London open: FTSE in the red after retail sales; NatWest tumbles

London stocks fell in early trade on Friday, with NatWest under the cosh after results, as investors mulled the latest UK retail sales data.

At 0835 GMT, the FTSE 100 was down 0.6% at 7,968.34, having taken its opening cue from weak US and Asian sessions.

Steve Clayton, head of equity funds at Hargreaves Lansdown, said a higher-than-expected producer price report suggested US inflation could prove more stubborn than many expected.

"That kyboshed hopes of a rapid return to lower US interest rates, sending stocks sliding and bond yields rising in the States last night," he said.

On home shores, data released earlier by the Office for National Statistics showed that retail sales unexpectedly rose in January but the outlook remains weak overall.

Retail sales were up 0.5% on the month following a 1.2% decline in December. Economists had been expecting a 0.3% fall.

Non-food stores sales rose 0.6% over the month following a 2.5% decline in December 2022. Feedback from retailers suggested that growth was supported by sales promotions, the ONS said. Still, sales remained 2.9% below their pre-pandemic levels.

On the year, retail sales were down 5.1% in January following a 6.1% decline the month before and versus expectations for a 5.5% fall.

The ONS said sales volumes were 1.4% below their pre-pandemic February 2020 level.

ONS director of economic statistics Darren Morgan said: "After December’s steep fall, retail sales picked up slightly in January, although the general trend remains one of decline.

"In the latest month, as prices continue to fall at the pumps, fuel sales have risen.

"Meanwhile, discounting helped boost sales for online retailers as well as jewellers, cosmetic stores and carpet and furnishing shops.

"However, after four months of consecutive growth, clothing store sales fell back sharply."

Paul Dales, chief UK economist at Capital Economics, said: "On the face of it, these data add to the view that activity is holding up fairly well. But there are two reasons not to get too carried away. First, retail sales were very weak last year but overall consumer spending held up due to stronger non-retail spending (particularly in restaurants). When households’ finances are under pressure, it possible that any improvement in retail sales will be just be met by a softening in non-retail spending.

"Second, although the biggest falls in real incomes are now behind us, the full drag on activity from higher interest rates has yet to be felt. As such, it is too soon to conclude that the retail sector is coming out of its funk and that the economy won’t yet fall into a recession."

In equity markets, NatWest tumbled even as it said annual profits rose by more than a third and unveiled a £800m share buyback as it cashed in on surging interest rates, despite a net impairment charge of £337m.

Broker Shore Capital said in a note: "While the group continues to guide to a return on tangible equity of 14-16% in FY23F and is now suggesting this should be sustainable over the medium-term, we think the market may be disappointed by what appears to be a downgrade to pre-provision profit forecasts (offset by lower impairments)."

Lloyds also fell sharply.

Market Movers

FTSE 100 (UKX) 7,968.34 -0.55%
FTSE 250 (MCX) 20,039.09 -0.71%
techMARK (TASX) 4,629.05 0.09%

FTSE 100 - Risers

Flutter Entertainment (CDI) (FLTR) 13,645.00p 1.87%
GSK (GSK) 1,466.00p 0.76%
Imperial Brands (IMB) 1,992.50p 0.71%
British American Tobacco (BATS) 3,146.50p 0.59%
Glencore (GLEN) 508.80p 0.28%
Pershing Square Holdings Ltd NPV (PSH) 3,020.00p 0.17%
National Grid (NG.) 1,050.00p 0.14%
BAE Systems (BA.) 888.60p 0.07%
United Utilities Group (UU.) 1,035.50p 0.00%
Vodafone Group (VOD) 101.52p 0.00%

FTSE 100 - Fallers

NATWEST GROUP (NWG) 278.90p -8.74%
Lloyds Banking Group (LLOY) 50.69p -4.25%
Ocado Group (OCDO) 615.60p -2.44%
Hargreaves Lansdown (HL.) 847.00p -2.24%
Scottish Mortgage Inv Trust (SMT) 744.20p -2.21%
Rightmove (RMV) 579.20p -1.83%
Frasers Group (FRAS) 762.50p -1.61%
Ashtead Group (AHT) 5,642.00p -1.57%
Halma (HLMA) 2,225.00p -1.55%
BP (BP.) 558.90p -1.53%

FTSE 250 - Risers

Bridgepoint Group (Reg S) (BPT) 260.00p 4.33%
Auction Technology Group (ATG) 756.00p 4.28%
Helios Towers (HTWS) 110.00p 2.71%
Genus (GNS) 2,766.00p 1.99%
Capricorn Energy (CNE) 251.00p 1.13%
Watches of Switzerland Group (WOSG) 879.00p 1.09%
Hunting (HTG) 335.00p 0.90%
Bank of Georgia Group (BGEO) 2,815.00p 0.90%
Spectris (SXS) 3,240.00p 0.78%
Oxford Instruments (OXIG) 2,485.00p 0.61%

FTSE 250 - Fallers

Carnival (CCL) 862.80p -2.55%
Assura (AGR) 51.70p -2.54%
Edinburgh Worldwide Inv Trust (EWI) 176.20p -2.54%
Hammerson (HMSO) 29.22p -2.54%
Great Portland Estates (GPE) 555.00p -2.37%
888 Holdings (DI) (888) 69.30p -2.33%
OSB Group (OSB) 551.50p -2.30%
Shaftesbury (SHB) 413.40p -2.27%
Harbour Energy (HBR) 300.40p -2.25%
TI Fluid Systems (TIFS) 116.40p -2.18%