London close: Stocks weaker ahead of Fed, Bank of England decisions

London stocks were still below the waterline by the close on Wednesday, amid investor reticence ahead of the much-anticipated Fed interest rate decision across the pond later in the global day.

The FTSE 100 ended the session down 0.09% at 7,495.93, and the FTSE 250 was off 0.25% at 19,037.92.

Sterling was in the green, meanwhile, and was last up 0.36% on the dollar at $1.2411, as it strengthened 0.15% against the euro to trade at €1.1646.

“European markets have undergone a rather subdued session ahead of tonight’s Fed rate decision, where it's widely expected we’ll see a downshift to a 50-basis point rate hike, as inflationary pressures subside,” said CMC Markets chief market analyst Michael Hewson.

“There is a concern that Powell may well deliver a hawkish statement designed to push back on market expectations of an imminent softening of the Fed’s position, in an attempt to reset market optimism, which in turn could well put downward pressure on markets overnight.

“It's set to be an important 24 hours for equity markets with the Federal Reserve looking to set the tone ahead of tomorrow’s Bank of England and European Central Bank rate meetings, where we’re also expecting to see 50-basis point rate hikes.”

In economic news, inflation eased to 10.7% in the UK last month according to official figures, as transport costs fell back.

The Office for National Statistics said the consumer prices index rose by 10.7% in the 12 months to November, down on October’s 41-year high of 11.1% and below consensus expectations of 10.9%.

It said the largest downward contribution came from transport, after the price of motor fuels and second-hand cars eased, alongside declines in tobacco, clothing and footwear, and games, toys and hobbies.

That was partially offset, however, by price hikes for alcohol in restaurants, cafes and pubs.

Including owner occupiers’ housing costs, CPIH rose by 9.3% in November, down from 9.6% in October, while core CPI - which strips out the more volatile elements of food, energy, alcohol and tobacco - nudged lower to 6.3% from 6.5% in the year to October.

Analysts had expected no change in core CPI.

The Bank of England previously said it expected inflation to peak at the end of 2022, before falling steadily throughout 2023.

Interest rates now stand at 3.0% after a series of hikes throughout the year, and most economists expect another rise when the Monetary Policy Committee meets on Thursday.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, noted that the decline in CPI would “relieve” Bank of England policymakers, after October’s print exceeded its expectations by 0.2 percentage points, adding that it suggested the peak rate now lay “firmly” in the past.

“This looks like a genuine slowdown in the pace of price rises, akin to that recently seen in the US and eurozone.

“Looking ahead, CPI should continue to decline over the coming months, assisted by the recent fall in oil prices.”

Elsewhere, UK house prices jumped in October according to the ONS, reaching fresh highs.

Average UK house prices rose by 12.6% over the year to October, up from 9.9% in September, although much of the percentage change was caused by favourable comparables.

Prices fell sharply in October 2021, after the stamp duty threshold reverted to £125,000 at the end of September.

The ONS noted that house prices in September last year were also "slightly inflated", as buyers rushed to complete purchases ahead of the tax change, with prices falling 2.0% between September and October 2021.

It said the average UK house price in October this year was a record £296,000, which was £33,000 higher than the same month a year earlier, but only 0.3% higher month-on-month.

On a seasonally-adjusted basis, prices rose 0.7% month-on-month.

“The official measures of house prices continued to rise in October because it is based on completed transactions, which in turn depend on mortgage offers made a few months earlier,” said Gabriella Dickens, senior UK economist at Pantheon Macroeconomics.

“Timelier measures suggest that the official measure of house prices will start to fall by the end of this year.

“Admittedly, mortgage rates have started to fall from October’s peaks, but only at a glacial pace.”

On the continent, official eurozone data showed industrial production falling sharply across the common currency area in October.

According to Eurostat, seasonally-adjusted industrial production fell 2.0% in October, compared to September’s downwardly-revised uptick of 0.8%.

Consensus had been for a 1.5% contraction.

In the wider 27-member EU bloc, meanwhile, industrial production fell 1.9%, reversing September’s 0.7% increase.

Across the pond, US mortgage applications rose 3.2% in the week ended 9 December, making for the first gain in three weeks and the highest increase since September.

According to the Mortgage Bankers Association of America, the purchase index increased 4% month-on-month, while the refinancing one jumped 2.8%.

The increase came as the 30-year mortgage rate edged up by one basis point to 6.42%, but managed to hold close to levels not seen in roughly three months.

“The ongoing moderation in home-price growth, along with further declines in mortgage rates, may encourage more buyers to return to the market in the coming months,” said MBA economist Joel Kan.

Finally on the economic front, oil demand was forecast to grow with possible price rises on supply disruption in the latest estimates from the International Energy Agency (IEA).

The IEA lifted its 2022 production forecast by 140,000 barrels per day, to 2.3 million.

It said a recovery in Chinese oil demand after a 400,000 barrel-per-day contraction in 2022 would lift global demand by 1.7 million barrels, for a total of 101.6 million barrels per day.

"As we move through the winter months and towards a tighter oil balance in Q2 2023, another price rally cannot be ruled out," the IEA said.

On London’s equity markets, holiday giant TUI slumped 7.99% after saying it would raise cash to repay state support it received during the Covid-19 pandemic.

It also posted a return to annual profits, and said underlying earnings would increase significantly in 2023, despite market uncertainty.

Watches of Switzerland Group was 5.32% weaker even after it backed its full-year guidance and reported a rise in first-half profit and revenue, amid solid demand.

BA and Iberia owner IAG and low-cost carrier Wizz Air descended 2.93% and 7.72%, respectively, after a revenue warning from the US domestic-focussed JetBlue Airways.

Housebuilders Taylor Wimpey and Redrow were knocked down a respective 1.87% and 3.26% by rating downgrades at JPMorgan Cazenove, while miner Rio Tinto Group fell 2.18% after a downgrade to ‘underweight’ from JPMorgan.

Volution Group reversed earlier gains to slip 0.43%, even after it said group revenue for the four months to 30 November rose 7% thanks to a combination of volume and price increases, with all three geographic regions growing organically.

On the upside, BT Group gained 2.06% after Nokia announced the expansion of its partnership with the telecoms group, in a five-year deal for its AVA Analytics software for fixed networks.

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

Market Movers

FTSE 100 (UKX) 7,495.93 -0.09%
FTSE 250 (MCX) 19,037.92 -0.25%
techMARK (TASX) 4,431.50 0.08%

FTSE 100 - Risers

BT Group (BT.A) 116.25p 2.06%
Centrica (CNA) 91.98p 1.61%
Admiral Group (ADM) 2,085.00p 1.61%
BAE Systems (BA.) 834.20p 1.61%
Compass Group (CPG) 1,925.00p 1.37%
British Land Company (BLND) 400.40p 1.29%
DCC (CDI) (DCC) 4,314.00p 1.22%
National Grid (NG.) 1,027.50p 1.18%
Experian (EXPN) 2,984.00p 1.15%
Land Securities Group (LAND) 635.60p 1.15%

FTSE 100 - Fallers

Airtel Africa (AAF) 113.90p -2.98%
International Consolidated Airlines Group SA (CDI) (IAG) 131.28p -2.93%
Anglo American (AAL) 3,132.50p -2.26%
Rio Tinto (RIO) 5,622.00p -2.18%
Taylor Wimpey (TW.) 102.25p -1.87%
Ocado Group (OCDO) 688.60p -1.63%
Antofagasta (ANTO) 1,459.50p -1.58%
Barratt Developments (BDEV) 403.60p -1.32%
Entain (ENT) 1,395.50p -1.31%
F&C Investment Trust (FCIT) 910.00p -1.30%

FTSE 250 - Risers

Syncona Limited NPV (SYNC) 197.00p 5.12%
Hammerson (HMSO) 24.28p 4.07%
Ferrexpo (FXPO) 159.80p 3.70%
Telecom Plus (TEP) 2,295.00p 3.61%
Marshalls (MSLH) 290.60p 3.34%
UK Commercial Property Reit Limited (UKCM) 60.60p 3.24%
Morgan Advanced Materials (MGAM) 313.00p 2.96%
Hochschild Mining (HOC) 70.50p 2.84%
Assura (AGR) 56.50p 2.45%
Balanced Commercial Property Trust Limited (BCPT) 97.70p 2.31%

FTSE 250 - Fallers

TUI AG Reg Shs (DI) (TUI) 135.85p -7.99%
Wizz Air Holdings (WIZZ) 2,224.00p -7.72%
Helios Towers (HTWS) 108.50p -6.87%
ASOS (ASC) 535.00p -5.81%
Moonpig Group (MOON) 112.50p -5.78%
Watches of Switzerland Group (WOSG) 908.00p -5.32%
Petrofac Ltd. (PFC) 78.65p -4.95%
888 Holdings (DI) (888) 89.65p -4.53%
Darktrace (DARK) 292.10p -4.01%
Redrow (RDW) 457.00p -3.26%