London open: Stocks fall as FOMC leaves door open to June rate hike

UK stocks dropped on Thursday after the minutes of the Federal Reserve meeting last month showed a possible interest rate hike in June.

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.

"It's not a slam-dunk," said Ian Shepherson, chief economist at Pantheon Macroeconomics. "The risk of a Brexit vote just eight days after the FOMC meeting—cited by 'some' members as a threat—points to caution on the part of the Fed.

"Given that many members are yet to be convinced there's much upside inflation risk, the FOMC is unlikely to conclude that the cost of waiting a few weeks is very high. A Brexit vote would likely trigger chaos in European markets, to which the US is not immune," he added.

Meanwhile, commodity stocks were in the red as oil prices fell after government data showed a surprise jump in US weekly crude oil 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.

Brent crude declined 1.5% to $48.18 per barrel and West Texas Intermediate slid 1.5% to $47.44 per barrel at 0859 BST. BHP Billiton and Royal Dutch Shell were among the biggest fallers on the FTSE 100.

Travel stocks were also sitting lower after on the worrying news that a plane travelling from Paris to Cairo has gone missing.

Among other corporate stocks, Royal Mail slumped 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 interest rates in the US with Royal Bank of Scotland, Lloyds Banking Group and Standard Chartered in the black.

Market Movers

FTSE 100 (UKX) 6,100.67 -1.06%
FTSE 250 (MCX) 16,759.97 -0.72%
techMARK (TASX) 3,048.83 -0.57%

FTSE 100 - Risers

Barclays (BARC) 173.80p 2.00%
Admiral Group (ADM) 1,895.00p 1.77%
Royal Bank of Scotland Group (RBS) 227.50p 1.70%
RSA Insurance Group (RSA) 486.70p 1.65%
Lloyds Banking Group (LLOY) 70.22p 1.04%
Standard Chartered (STAN) 525.30p 1.02%
3i Group (III) 491.00p 0.72%
Berkeley Group Holdings (The) (BKG) 3,074.00p 0.49%
Prudential (PRU) 1,312.50p 0.23%
Shire Plc (SHP) 4,098.00p 0.00%

FTSE 100 - Fallers

Fresnillo (FRES) 1,098.00p -4.02%
TUI AG Reg Shs (DI) (TUI) 992.50p -3.92%
BHP Billiton (BLT) 812.00p -3.72%
Merlin Entertainments (MERL) 415.60p -3.66%
Anglo American (AAL) 584.60p -3.55%
Royal Mail (RMG) 490.10p -3.52%
Provident Financial (PFG) 2,770.00p -3.48%
Royal Dutch Shell 'A' (RDSA) 1,673.00p -3.46%
Royal Dutch Shell 'B' (RDSB) 1,681.00p -3.45%
Randgold Resources Ltd. (RRS) 6,025.00p -3.45%

FTSE 250 - Risers

Restaurant Group (RTN) 326.70p 2.70%
Grainger (GRI) 231.80p 1.71%
OneSavings Bank (OSB) 295.80p 1.23%
Spire Healthcare Group (SPI) 347.90p 1.02%
Virgin Money Holdings (UK) (VM.) 345.90p 0.96%
Electrocomponents (ECM) 262.40p 0.92%
International Personal Finance (IPF) 259.20p 0.90%
Entertainment One Limited (ETO) 168.60p 0.78%
Inchcape (INCH) 710.50p 0.71%
Millennium & Copthorne Hotels (MLC) 449.00p 0.56%

FTSE 250 - Fallers

Thomas Cook Group (TCG) 74.70p -16.54%
Brewin Dolphin Holdings (BRW) 264.70p -4.02%
Vedanta Resources (VED) 375.70p -3.67%
Tullow Oil (TLW) 252.10p -3.41%
Centamin (DI) (CEY) 110.30p -3.33%
Redefine International (RDI) 45.01p -3.27%
Keller Group (KLR) 939.00p -3.20%
Ophir Energy (OPHR) 69.90p -3.12%
Evraz (EVR) 121.30p -3.04%
Meggitt (MGGT) 379.70p -2.82%