London close: Stocks in the red after hawkish Powell speech
London stocks closed below the waterline on Friday, as investors digested a hawkish speech from US Fed chair Jerome Powell at Jackson Hole, while it was confirmed earlier that energy bills in the UK would be near-doubling come October.
The FTSE 100 ended the session down 0.7% at 7,427.31, and the FTSE 250 was off 0.46% at 19,169.72.
Sterling was also weaker, last falling 0.48% on the dollar to trade at $1.1775, and sliding 0.67% against the euro to change hands at €1.1782.
“After initial resilience, we have seen markets head lower in the wake of a hawkish Jackson Hole appearance from Jerome Powell today,” said IG senior market analyst Joshua Mahony.
“Powell’s decision to reiterate the central importance of combating inflation over growth does highlight the willingness to maintain the upward trajectory for rates in the face of economic suffering.”
Mahony said that, while markets had recently taken solace from the tick lower in inflation, Friday served to highlight the fact that the world was “a long way” from the position where rates could be brought under control again.
“For investors, there is a risk that we could embark upon another period of weakness, with the buoyant earnings season fading into a distant memory.”
All eyes were on Wyoming during late trading, as the Federal Reserve chair said efforts to bring down inflation would likely cause some economic pain, while doing nothing would entail even greater pain.
In his speech at the central bank’s Jackson Hole symposium, Jerome Powell reiterated his previous hawkish position, adding that lowering inflation would likely require a period of sustained weak growth and forceful action from the Fed.
Powell said interest rates needed to go into restrictive territory and be maintained there "for some time".
However, "at some point" the Fed would be able to slow the pace of rate rises.
The Fed chief also welcomed the decline in inflation during July, but said it was not enough to change the central bank's view.
"The totality of incoming data" would dictate how much the Federal Open Market Committee would raise rates at its meeting in late September.
Powell described underlying momentum in America's economy as "strong", adding that labour markets were "particularly strong" but "out of balance", although inflation expectations appeared to be "well-anchored".
In economic news, more misery was placed on hard-pressed British households earlier, when the energy regulator raised the maximum that suppliers could charge an average household to £3,549 a year.
Against a backdrop of runaway inflation and surging energy company profits, Ofgem gave the green light to an 80% increase on the current price cap of £1,971 for the average dual-fuel tariff.
The regulator declined to give projections for the next price cap change in January because of market volatility, but did warn that prices “could get significantly worse through 2023”.
It said the new cap would affect 24 million households - about 85% of the population - with Ofgem chief executive Jonathan Brearley citing Russia’s invasion of Ukraine and cuts in supplies to Europe as behind higher wholesale gas prices.
“The government support package is delivering help right now, but it’s clear the new prime minister will need to act further to tackle the impact of the price rises that are coming in October and next year," Brearley said.
Elsewhere, retail sales growth slowed to their lowest rate this year last week, although it was still ahead on a year-on-year basis.
According to the BDO High Street Sales Tracker, total like-for-like sales climbed 2.06% for the week ended 21 August, from a base of 22.01% in the equivalent seven days last year.
BDO said the week saw another slowdown in total like-for-likes, as the results continued to trend downwards to record the year’s lowest results.
“Amidst recent reports of falling wages and consumer confidence, total in-store like-for-likes saw moderate growth compared to past weeks, while total non-store like-for-likes recorded another negative week,” BDO said.
“Total fashion was outperformed by lifestyle this week - the first time that has happened since June.”
On the continent, German consumer sentiment was expected to fall to a record low again in September, amid worries about rising energy bills.
GfK’s headline advance consumer confidence index declined to -36.5 from a downwardly-revised -30.9 in August, coming in below consensus expectations of -31.8.
The propensity to buy index fell 1.2 points to -15.7 in August, while the income expectations index ticked up to -45.3 from -45.7 and the business cycle expectations index rose to -17.6 from -18.2.
Turning stateside, consumer confidence in the US picked up more strongly than first thought in August, led by an improved outlook for the economy one-year ahead, the results of a closely-followed survey revealed.
The University of Michigan's consumer confidence index increased from 51.5 at the end of July to 58.2, against consensus expectations for 55.1.
Nearly all of the improvement was concentrated in the sub-index for expectations, which jumped from 47.3 to 58.0.
America's shortfall on trade in goods with the rest of the world narrowed sharply last month, meanwhile, amid a large and unexpected drop in purchases from overseas.
According to a preliminary estimate from the Department of Commerce, the foreign trade deficit in goods dropped at a month-on-month pace of 9.7% to reach -$89.1bn in July.
Finally on data, personal incomes and spending in the US grew more slowly than expected last month in nominal terms, while prices dipped unexpectedly.
The Commerce Department said incomes grew at a month-on-month pace of 0.2% in July, well below expectations for 0.6%, and spending or personal consumption expenditures rose 0.1%, falling short of the 0.5% economists had pencilled in.
On London’s equity markets, shares of software maker Micro Focus rocketed 94.1% after it agreed a £5.1bn takeover by Canadian rival OpenText.
The offering was for £5.32 per share - a 98% premium for Micro Focus, which had fallen 87% over the past three years.
“While the premium for shareholders looks pretty healthy when compared with yesterday’s close, it is below the level the company traded at in 2019,” said AJ Bell investment director Russ Mould.
“It also further dilutes an already pretty threadbare-looking tech sector on the UK market.”
Miners were in the green as commodity prices advanced, with Antofagasta up 0.6%, Rio Tinto ahead 0.59%, and Anglo American 0.1% higher.
On the downside, InterContinental Hotels Group slid 4.35% after JPMorgan cut its stance on the stock to ‘neutral’ from ‘overweight’ and reduced the price target to 5,900p from 6,100p, arguing there was limited upside left.
“We struggle to see upside to current multiples, with most of the reopening related good news behind us and concerns about the sustainability of pricing - combined with uncertain macro [and] consumer,” the bank said in a note on EU hotels.
It added that the shares trade in line with historical multiples, having performed relatively well year-to-date, outperforming Accor and Premier Inn owner Whitbread, which itself was down 1.84% by the close.
Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesiti and Alexander Bueso.
Market Movers
FTSE 100 (UKX) 7,427.31 -0.70%
FTSE 250 (MCX) 19,169.72 -0.46%
techMARK (TASX) 4,369.64 1.69%
FTSE 100 - Risers
Harbour Energy (HBR) 492.10p 3.91%
Haleon (HLN) 266.30p 1.02%
Persimmon (PSN) 1,495.00p 0.84%
Aveva Group (AVV) 2,790.00p 0.76%
Meggitt (MGGT) 798.00p 0.76%
Centrica (CNA) 81.58p 0.64%
Antofagasta (ANTO) 1,174.00p 0.60%
Rio Tinto (RIO) 4,980.00p 0.59%
Shell (SHEL) 2,334.00p 0.58%
Avast (AVST) 699.80p 0.52%
FTSE 100 - Fallers
InterContinental Hotels Group (IHG) 4,750.00p -4.35%
Ocado Group (OCDO) 734.40p -4.27%
JD Sports Fashion (JD.) 109.55p -3.73%
Relx plc (REL) 2,300.00p -3.40%
Experian (EXPN) 2,683.00p -3.32%
Intermediate Capital Group (ICP) 1,371.00p -3.18%
International Consolidated Airlines Group SA (CDI) (IAG) 105.62p -3.01%
Sainsbury (J) (SBRY) 202.70p -2.78%
RS Group (RS1) 1,098.00p -2.75%
Entain (ENT) 1,246.50p -2.69%
FTSE 250 - Risers
Micro Focus International (MCRO) 519.80p 94.10%
Ferrexpo (FXPO) 155.20p 5.43%
Tullow Oil (TLW) 52.30p 3.67%
Currys (CURY) 61.00p 3.57%
Darktrace (DARK) 524.60p 2.46%
Grafton Group Ut (CDI) (GFTU) 719.20p 2.15%
Just Group (JUST) 71.50p 2.07%
Vietnam Enterprise Investments (DI) (VEIL) 696.00p 1.90%
Coats Group (COA) 59.80p 1.70%
ICG Enterprise Trust (ICGT) 1,092.00p 1.68%
FTSE 250 - Fallers
Wood Group (John) (WG.) 127.70p -5.58%
Ibstock (IBST) 190.70p -4.60%
TUI AG Reg Shs (DI) (TUI) 127.35p -4.35%
Watches of Switzerland Group (WOSG) 791.00p -4.06%
Jupiter Fund Management (JUP) 100.20p -4.02%
Moneysupermarket.com Group (MONY) 192.90p -3.83%
Chrysalis Investments Limited NPV (CHRY) 75.90p -3.80%
Apax Global Alpha Limited (APAX) 180.00p -3.64%
TI Fluid Systems (TIFS) 143.80p -3.64%
Genuit Group (GEN) 354.00p -3.54%