London close: Financials and resources drag FTSE lower
London stocks closed below the waterline on Tuesday, as investors sifted through the latest US inflation reading, although AB Foods was on a tear after results.
The FTSE 100 ended the session down 0.36% at 7,274.04, and the FTSE 250 was off 0.73% at 23,367.14.
Sterling was weaker as well, last trading down 0.07% on the dollar at $1.3553, and slipping 0.1% against the euro to €1.1693.
“The FTSE 100 has lagged behind [its European peers], slipping into negative territory, largely due to weakness in the financials and basic resources sector,” said CMC Markets chief market analyst Michael Hewson.
“The lacklustre nature of European markets today appears to be driven by some profit taking in US markets, ahead of tomorrow’s October CPI numbers.
“Today’s latest US PPI numbers for October came in as expected, unchanged from the previous month, and perhaps holding out the hope that the recent surge in costs through supply chains may be coming to an end.”
Indeed, wholesale prices across the pond rose slightly less quickly than expected last month, with price pressures easing "at the margin" in some chapters, according to fresh data released earlier in the afternoon.
The United States Department of Labor said that in seasonally-adjusted terms, so-called final demand prices jumped at a month-on-month pace of 0.6% in October, keeping the year-on-year rate of increase at 8.6%, sating market expectations.
At the core level, meanwhile, they rose by 0.4%, just shy of consensus forecasts for 0.5%.
The monthly increase in goods prices outside of food and energy was 0.5%, which as Ian Shepherdson of Pantheon Macroeconomics pointed out, was the smallest rise since February.
“Core goods inflation, however, looks to be peaking,” he said.
“The [year-on-year] rate hit a new high in October, rising to 8.8% from 8.3%, but the three-month-on-three-month measure peaked in July at 12.5% annualised and has since slowed to 8.5%.”
Shepherdson said the data was not yet definitive, but was encouraging at the margin.
“Strikingly, new car and truck prices dropped sharply in October, by 0.9% and 1.6% respectively, after big increases over the past six months or so.
“This is a potentially important development, given the contribution of auto prices to consumer inflation this year, but one month proves nothing.”
On home shores, grocery price inflation surged to a 14-month high according to industry data, further squeezing already under-pressure household finances.
According to retail consultancy Kantar, like-for-like grocery price inflation was 2.1% in the four weeks to 31 October. In the 12 weeks to October end, it was 1.5%.
Prices were rising fastest in savoury snacks, canned colas and crisps, and falling in bacon, fresh vegetables and cat and dog treats.
“Grocery prices are rising, and this month inflation hit its highest rate since August 2020, when retailers were still cutting promotions to maintain stock on the shelves,” said Fraser McKevitt, head of retail and consumer insight at Kantar.
“As prices increase in certain categories, we can expect shoppers to continue to visit several supermarkets and shop around.
“Already, households visit an average of 3.3 supermarkets per month to find the best value for money.”
Retail sales as a whole, meanwhile, jumped last month, as consumers splashed out on Halloween and got festive shopping underway.
According to the latest BRC-KPMG retail sales monitor, total sales grew by 1.3% in October compared to the same month a year earlier, or by 6.3% when compared to October 2019, while on a like-for-like basis, retail sales were down 0.2% year-on-year.
Over the three months to October, food sales rose 0.3% on a like-for-like basis, while non-food retail sales eased 0.1%.
“Customer demand is getting back on track ahead of Christmas, as sales grew at a faster rate than the month prior, and well above pre-pandemic levels,” said Helen Dickinson, chief executive of the British Retail Consortium.
“As social calendars started filling up with festivities, clothing and footwear sales performed well.
“With Halloween heavily curtailed by the pandemic last year, chocolates and children’s costumes sold as families made the most of the occasion.”
In economic chatter, supply chain disruptions and a slump in consumer confidence looked set to see the UK economy stagnate in the medium-term, according to a major economic think tank.
The National Institute of Economic and Social Research (NIESR) said in its quarterly update that it expected UK GDP growth to come in at 6.9% in 2021 and 4.7% in 2022 as the economy rebounded from the Covid-19 pandemic, but to then fall to just 1.7% in 2023 and 1.3% in 2024.
It said persistent supply-chain issues, alongside reduced immigration from the European Union and businesses being more cautious with capital expenditure in the wake of Brexit would put a lid on economic growth.
“A squeeze on real incomes for workers and those on Universal Credit will slow economic growth next year, with the adverse effects on consumption offset by lower savings,” said NIESR’s interim deputy director for macroeconomics, Paul Mortimer-Lee.
“Meanwhile, inflation is set to peak around 5%, forcing a reluctant Bank of England to raise interest rates, albeit grudgingly.”
In equity markets, Primark owner Associated British Foods jumped 7.99% after it announced a special dividend, as its balance sheet recovered from the impact of the Covid pandemic.
Aerospace and defence giant Rolls-Royce rallied 3.6% after it said that following a successful equity raise, it had now established its small modular reactor business as part of the UK government’s net zero strategy.
BT Group was also on the rise, growing 2.65% after an upgrade to ‘buy’ from ‘hold’ at Berenberg.
Watches of Switzerland surged 14.99% after upgrading its full-year outlook following a better-than-expected first-half performance.
For the 2022 financial year the company now expected revenue of between £1.15bn and £1.20bn, up from previous guidance of between £1.05bn and £1.10bn.
Earnings before interest, tax, depreciation and amortisation and adjusted EBITDA margins were seen up 1% to 1.5%, versus previous guidance of flat to up 0.5%.
3i Infrastructure was up 1.52% after it reported a "strong" first half, driven by an "excellent" performance from its portfolio and said it was on track to deliver an increased dividend of 10.45p per share.
On the downside, housebuilder Persimmon crumbled by 2.61%, even after saying it was on track to grow new home completions by 10% this year and targeted a return to pre-pandemic trading levels by 2022.
DCC lost 3.88% despite the sales, marketing and support services group reporting a jump in first-half profit and revenue, with full-year results on track to meet market expectations.
Oxford Instruments was 3.96% weaker despite the research tools manufacturer saying that both revenues and adjusted operating profits had grown in the six months ended 30 September.
Insurer Beazley was in the red by 5.46%, even after it reported a slight rise in third quarter gross written premiums as motor claims severity inflation rose.
Market Movers
FTSE 100 (UKX) 7,274.04 -0.36%
FTSE 250 (MCX) 23,367.14 -0.73%
techMARK (TASX) 4,624.74 -0.10%
FTSE 100 - Risers
Associated British Foods (ABF) 2,009.00p 7.99%
Rolls-Royce Holdings (RR.) 146.86p 3.60%
BT Group (BT.A) 162.65p 2.65%
Ocado Group (OCDO) 1,755.50p 2.35%
Pearson (PSON) 612.80p 2.03%
WPP (WPP) 1,095.00p 1.67%
Tesco (TSCO) 278.50p 1.33%
Reckitt Benckiser Group (RKT) 6,125.00p 1.29%
SEGRO (SGRO) 1,324.50p 1.18%
Croda International (CRDA) 9,612.00p 1.18%
FTSE 100 - Fallers
Darktrace (DARK) 609.50p -6.08%
DCC (CDI) (DCC) 6,042.00p -3.88%
Smiths Group (SMIN) 1,406.00p -2.67%
Persimmon (PSN) 2,650.00p -2.61%
Abrdn (ABDN) 257.50p -2.43%
Phoenix Group Holdings (PHNX) 648.80p -2.17%
3i Group (III) 1,345.50p -2.10%
Schroders (SDR) 3,632.00p -2.10%
St James's Place (STJ) 1,585.00p -2.10%
International Consolidated Airlines Group SA (CDI) (IAG) 174.10p -2.07%
FTSE 250 - Risers
Watches of Switzerland Group (WOSG) 1,304.00p 14.99%
Sirius Real Estate Ltd. (SRE) 138.80p 4.68%
Baltic Classifieds Group (BCG) 200.00p 3.09%
Reach (RCH) 327.00p 2.99%
Airtel Africa (AAF) 124.30p 2.20%
PZ Cussons (PZC) 209.00p 2.20%
Marks & Spencer Group (MKS) 194.45p 2.18%
Computacenter (CCC) 2,694.00p 1.66%
Bytes Technology Group (BYIT) 563.50p 1.62%
3i Infrastructure (3IN) 334.00p 1.52%
FTSE 250 - Fallers
TI Fluid Systems (TIFS) 273.50p -5.57%
Beazley (BEZ) 400.20p -5.46%
Discoverie Group (DSCV) 1,008.00p -4.68%
CMC Markets (CMCX) 264.50p -4.37%
Pagegroup (PAGE) 646.00p -4.30%
Hiscox Limited (DI) (HSX) 793.40p -4.27%
Direct Line Insurance Group (DLG) 276.00p -4.23%
Ashmore Group (ASHM) 304.60p -4.10%
Redde Northgate (REDD) 409.50p -3.99%
Oxford Instruments (OXIG) 2,300.00p -3.96%