London open: Stocks slump as UK GDP contracts

London stocks slumped in early trade on Monday as hotter-than-expected US inflation data fuelled expectations the Federal Reserve will hikes rates more aggressively, and as investors digested an unexpected contraction in UK GDP.

At 0835 BST, the FTSE 100 was down 1% at 7,246.74.

Richard Hunter, head of markets at Interactive Investor, said: "The latest inflation print proved too hot to handle, prompting investors to scramble for cover in anticipation of a more aggressive set of central bank moves.

"In the US, the inflation reading of 8.6% in May compared to the April number of 8.3%, scuppering hopes that inflation had peaked. As such, the Federal Reserve decision on Wednesday takes on added significance. While investors were relatively comfortable with a likely hike of 0.5%, the fresh inflationary pressure has had some questioning whether a rise of 0.75% could be on the table.

"In turn, this would reignite concerns - which had never been far away - that a newly determined round of aggressive monetary tightening could crimp economic growth, to the extent that the spectre of recession emerges."

Elsewhere, fresh Covid lockdowns in China were also weighing on sentiment.

Hunter said: "With easing restrictions only having been announced over the last few days, inevitably the news prompted concerns that demand and indeed consumer confidence would suffer a fresh blow, thus adding to the cocktail of factors which could inhibit global growth."

On home shores, the latest figures from the Office for National Statistics showed the economy shrank by 0.3% in April amid higher prices and supply chain issues following a 0.1% decline in March, and versus consensus expectations of 0.1% growth.

For the first time since January 2021, contractions seen in services, production and construction.

The ONS pinned some of the blame for the contraction in GDP to the scaling back of the government’s Covid Test and Trace and jab programmes.

ONS director of economic statistics, Darren Morgan, said: "A big drop in the health sector due to the winding down of the test and trace scheme pushed the UK economy into negative territory in April.

"Manufacturing also suffered with some companies telling us they were being affected by rising fuel and energy prices.

"These were partially offset by growth in car sales, which recovered from a significantly weaker than usual March."

Paul Dales, chief UK economist at Capital Economics, said the 0.3% contraction "isn’t as weak as it looks, but nonetheless increases the chances that the Bank of England opts for a 25 basis points rise in interest rates on Thursday rather than the 50bps hike we are forecasting". A rate announcement is due from the BoE on Thursday.

In equity markets, industrial business park owner Sirius Real Estate was in the red even as it reported a 73.1% rise in annual rents to €167m driven by higher demand and acquisitions as it lifted its dividend by 16%. Pre-tax profit for the year to March 31 was up 3.2% to €1 69m. The company is paying out a total per-share dividend of 4.4 cents.

Molten Ventures - formerly Draper Esprit - also lost ground after the release of its full-year results.

Rolls-Royce was on the rise after Morgan Stanley upgraded shares of the engine marker to ‘overweight’ from ‘equalweight’.

"We see Rolls-Royce as the clearest example of mispricing in our coverage," it said. "Parsing the recent Civil Aerospace investor day suggests an earnings recovery is much closer than the market has priced in, while earnings and cash flow are directly geared to the next leg of a global aviation recovery."

Market Movers

FTSE 100 (UKX) 7,246.74 -0.97%
FTSE 250 (MCX) 19,353.65 -1.62%
techMARK (TASX) 4,249.48 -0.79%

FTSE 100 - Risers

Fresnillo (FRES) 798.60p 6.71%
Rolls-Royce Holdings (RR.) 89.54p 1.76%
BAE Systems (BA.) 783.20p 1.56%
Endeavour Mining (EDV) 1,867.00p 1.03%
HSBC Holdings (HSBA) 504.10p 1.00%
United Utilities Group (UU.) 1,051.00p 0.48%
Vodafone Group (VOD) 126.04p 0.46%
Reckitt Benckiser Group (RKT) 6,066.00p 0.40%
Meggitt (MGGT) 773.40p 0.29%
Severn Trent (SVT) 2,891.00p 0.24%

FTSE 100 - Fallers

Entain (ENT) 1,358.00p -3.59%
Flutter Entertainment (CDI) (FLTR) 8,308.00p -3.03%
Glencore (GLEN) 490.75p -2.92%
Whitbread (WTB) 2,599.00p -2.91%
RS Group (RS1) 848.00p -2.70%
Scottish Mortgage Inv Trust (SMT) 726.00p -2.65%
Royal Mail (RMG) 272.40p -2.40%
JD Sports Fashion (JD.) 113.95p -2.40%
Hikma Pharmaceuticals (HIK) 1,546.00p -2.37%
Smurfit Kappa Group (CDI) (SKG) 2,890.00p -2.27%

FTSE 250 - Risers

Euromoney Institutional Investor (ERM) 1,120.00p 3.70%
Centamin (DI) (CEY) 83.42p 0.87%
ContourGlobal (GLO) 251.50p 0.80%
Ruffer Investment Company Ltd Red PTG Pref Shares (RICA) 319.50p 0.79%
Hochschild Mining (HOC) 113.00p 0.44%
Pennon Group (PNN) 1,046.00p 0.29%
Chemring Group (CHG) 339.00p 0.15%
HGCapital Trust (HGT) 371.50p 0.13%
Dunelm Group (DNLM) 800.00p 0.13%
Homeserve (HSV) 1,164.00p 0.09%

FTSE 250 - Fallers

Trustpilot Group (TRST) 81.60p -6.31%
Ferrexpo (FXPO) 155.60p -5.30%
National Express Group (NEX) 202.00p -5.08%
Drax Group (DRX) 641.50p -4.82%
Kainos Group (KNOS) 1,087.00p -4.31%
Oxford Biomedica (OXB) 465.50p -4.22%
Sirius Real Estate Ltd. (SRE) 106.00p -4.16%
HarbourVest Global Private Equity Limited A Shs (HVPE) 2,140.00p -4.04%
Aston Martin Lagonda Global Holdings (AML) 587.60p -3.96%
Volution Group (FAN) 352.50p -3.69%