London midday: Stocks turn lower after Riksbank rate hike

London stocks had turned lower by midday on Tuesday after Sweden’s central bank announced its biggest rate hike in nearly three decades, heightening expectations of big moves from the US Federal Reserve and the Bank of England this week.

The FTSE was down 0.3% at 7,215.97, having opened firmly in the black. Markets were closed on Monday for the funeral of Queen Elizabeth II.

Earlier, Sweden’s central bank lifted the cost of borrowing by 100 basis points, to 1.75%, after inflation exceeded its last forecast. The Riksbank warned that further increases were likely.

The bank said: "Inflation is too high. It is undermining household’s purchasing power and making it difficult for both companies and households to plan their finances. Monetary policy now needs to be tightened further, to bring inflation back to the target."

Neil Wilson, chief market analyst at Markets.com, said the "jumbo" move by the Riksbank helped to send yields on the move, with the US two-year Treasury yield hitting a fresh 11-year high towards 4%.

As far the BoE is concerned, Wilson said market pricing now indicates that the BoE will act "as forcefully as it dares" and raise rates by 75 basis points.

"It’s in a pickle - failure to drive rates aggressively higher as the Fed (which is set for another 75bps this week) and the ECB (which also went for 75bps) have done would leave sterling exposed to further depreciation, worsening the effects of inflation. The MPC also has a new sheriff and deputy in town in the forms of Liz Truss and Kwasi Kwarteng, whose fiscal easing will require stiffer resolve from the Bank. The economic indicators are not great for the UK, but allowing inflation to get out of control even more would be worse than just about any other outcome.

"Looking ahead to the rest of the week, the Federal Reserve is expected to raise interest rates by another 75bps, but the odds on a jumbo-sized 100bps hike shortened considerably after last week’s hot inflation reading."

Rate announcements from the Fed and the BoE are due on Wednesday and Thursday, respectively. Investors are also eyeing a mini-Budget from new chancellor Kwasi Kwarteng on Friday.

In equity markets, Schroders tumbled as a five for one split was applied to the share price.

B&Q owner Kingfisher lost ground as it reported a fall in first-half profits against a tough comparator last year when DIY boomed during pandemic lockdowns, and said it was facing a "more uncertain macroeconomic environment".

Media group Future slid after it said chief executive Zillah Byng-Thorne has "informally indicated" that she would like to step down by the end of next year. The company was responding to a Sky News report over the weekend suggesting that she had told the chairman she was planning to leave in the next 18 months.

Online greeting card and gift retailer Moonpig fell sharply as it said trading since 1 May has been in line with its expectations, backed its full-year guidance and announced it will go back to focusing on greeting cards.

Holiday giant TUI reversed earlier gains even as it said winter bookings were at 78% of pre-Covid pandemic levels, and that it still expects to swing to a profit this year.

On the upside, consumer healthcare company Haleon - which was spun off from GlaxoSmithKline - rallied as it said operating profits grew more than 20% in the six months ended 30 June.

Market Movers

FTSE 100 (UKX) 7,215.97 -0.29%
FTSE 250 (MCX) 18,574.44 -1.18%
techMARK (TASX) 4,200.66 -0.52%

FTSE 100 - Risers

Haleon (HLN) 268.05p 3.33%
Halma (HLMA) 2,035.00p 1.75%
BP (BP.) 458.45p 1.42%
Diageo (DGE) 3,794.50p 1.32%
F&C Investment Trust (FCIT) 905.00p 1.23%
British American Tobacco (BATS) 3,490.00p 1.14%
Imperial Brands (IMB) 1,930.00p 1.02%
Lloyds Banking Group (LLOY) 48.29p 1.01%
HSBC Holdings (HSBA) 534.90p 1.00%
Shell (SHEL) 2,318.00p 0.94%

FTSE 100 - Fallers

Schroders (SDR) 427.75p -15.06%
Ocado Group (OCDO) 622.60p -7.21%
Ashtead Group (AHT) 4,005.00p -6.03%
Persimmon (PSN) 1,351.00p -5.52%
SEGRO (SGRO) 841.40p -4.75%
Barratt Developments (BDEV) 410.60p -4.29%
Unite Group (UTG) 959.00p -4.20%
Admiral Group (ADM) 2,186.00p -3.79%
Melrose Industries (MRO) 107.00p -3.56%
Convatec Group (CTEC) 216.20p -3.40%

FTSE 250 - Risers

Playtech (PTEC) 469.40p 4.08%
Network International Holdings (NETW) 303.40p 3.41%
BH Macro Ltd. GBP Shares (BHMG) 4,800.00p 2.89%
Darktrace (DARK) 363.30p 2.71%
Plus500 Ltd (DI) (PLUS) 1,715.00p 2.14%
Synthomer (SYNT) 168.80p 1.99%
Schroder Asia Pacific Fund (SDP) 521.00p 1.96%
HarbourVest Global Private Equity Limited A Shs (HVPE) 2,110.00p 1.93%
Investec (INVP) 390.00p 1.51%
Fidelity Emerging Markets Limited Ptg NPV (FEML) 611.30p 1.38%

FTSE 250 - Fallers

Future (FUTR) 1,383.00p -16.54%
Moonpig Group (MOON) 179.80p -10.10%
Aston Martin Lagonda Global Holdings (AML) 161.20p -9.51%
Sirius Real Estate Ltd. (SRE) 75.40p -8.16%
Ferrexpo (FXPO) 139.70p -7.85%
Safestore Holdings (SAFE) 916.00p -7.01%
Countryside Partnerships (CSP) 238.40p -6.66%
Big Yellow Group (BYG) 1,136.00p -6.50%
IntegraFin Holding (IHP) 240.00p -5.51%
Bridgepoint Group (Reg S) (BPT) 252.00p -5.33%