London open: FTSE nudges down amid US recession concerns

London stocks nudged lower in early trade on Tuesday, held back by US recession worries, a surprise rate hike by the Reserve Bank of Australia and uninspiring retail sales data.

At 0835 BST, the FTSE 100 was down 0.1% at 7,591.71.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "The week’s early optimism has been clouded by renewed concerns about a looming recession in the America, while the repercussions of the banking crisis appear to be coming back to bite big US lenders.

"As the world’s largest economy shows more signs of heading for a contraction, with growth in the mighty services sector slowing more quickly than expected last month, worries are rising about the knock-on effect around the world. It’s helped erase crude oil gains, with the effects of Saudi Arabia’s production cut drowned out in the noise about slowing demand."

Streeter said that while signs of further slowing in activity is not great news for the US economy overall, "it’s music to the ears of Fed policymakers who are anxious for signs that inflation is responding to monetary tightening".

"The ISM services PMI reading, showing a slowdown in growth in May is another nugget of data to add to the growing weight of evidence that interest rate rises are having the desired effect, and bets are rising that the Fed will press pause next week. But it’s going to keep its powder dry and another rate hike could still come this summer."

Investors were also digesting a surprise rate hike by the Reserve Bank of Australia, which argued that inflation was still too high.

The RBA lifted the cash rate by 25 basis points to 4.1% - the highest level in 11 years and the 12th increase in little more than a year. Economists had been expecting the Bank to leave rates unchanged.

Governor Philip Lowe: "Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range. This further increase in interest rates is to provide greater confidence that inflation will return to target within a reasonable timeframe."

Lowe noted recent data had indicated that upside risks to the inflation outlook have increased and said "the board has responded to this".

"While goods price inflation is slowing, services price inflation is still very high and is proving to be very persistent overseas," he said. "Unit labour costs are also rising briskly, with productivity growth remaining subdued."

The RBA’s target for inflation is between 2% and 3%.

Oxford Economics said: "This is a shift in language from earlier this year when the RBA struck a more dovish tone and even paused the hiking cycle in April.

"The board will continue to put some weight on the performance of the labour market and real economy. But they appear increasingly uneasy with their forecast for a protracted period of above-target inflation."

On home shores, industry data showed that retail sales growth slowed in May despite a succession of bank holiday weekends.

According to the latest BRC-KPMG Retail Sales Monitor, total retail sales increased by 3.9% in May, or by 3.7% on an underlying basis. That was an improvement on May 2022, when retail sales fell by 1.1% and 1.5% on an underlying basis.

But the growth was below the three-month average and notably lower than April, when sales rose by 5.1% or by 5.2% on a like-for-like basis.

Food sales increased by 9.8% in May on a like-for-like basis, while non-food sales nudged up just 0.5%.

Helen Dickinson, chief executive of the British Retail Consortium, said: "The trio of bank holidays failed to get shoppers spending, as sales growth slowed to its lowest level in six months.

"While food sales got a boost from the coronation weekend, this was not sustained for the rest of the month.

"With consumer confidence still recovering from record delays, and continued tightening of household incomes, we are unlikely to see substantial sales growth in the coming months."

In equity markets, Paragon Banking surged to the top of the FTSE 250 after well-received results.

British American Tobacco ticked higher as the cigarette and vaping products maker held full-year revenue and profit guidance, with trading weighted towards the second half.

The company said it expects a 3% to 5% rise in organic revenue on a constant currency basis for 2023 and mid-single digit growth in adjusted earnings, although it warned the timing of the transfer of its Russian and Belarusian businesses would have an impact.

Primark owner Associated British Foods was little changed after announcing the acquisition of dairy technology company National Milk Records for £48m.

Market Movers

FTSE 100 (UKX) 7,591.71 -0.11%
FTSE 250 (MCX) 19,125.96 0.06%
techMARK (TASX) 4,585.83 -0.07%

FTSE 100 - Risers

Burberry Group (BRBY) 2,195.00p 1.11%
Standard Chartered (STAN) 663.80p 0.76%
Legal & General Group (LGEN) 236.10p 0.73%
British American Tobacco (BATS) 2,589.00p 0.72%
M&G (MNG) 203.10p 0.64%
Rentokil Initial (RTO) 651.40p 0.62%
Hiscox Limited (DI) (HSX) 1,168.00p 0.52%
Admiral Group (ADM) 2,376.00p 0.51%
Phoenix Group Holdings (PHNX) 564.20p 0.50%
Anglo American (AAL) 2,425.50p 0.46%

FTSE 100 - Fallers

Vodafone Group (VOD) 76.88p -1.33%
F&C Investment Trust (FCIT) 898.00p -0.99%
Pershing Square Holdings Ltd NPV (PSH) 2,762.00p -0.72%
Diageo (DGE) 3,310.50p -0.65%
Rolls-Royce Holdings (RR.) 146.40p -0.61%
Unilever (ULVR) 4,046.50p -0.60%
Johnson Matthey (JMAT) 1,795.00p -0.53%
Tesco (TSCO) 261.80p -0.49%
Smiths Group (SMIN) 1,618.50p -0.46%
Lloyds Banking Group (LLOY) 44.53p -0.45%

FTSE 250 - Risers

Paragon Banking Group (PAG) 547.50p 8.74%
Mitie Group (MTO) 97.80p 5.39%
Helios Towers (HTWS) 94.25p 4.49%
Chemring Group (CHG) 280.50p 4.47%
RHI Magnesita N.V. (DI) (RHIM) 2,634.00p 2.73%
Indivior (INDV) 1,624.00p 2.14%
TI Fluid Systems (TIFS) 128.00p 1.91%
Baltic Classifieds Group (BCG) 168.00p 1.82%
Currys (CURY) 53.50p 1.81%
Tritax Eurobox (GBP) (EBOX) 62.00p 1.81%

FTSE 250 - Fallers

Dr. Martens (DOCS) 130.00p -3.06%
Auction Technology Group (ATG) 729.00p -2.67%
Quilter (QLT) 84.60p -2.59%
Hilton Food Group (HFG) 661.00p -2.51%
Carnival (CCL) 855.80p -1.84%
Capricorn Energy (CNE) 195.00p -1.71%
Ibstock (IBST) 160.30p -1.66%
Domino's Pizza Group (DOM) 276.00p -1.57%
Shaftesbury Capital (SHC) 121.10p -1.54%
Fidelity China Special Situations (FCSS) 216.50p -1.37%