London close: Stocks fall further on US data, oil price losses

The FTSE 100 ended the session down 0.89% at 7,100.88, and the FTSE 250 was 0.55% weaker at 22,895.36.

Sterling painted a mixed picture, last trading 0.34% weaker against the dollar at $1.3797, while it managed gains of 0.03% on the euro to change hands at €1.1674.

“Today’s collapse in the US ISM services PMI does surprisingly confirm the weakening employment element signalled by the manufacturing survey last week,” said IG senior market analyst Joshua Mahony.

“Despite Friday’s jobs report bringing a better-than-expected payrolls figure, both services and manufacturing ISM surveys have shown contraction in their employment segments for June.”

Faith in the German economic recovery, meanwhile, took a step back, Mahony added, with the ZEW economic sentiment survey falling to a six-month low.

“A sharp 3.7% contraction in German factory orders marks the worst month for this key gauge since the whopping 25.8% collapse 13 months ago," he added.

Closer to home, UK’s fiscal watchdog warned earlier that the country faced unfunded spending pressures as a result of the pandemic, which could require higher taxes or more borrowing.

The Office for Budget Responsibility said funding shortfalls in health, education and transport could cost £10bn a year until 2025, adding that they were just some of the "legacy costs" of the pandemic that were a risk to the public spending outlook.

In its risk report, the OBR also looked at the potential impact of higher interests on the government's £2tn debt, which soared as the Treasury spent to support the economy during the coronavirus crisis.

The impact had so far been cushioned by ultra-low interest rates, meaning the UK was only paying 0.9% to service its debt.

If rising interest rates were matched by productivity growth the outcome would be relatively benign, but a gloomier scenario in which the interest rates on government debt increased, borrowing could be pushed to almost 7% of GDP by the middle of the century.

The watchdog also considered the "extreme case" where investors lost confidence in the UK's creditworthiness, leading to a flight from government bonds.

“This leads to a vicious circle where rising debt raises borrowing costs, which in turn increase the rate at which debt rises,” the OBR said.

“In this scenario, an adverse shock, similar in magnitude to that experienced in the financial crisis, and a loss of investor confidence lead to a sterling depreciation and a rise in the risk premium on gilts.”

On the data front, new orders fuelled the fastest rise in UK construction activity for 24 years, as the IHS Markit/CIPS purchasing managers' index rose to 66.3 in June from 64.2 a month earlier.

The increase was led by housebuilding, with a reading of 68.2 and the fastest gain since 2003, while commercial work notched up a figure of 66.9 and civil engineering scored 60.7.

A reading of 50 separates expansion from contraction.

“Total new orders expanded at one of the strongest rates since the summer of 2007, mostly reflecting robust demand for residential projects and a boost to commercial work from the reopening UK economy,” said Tim Moore, economics director at IHS Markit.

“Supply chains once again struggled to keep up with demand for construction products and materials, with lead times lengthening to the greatest extent since the survey began in April 1997.

“Survey respondents widely reported delays due to low stocks of building materials, shortages of transport capacity and long wait times for items sourced from abroad.”

In equity markets, British Land and Land Securities were in the red by 4.02% and 3.09%, respectively, after a downgrade to ‘hold’ at Jefferies, while Lancashire Holdings was hit 1.75% by a downgrade to ‘neutral’ at JPMorgan.

Ocado reversed earlier gains to close down 4.21%, even after the online grocer said first-half losses narrowed as retail revenue rose during further Covid-19 restrictions in the UK.

The pre-tax loss for the six months to the end of May was £23.6m compared with £40.6m a year earlier, as group revenue rose 21.4% to £1.32bn.

British Airways and Iberia parent IAG descended 1.3%, despite Germany relaxing restrictions for travellers from the UK and some other countries.

Oil giants Shell and BP were under the cosh, falling 1.99% and 4.15%, as oil prices gave back some of the gains of recent days during the afternoon.

“Crude oil has slumped in the wake of an OPEC-fuelled rise into seven-year highs earlier today,” IG’s Joshua Mahony added.

“Failure to reach any agreement over the level of production in the coming months brings both near-term optimism for bulls, but also risks.

“For the short-term, the UAE’s decision to stand their ground over the need for higher output will instead result in a tighter squeeze as production quotas remain as is.”

On the upside, J Sainsbury was 0.58% higher after it increased its guidance for annual profit as sales beat expectations in the first 16 weeks of 2021.

The FTSE 100 supermarket group said it expected annual underlying pre-tax profit of at least £660m compared with equivalent profit of £356m last year and earlier guidance of about £620m.

Lloyd's of London insurers Hiscox and Beazley were lifted 0.26% and 1.6% by upgrades to ‘overweight’ at JPMorgan.

Market Movers

FTSE 100 (UKX) 7,100.88 -0.89%
FTSE 250 (MCX) 22,895.36 -0.55%
techMARK (TASX) 4,485.57 -0.19%

FTSE 100 - Risers

Informa (INF) 540.40p 3.25%
Avast (AVST) 502.00p 1.54%
SEGRO (SGRO) 1,133.50p 1.39%
Aveva Group (AVV) 3,888.00p 1.38%
United Utilities Group (UU.) 1,013.50p 1.35%
Relx plc (REL) 2,000.00p 1.29%
Tesco (TSCO) 234.25p 1.19%
Auto Trader Group (AUTO) 650.00p 1.18%
Rentokil Initial (RTO) 503.60p 1.16%
Severn Trent (SVT) 2,591.00p 1.09%

FTSE 100 - Fallers

Antofagasta (ANTO) 1,403.00p -4.66%
Ocado Group (OCDO) 1,897.00p -4.43%
BP (BP.) 310.80p -4.15%
Evraz (EVR) 586.60p -4.02%
British Land Company (BLND) 501.20p -4.02%
Melrose Industries (MRO) 156.25p -3.91%
Barclays (BARC) 171.28p -3.61%
Glencore (GLEN) 308.90p -3.51%
Land Securities Group (LAND) 681.40p -3.29%
Anglo American (AAL) 2,900.50p -2.86%

FTSE 250 - Risers

Dechra Pharmaceuticals (DPH) 4,480.00p 2.28%
Auction Technology Group (ATG) 1,188.00p 2.25%
Safestore Holdings (SAFE) 1,000.00p 1.99%
PZ Cussons (PZC) 258.50p 1.97%
Drax Group (DRX) 430.00p 1.85%
Kainos Group (KNOS) 1,532.00p 1.79%
Man Group (EMG) 188.20p 1.73%
Oxford Instruments (OXIG) 2,420.00p 1.68%
Beazley (BEZ) 342.50p 1.60%
Primary Health Properties (PHP) 159.40p 1.59%

FTSE 250 - Fallers

Virgin Money UK (VMUK) 194.35p -5.15%
Tullow Oil (TLW) 57.48p -4.39%
TI Fluid Systems (TIFS) 315.00p -3.67%
Meggitt (MGGT) 456.80p -3.59%
Just Group (JUST) 94.35p -3.58%
Elementis (ELM) 151.70p -3.56%
Cineworld Group (CINE) 84.44p -3.50%
Vesuvius (VSVS) 537.50p -3.41%
IWG (IWG) 316.10p -3.24%
XP Power Ltd. (DI) (XPP) 5,530.00p -2.81%