London midday: FTSE stays down ahead of payrolls

London stocks were still firmly in the red by midday on Friday as sentiment was hit by hawkish comments from Federal Reserve officials and escalating tensions in the Middle East.

The FTSE 100 was down 0.9% at 7,904.04.

Joshua Mahony, chief market analyst at Scope Markets, said: "European markets have headed sharply lower following a similarly downbeat session in the US and Asia. The risk of the Federal Reserve falling short of market expectations continues to rise after a raft of comments from a range of fed members signalled a widespread belief that the current economic environment provides little reason to hastily cut rates in the coming months.

"Markets continue to price a June rate cut but those expectations are gradually fading, with yesterday’s surge in energy prices sparking fresh concerns that inflation pressures will hinder the Fed's ability to cut rates. While the FTSE 100 has seen gains from energy giants such as BP and shell, the wider concerns over a second wave of inflation brought a firm risk off tone to proceedings today."

Sentiment was also dented by growing geopolitical tensions, after Israel said it had increased preparations for a retaliatory strike by Iran after Israeli forces attacked Iran’s diplomatic compound in Syria earlier in the week.

The tensions boosted oil prices, pushing Brent crude through the $90 a barrel level for the first time since October 2023.

In addition, investors were wary ahead of the release of the latest US non-farm payrolls report, which is due at 1330 BST, along with the unemployment rate and average earnings.

Mahony said: "With energy prices on the rise, today's US jobs report should provide a fresh update on the health of the US economy ahead of a potential jump in fuel prices. The average hourly earnings figure will play a particularly key role in driving market sentiment given the concerns around a second wave of inflation.

"Coming off the back of four consecutive non-farm payrolls beats, the surprisingly strong ADP figure from Wednesday does highlight the possibility of yet another better-than-expected reading this time around. Should we see continued economic strength, the recent rise in energy prices will undoubtedly raise further questions over the justification for a Feds rate cut in June."

On home shores, a survey out earlier showed the UK construction sector returned to growth in March.

The S&P Global construction purchasing managers’ index rose to 50.2 from 49.7 in February, making the highest level since August 2023.

A reading below 50.0 indicates contraction while a reading above signals expansion.

The survey showed that civil engineering was the best-performing segment in March, as output levels increased at a marginal pace. Panel members cited increased work on infrastructure projects and resilient demand in the energy sector.

Meanwhile, housebuilding and commercial construction activity were broadly unchanged.

Tim Moore, economics director at S&P Global Market Intelligence, said: "UK construction output returned to growth in March as a renewed expansion of civil engineering work was supported by more stable conditions in the housing and commercial building segments. The marginal overall rise in total construction activity ended a six-month period of contraction.

"The near-term outlook for construction workloads appears increasingly favourable as order books improved again in March and to the greatest extent for just under one year. Construction companies generally commented on a broad-based rebound in tender opportunities, helped by easing borrowing costs and signs that UK economic conditions have started to recover in the first quarter of 2024."

Separately, figures from Halifax showed that house prices fell for the first time in six months in March as the drop in mortgage rates stalled.

House prices fell declined by 1% on the month in March, following five months of growth and a 0.3% increase in February.

On the year, house price growth eased to 0.3% in March from 1.6% a month earlier.

The average price of a home stood at £288,430, down from £291,338 in February.

Kim Kinnaird, director of Halifax Mortgages, said: "That a monthly fall should occur following five consecutive months of growth is not entirely unexpected, particularly in view of the reset the market has been going through since interest rates began to rise sharply in 2022. Despite this house prices have shown surprising resilience in the face of significantly higher borrowing costs.

"Affordability constraints continue to be a challenge for prospective buyers, while existing homeowners on cheaper fixed-term deals are yet to feel the full effect of higher interest rates. This means the housing market is still to fully adjust, with sellers likely to be pricing their properties accordingly.

"Financial markets have also become less optimistic about the degree and timing of Base Rate cuts, as core inflation proves stickier than generally expected. This has stalled the decline in mortgage rates that had helped to drive market activity around the turn of the year."

In equity markets, travel stocks were under pressure, with BA and Iberia owner IAG, easyJet, Carnival and Tui all down amid growing geopolitical tensions.

Oil and gas giant Shell was barely changed as it raised its short-term production forecasts and said it expects an increase in margins as it updated its guidance for the first quarter.

Market Movers

FTSE 100 (UKX) 7,904.04 -0.90%
FTSE 250 (MCX) 19,674.15 -1.00%
techMARK (TASX) 4,435.36 -0.84%

FTSE 100 - Risers

Shell (SHEL) 2,767.50p 0.13%
RELX FINANCE BV 3.375% GTD NTS 20/03/33 (BW73) 99.72p 0.00%
BP (BP.) 508.90p 0.00%
Haleon (HLN) 324.70p -0.06%
London Stock Exchange Group (LSEG) 9,408.00p -0.06%
Smith & Nephew (SN.) 964.80p -0.10%
BAE Systems (BA.) 1,309.50p -0.27%
Unilever (ULVR) 3,858.00p -0.36%
Standard Chartered (STAN) 699.40p -0.37%
HSBC Holdings (HSBA) 639.10p -0.41%

FTSE 100 - Fallers

Ocado Group (OCDO) 396.40p -4.99%
St James's Place (STJ) 433.40p -3.39%
Pershing Square Holdings Ltd NPV (PSH) 3,888.00p -3.24%
JD Sports Fashion (JD.) 127.65p -2.96%
Kingfisher (KGF) 242.50p -2.81%
Entain (ENT) 776.20p -2.66%
International Consolidated Airlines Group SA (CDI) (IAG) 171.95p -2.61%
Halma (HLMA) 2,255.00p -2.59%
DCC (CDI) (DCC) 5,505.00p -2.57%
Marks & Spencer Group (MKS) 259.60p -2.37%

FTSE 250 - Risers

IP Group (IPO) 46.80p 1.96%
Octopus Renewables Infrastructure Trust (ORIT) 72.10p 1.12%
Pennon Group (PNN) 657.50p 0.77%
Vesuvius (VSVS) 492.50p 0.61%
Endeavour Mining (EDV) 1,677.00p 0.48%
Ascential (ASCL) 314.40p 0.45%
Tritax Eurobox (GBP) (EBOX) 51.50p 0.39%
The European Smaller Companies Trust (ESCT) 170.20p 0.24%
NextEnergy Solar Fund Limited Red (NESF) 71.65p 0.21%
Bluefield Solar Income Fund Limited (BSIF) 99.80p 0.20%

FTSE 250 - Fallers

Close Brothers Group (CBG) 419.80p -4.29%
Aston Martin Lagonda Global Holdings (AML) 161.40p -3.64%
Carnival (CCL) 1,071.00p -3.47%
North Atlantic Smaller Companies Inv Trust (NAS) 3,560.00p -3.26%
Dr. Martens (DOCS) 94.10p -2.99%
Chemring Group (CHG) 353.50p -2.75%
Ferrexpo (FXPO) 43.80p -2.67%
Ithaca Energy (ITH) 118.60p -2.63%
Allianz Technology Trust (ATT) 342.00p -2.56%
Moneysupermarket.com Group (MONY) 215.00p -2.36%