London midday: Stocks drop on hawkish FOMC meeting minutes

London stocks slid on Thursday as the Federal Reserve’s hawkish policy meeting minutes overshadowed a better-than-expected UK retail sales report.

The minutes of the Federal Open Market Committee’s 26-27 April policy meeting on Wednesday night revealed most participants supported a rate increase in June if incoming data were consistent with economic growth picking up in the second quarter, labour market conditions continuing to strengthen, and inflation making progress toward the 2% objective.

With the second quarter already looking better than the first, the odds of a June hike are likely to be higher than the near-30% the market was pricing before the release of minutes.

Comments from Vice Chair Stanley Fischer and New York Fed President William Dudley in afternoon trade on Thursday will be closely monitored for further clues on interest rates.

“Although data in the States has picked up, with the resurgence in retails sales and rise in inflation providing additional ammunition for the Dollar bulls to attack, concerns over April’s dismal non-farm payrolls report continue to linger on,” said FXTM research analyst Lukman Otunuga

“While the Fed could be commended on their ability to boost speculations of another US rate hike in Q2, the bitter fundamentals and ongoing fears over the unstable economic landscape should sabotage any efforts taken by the central bank to act.”

Worries about a rate hike offset upbeat UK retail sales data from the Office for National Statistics. Retail sales jumped 4.2% in April compared to the same month a year ago, beating estimates for a 2.5% rise and following the previous month's 3% year-on-year increase. On a month-on-month comparison, sales in April climbed 1.5%, more than the 0.7% gain that was forecast and compared to March's 0.7% fall.

The month-on-month rebound in retail sales came despite a decline in clothing sales due to unseasonably cold weather deterring shoppers from picking up new season items.

"Clothing stores remain the main drag on growth in the retail sector, with sales hampered by unseasonal weather. However, both the volume and value of sales increased in April compared with March as lower prices boosted sales," said Melanie Richard, head of retail sales at the ONS.

Still to come, the European Central Bank releases the account of its last monetary policy meeting at 1230 BST and US initial jobless claims are due at 1330 BST.

Meanwhile, oil prices declined as the US dollar weakened and government data showed an unexpected increase in US weekly crude inventories.

The Energy Information Administration said US crude oil inventories rose 1.3m barrels to 541.3m barrels in the week ended 13 May, noting that this was a historical high for this time of the year.

At 1148 BST Brent crude fell 2.2% to $47.84 per barrel and West Texas Intermediate dropped 1.9% to $47.29 per barrel.

Shares in oil producers Royal Dutch Shell, BHP Billiton and Tullow Oil were in the red as a result.

Royal Mail was also under pressure after posting a 1% fall in overall revenues to £9.2bn in the full year, reflecting a drop in addressed letter volumes.

Thomas Cook tanked after the tour operated posted a narrower loss for the first half of the year but said summer bookings were down 5% and underlying earnings for the year are expected to be at the lower end of market views.

On the upside, banking stocks rallied on the prospect of higher US interest rates with Royal Bank of Scotland, Barclays and Standard Chartered in the black. Banks were also lifted by a poll on Wednesday showing the campaign to keep the UK within the European Union has taken an 18 percentage-point lead over the drive for it to leave. Ipsos Mori’s Political Monitor for May said 55% of 1002 people surveyed wanted UK to remain in the EU, against 37% wanting it to leave. Eight percent were either undecided or would not vote.

Market Movers

FTSE 100 (UKX) 6,080.20 -1.39%
FTSE 250 (MCX) 16,751.11 -0.77%
techMARK (TASX) 3,039.52 -0.87%

FTSE 100 - Risers

3i Group (III) 501.50p 2.56%
Royal Bank of Scotland Group (RBS) 229.60p 2.55%
Barclays (BARC) 174.15p 2.11%
RSA Insurance Group (RSA) 488.60p 1.96%
Berkeley Group Holdings (The) (BKG) 3,115.00p 1.67%
Standard Chartered (STAN) 528.60p 1.62%
Admiral Group (ADM) 1,887.00p 1.29%
Taylor Wimpey (TW.) 198.30p 0.81%
Barratt Developments (BDEV) 560.50p 0.63%
Worldpay Group (WI) (WPG) 262.30p 0.50%

FTSE 100 - Fallers

Anglo American (AAL) 571.50p -5.56%
Fresnillo (FRES) 1,082.00p -5.24%
Royal Dutch Shell 'A' (RDSA) 1,647.50p -4.88%
Royal Dutch Shell 'B' (RDSB) 1,659.00p -4.68%
BHP Billiton (BLT) 803.80p -4.61%
Randgold Resources Ltd. (RRS) 5,975.00p -4.17%
Glencore (GLEN) 127.35p -4.10%
Royal Mail (RMG) 488.80p -3.86%
Rio Tinto (RIO) 1,914.00p -3.81%
Provident Financial (PFG) 2,770.00p -3.55%

FTSE 250 - Risers

Mitchells & Butlers (MAB) 288.00p 3.03%
Restaurant Group (RTN) 326.90p 2.86%
Just Eat (JE.) 427.90p 2.58%
Electrocomponents (ECM) 265.70p 2.19%
Paragon Group Of Companies (PAG) 324.40p 2.10%
International Personal Finance (IPF) 261.60p 2.10%
Virgin Money Holdings (UK) (VM.) 351.00p 2.07%
John Laing Group (JLG) 222.50p 1.92%
Inchcape (INCH) 718.00p 1.77%
SSP Group (SSPG) 315.20p 1.68%

FTSE 250 - Fallers

Thomas Cook Group (TCG) 74.40p -17.60%
Evraz (EVR) 114.60p -8.39%
Brewin Dolphin Holdings (BRW) 258.70p -6.45%
Centamin (DI) (CEY) 107.40p -5.87%
Greencore Group (GNC) 346.00p -5.82%
Tullow Oil (TLW) 247.90p -5.10%
Vedanta Resources (VED) 369.50p -5.00%
Redefine International (RDI) 44.37p -4.75%
Polymetal International (POLY) 772.00p -4.70%
Ophir Energy (OPHR) 69.05p -4.09%