London close: Stocks in the red amid recovery concerns

The FTSE 100 ended the session down 1.68% at 7,030.66, and the FTSE 250 was off 1.38% at 22,652.72.

Sterling was in the red as well, last trading 0.22% lower on the dollar at $1.3770, and 0.61% weaker against the euro at €1.1634.

“European markets have led the losses today, with indices throughout the region losing over 2% amid a continued slump in Treasury yields,” said IG senior market analyst Joshua Mahony.

“Despite the expectation that we should be filled with optimism over a second-half rebound, we are instead seeing traders focus on the bumpy road ahead and implications of rising inflation levels.

“Today’s unemployment claims figure highlights the somewhat mixed recovery taking shape in the US, with an unwelcome rise in claims furthering the recent unsteady performance for the indicator.”

Mahony said that Wednesday night’s FOMC minutes highlighted the fact that the Fed was already planning for a tapering phase, which was “unwelcome news” given the volatile nature of the global recovery.

“Today’s big mover has been the volatility index, with the so-called ‘fear gauge’ spiking into a two-week high.”

Weekly US jobless claims data, released earlier in the afternoon, showed initial unemployment claims edging up by 2,000 to reach 373,000.

Economists had forecast a drop to 350,000.

“The seasonal adjustments are struggling simultaneously with the 4 July holiday period and the annual automakers’ retooling shutdowns, which can make the headline numbers even more volatile than usual,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

“The noise will persist through late July, but we have no doubt that the underlying trend will remain downwards.

“Laying-off staff now is risky, because if business turns out to be better than expected, re-hiring people will be difficult and likely expensive, given the tightness of the labour market.”

Back on this side of the Atlantic, the European Central Bank revised its inflation target higher earlier in the day in the largest revamp of its policy strategy since 2003.

Instead of aiming for consumer price inflation of close to but below 2.0% over the medium-term, it would now attempt to set policy so that prices rose by 2.0% over the medium-term.

That meant that deviations in inflation below the ECB's target level would be addressed with the same vigour.

“While taking the ECB’s primary mandate of price stability as a given, the review has allowed us to challenge our thinking, engage with numerous stakeholders, reflect, discuss and reach common ground on how to adapt our strategy," said ECB president Christine Lagarde in prepared remarks.

“The new strategy is a strong foundation that will guide us in the conduct of monetary policy in the years to come.”

Finally, back in the UK, the financial services sector saw a surge in business in the last quarter as the economic recovery gathered pace.

According to the latest CBI/PwC financial services survey, business volumes grew at their fastest rate since June 2017 over the three months to June, a net balance of 40% of respondents said, compared to -3% in the first quarter.

Profitability grew at the fastest pace since December 2015, meanwhile, reaching 39% from 8%, while employment rose for the first time since December 2019, improving to 7% from -12%.

The only sub-sector not to see either unchanged or rising employment was banking.

“Growing business volumes across the sector is good news, especially when combined with rising profitability and employment,” said Rain Newton-Smith, chief executive at the Confederation of British Industry.

“Meanwhile, regulation remains the main driver of disruption - this is sparking positive shifts in operating models, notably through greater tech adoption.

“However, firms are continuing to adapt to the absence of an equivalence agreement between the UK and European Union.”

In equity markets, cyclical stocks such as banks and miners were on the back foot, with Anglo American down 4.1%, Antofagasta off 1.6%, Glencore losing 3.3%, Barclays behind 2.82%, and Lloyds Banking Group 2.51% lower.

B&M European Value Retail slid 5.02%, even after the discount retailer made a strong start to the year, reporting first-quarter UK like-for-like sales up by more than a fifth compared with pre-pandemic levels.

Housebuilder Persimmon lost 4.79% despite saying it was accelerating a capital return to shareholders as strong first-half trading generated revenue of £1.84bn.

WH Smith was trading 1.64% lower even after it said that sales were gradually recovering as Covid-19 restrictions eased, and upgraded its full-year expectations thanks to an improved performance in North America.

TI Fluid Systems was hit 4.29% by a downgrade to ‘add’ from ‘buy’ at Numis.

Food delivery platform Deliveroo reversed earlier gains to fall 2.28%, despite lifting its full-year guidance after a strong second quarter, which saw orders grow 88%.

On the upside, Ladbrokes owner Entain edged up 0.72% after it increased its guidance for full-year earnings following a strong performance from the gambling group in the first half.

Market Movers

FTSE 100 (UKX) 7,030.66 -1.68%
FTSE 250 (MCX) 22,652.72 -1.38%
techMARK (TASX) 4,442.18 -0.96%

FTSE 100 - Risers

BAE Systems (BA.) 533.00p 0.76%
Entain (ENT) 1,821.50p 0.72%
Croda International (CRDA) 7,646.00p 0.66%
Royal Dutch Shell 'A' (RDSA) 1,460.00p 0.61%
Royal Dutch Shell 'B' (RDSB) 1,424.80p 0.31%
International Consolidated Airlines Group SA (CDI) (IAG) 181.36p 0.31%
BP (BP.) 307.70p 0.00%
Johnson Matthey (JMAT) 3,094.00p -0.03%
Rolls-Royce Holdings (RR.) 100.72p -0.16%
DCC (CDI) (DCC) 5,928.00p -0.20%

FTSE 100 - Fallers

Intermediate Capital Group (ICP) 2,070.00p -5.05%
B&M European Value Retail S.A. (DI) (BME) 548.60p -5.02%
Persimmon (PSN) 2,923.00p -4.79%
JD Sports Fashion (JD.) 937.60p -4.29%
Burberry Group (BRBY) 1,987.00p -4.10%
Anglo American (AAL) 2,868.50p -4.10%
Prudential (PRU) 1,342.00p -3.66%
Barratt Developments (BDEV) 688.80p -3.64%
Whitbread (WTB) 3,087.00p -3.60%
Berkeley Group Holdings (The) (BKG) 4,674.00p -3.59%

FTSE 250 - Risers

Auction Technology Group (ATG) 1,206.00p 2.20%
easyJet (EZJ) 917.00p 1.33%
Cairn Energy (CNE) 152.00p 1.27%
Watches of Switzerland Group (WOSG) 865.00p 1.17%
Convatec Group (CTEC) 252.80p 1.12%
Genus (GNS) 5,150.00p 1.08%
Syncona Limited NPV (SYNC) 216.50p 0.93%
Chemring Group (CHG) 296.00p 0.85%
CLS Holdings (CLI) 252.50p 0.80%
Elementis (ELM) 151.00p 0.80%

FTSE 250 - Fallers

Restaurant Group (RTN) 122.00p -6.01%
Trainline (TRN) 296.20p -5.40%
Dunelm Group (DNLM) 1,421.00p -4.69%
Network International Holdings (NETW) 354.70p -4.68%
Telecom Plus (TEP) 1,136.00p -4.54%
C&C Group (CDI) (CCR) 235.60p -4.46%
TI Fluid Systems (TIFS) 301.00p -4.29%
Wetherspoon (J.D.) (JDW) 1,170.00p -4.28%
SSP Group (SSPG) 268.50p -4.14%
Playtech (PTEC) 413.40p -4.08%