London midday: Stocks fall on prospect of tighter monetary policy by central banks

London stocks fell on Wednesday following reports the European Central Bank may start winding down its bond purchases.

European equities were under pressure after Bloomberg reported on Tuesday that the ECB will probably gradually wind down its €80bn monthly bond purchase before ending its quantitative easing programme.

“Rumours of exit plans being drawn up at the ECB highlight the growing feeling that Draghi & co are facing up to a exhaustion of monetary policy policies and effectiveness,” said IG market analyst Joshua Mahony.

Meanwhile, the pound continued to fall further against the dollar after hitting a 31-year low on Tuesday following Prime Minister Theresa May’s announcement that formal Brexit negotiations would begin by March 2017. The pound dipped 0.07% to $1.2719 at 1130 BST.

Bank of England deputy governor Ben Broadbent said the central bank could raise interest rates if sterling fell sharply enough but so far its decline since the 23 June EU referendum had been "pretty orderly, actually".

Speaking at a Wall Street Journal event in London, Broadbent said the drop in the pound reflected markets' longer-term judgements about Britain's economy.

"Could the currency fall far enough, hard enough, fast enough to warrant a reversal of course, and some removal of monetary accommodation? The answer is yes, in principle. That has to be judged in the context of what it does to inflation," Broadbent said.

Earlier, the market digested hawkish remarks from Richmond Federal Reserve President Jeffery Lacker. Lacker on Tuesday said the central bank should raise interest rates before inflation moves higher like it did in 1994. He also said he would have dissented from the Fed’s September vote to leave interest rates unchanged.

On the data front, activity in the UK services sector grew more than expected in September.

The final Markit/CIPS UK services purchasing managers’ index fell to 52.6 from 52.9 in August, which was better than the 52.0 reading economists had been expecting and above the 50 mark that separates contraction from expansion.

Markit’s final eurozone composite output index printed at 52.6 in September, in line with the flash estimate but down from August’s reading of 52.9. The final eurozone services business activity index came in at 52.2, a touch higher than the flash estimate of 52.1 but down from 52.8 in August.

Eurozone retail sales dipped 0.1% from July, beating expectations of a 0.3% decline, Eurostat revealed. On the year, however, they were up 0.6%, missing forecasts of a 1.5% increase.

Looking ahead to afternoon trade, the US sees the release of the private payrolls report from ADP at 1315 BST. Also on the agenda, US trade data is at 1330 BST, US durable goods figures are at 1500 BST and ISM’s non-manufacturing composite is at 1500 BST.

Meanwhile, oil prices rose after an industry report showed US crude inventories fell for a fifth straight week. The American Petroleum Institute on Tuesday said crude inventories dropped 7.6 million barrels last week. The official US weekly crude inventories report from the Energy Information Administration will be published at 1530 BST.

In company news, Tesco shares jumped after the supermarket reported a 3.3% rise in group sales in the first quarter, including a pick-up in UK like-for-like sales growth, and chief executive Dave Lewis laid out ambitious plans for raising operating margins.

Tesco led shares in fellow supermarkets Morrison Supermarkets and J Sainsbury higher.

Centamin gained as it reported a 6% increase in quarterly production to 148,674 ounces at its Sukari Gold Mine in Egypt.

SVG Capital shares fell after it agreed to sell 50% of its investment portfolio to private equity firms Pomona Capital and Pantheon Ventures for £379m and wind down operations by the end of next year as it looks to fend off a hostile takeover from HarbourVest.

Severn Trent and United Utilities were under the cosh after RBC Capital Markets downgraded both stocks as it took a look at the UK water sector.

The bank cut Severn Trent to ‘underperform’ from ‘sector perform’ on valuation grounds but lifted the price target to 2,300p from 2,200p.

RBC downgraded United Utilities to ‘underperform’ from ‘sector perform’, also on valuation, noting 4% implied total return, but lifted the price target to 1,000 from 975p.

Market Movers

FTSE 100 (UKX) 7,031.60 -0.60%
FTSE 250 (MCX) 18,207.01 -0.74%
techMARK (TASX) 3,552.00 -0.76%

FTSE 100 - Risers

Tesco (TSCO) 213.05p 12.90%
Morrison (Wm) Supermarkets (MRW) 224.40p 1.72%
Anglo American (AAL) 1,002.00p 1.59%
Marks & Spencer Group (MKS) 333.90p 1.52%
easyJet (EZJ) 1,001.00p 1.11%
Sainsbury (J) (SBRY) 252.50p 0.92%
Royal Dutch Shell 'B' (RDSB) 2,114.00p 0.79%
Prudential (PRU) 1,417.00p 0.60%
Royal Dutch Shell 'A' (RDSA) 2,014.00p 0.50%
Burberry Group (BRBY) 1,427.00p 0.49%

FTSE 100 - Fallers

United Utilities Group (UU.) 967.00p -2.77%
Polymetal International (POLY) 904.00p -2.59%
Intu Properties (INTU) 293.70p -2.36%
Severn Trent (SVT) 2,439.00p -2.28%
Land Securities Group (LAND) 1,030.00p -2.28%
Worldpay Group (WI) (WPG) 296.50p -2.21%
Ashtead Group (AHT) 1,274.00p -2.08%
Travis Perkins (TPK) 1,575.00p -2.05%
Hammerson (HMSO) 581.50p -2.02%
Randgold Resources Ltd. (RRS) 7,185.00p -1.98%

FTSE 250 - Risers

Hunting (HTG) 501.00p 2.90%
Centamin (DI) (CEY) 149.00p 2.62%
Assura (AGR) 60.15p 2.04%
Kaz Minerals (KAZ) 236.40p 1.94%
JD Sports Fashion (JD.) 1,569.00p 1.82%
Brown (N.) Group (BWNG) 197.80p 1.80%
Brewin Dolphin Holdings (BRW) 274.40p 1.78%
UK Commercial Property Trust (UKCM) 82.25p 1.73%
Woodford Patient Capital Trust (WPCT) 96.85p 1.63%
Vedanta Resources (VED) 615.00p 1.57%

FTSE 250 - Fallers

Hastings Group Holdings (HSTG) 217.40p -4.86%
Allied Minds (ALM) 334.80p -4.78%
Hochschild Mining (HOC) 266.50p -3.79%
Countrywide (CWD) 216.10p -3.66%
SVG Capital (SVI) 652.00p -3.26%
Mitie Group (MTO) 193.50p -3.25%
Stagecoach Group (SGC) 210.10p -2.73%
Mitchells & Butlers (MAB) 280.30p -2.61%
Capital & Counties Properties (CAPC) 283.50p -2.58%
G4S (GFS) 235.00p -2.37%