW) 275.60p -3.77%
Babcock International Group (BAB) 316.80p -3.36%
Quilter (QLT) 89.08p -3.32%