London close: Stocks weaker as traders mull latest Fed comments

The FTSE 100 ended the session down 0.34% at 7,587.70, and the FTSE 250 was 1.2% weaker at 21,100.73.

Sterling was in a mixed state, last trading 0.07% stronger on the dollar at $1.3083, while it sat 0.01% weaker against the euro at €1.1988.

“Stock markets are lower this afternoon as there are fears the Federal Reserve will adopt a more hawkish policy than expected,” said Equiti Capital market analyst David Madden.

“Yesterday, the Fed’s Lael Brainard warned about the dangers of high inflation.

“Traders took that as a sign the Fed could hike rates and reduce its balance sheet sooner than initially thought.”

Madden noted that earlier on Wednesday, Patrick Harker of the Fed commented that he did not see high inflation going away anytime soon.

“This also adds to the fears that the US central bank will look to step up its monetary tightening plans.

“This evening the Fed will release the minutes from last month’s meeting - where it hiked interest rates for the first time in more than three years.

“To an extent, the update will be old news as the event in question took place three weeks ago.”

Since then, several US central bankers had said they were open to the idea of a 50-basis point hike, David Madden added.

Sentiment was indeed dented early in the session after US Federal Reserve governor Lael Brainard said overnight that the central bank could start reducing its balance sheet as soon as next month, and that it was prepared to take stronger action on raising interest rates.

Brainard’s comments were echoed by San Francisco Fed president Mary Daly.

On the data front, UK construction sector growth was unchanged in March despite inflationary pressures, according to a survey released earlier.

The S&P Global/CIPS construction purchasing managers’ index printed at 59.1, in line with February and comfortably above the 50.0 mark that separates contraction from expansion. Analysts were expecting a drop to 57.8.

Commercial work was the best-performing segment, with projects restarting as pandemic restrictions were lifted.

However, the recoveries in civil engineering and residential work lost momentum last month.

The survey found that order books rose at the fastest pace for seven months, but the overall rate of input price inflation accelerated sharply since February and was the highest for six months.

“A heartening result in March overall where new order levels were the highest since August last year, but not all the sub-sectors offered an equal contribution to output this month,” said Duncan Brock, group director at the Chartered Institute of Procurement and Supply.

“Commercial projects were the most abundant with the strongest rise in almost a year, but residential building became the laggard of the pack as affordability concerns were a factor in holding back progress particularly in new housing and refurbishment work.”

Brock said the “crippling rise” in inflation ramped up again, as transport and raw materials went up in price.

“Longer wait times for deliveries were reported by a third of supply chain managers.

“Construction companies are braced for more disruption on the horizon as a result of the Ukraine conflict.

“The rise in purchasing demand fed into higher costs for materials already in short supply as energy hikes also impacted on business costs.”

Elsewhere, economists at Bank of America raised their short-term inflation forecasts for the UK, predicting that the Bank of England would hike short-term interest rates four more times as it tried to navigate both the risk of a recession and of too-high inflation.

The annual rate of increase for consumer prices in the UK was now seen averaging 7.0% in 2022, and 3.9% for 2023.

Those forecasts were 22 and 27 basis points higher than previously anticipated, due in part to changed expectations for used car values and the impact of higher CPI in 2022 on indexed prices - such as rail fares - in 2023.

Annual CPI was now seen peaking at 8.3% in April, followed by a second peak of 7.4% in October and with inflation seen remaining above 3.5% until October 2023.

"The central case provides a tricky backdrop for the Bank of England,” Bank of America said.

“On the one hand inflation will cut real incomes enough to risk recession, but inflation will be high for such an extended period that we think the BoE cannot rely on inflation expectations behaving.”

Still on the economy, the financial wellbeing of UK households was at its lowest level for two years amid the cost of living crisis, according to a fresh survey.

The Scottish Widows Household Finance Index, which measures overall perceptions of financial wellbeing, fell to 38.5 in the first quarter, marking the fastest decline since just after the pandemic began in the second quarter of 2020 and among the lowest on record.

A reading above 50.0 indicates an improvement and a reading below signals a deterioration.

The survey also showed that household savings fell at the steepest pace for nine years amid the quickest reduction in cash availability since the final quarter of 2013.

“It’s tough right now for households trying to manage the surge in day-to-day living costs,” said Emma Watkins, managing director of retirement and longstanding at Scottish Widows.

“We know that many households have failed to boost their savings during the pandemic, and that over 70% of households will need to eat into their savings in the next 12 months in order to meet their growing expenses.”

In equity markets, Hilton Food Group fell 1.8% even after it reported a rise in annual adjusted profit, driven by higher revenues across its global markets.

Royal Mail was down 1.26% after Barclays cut its price target on the overweight-rated stock.

It said current uncertainties and active union negotiations are weighing on the shares and cut its 2023 EBIT estimate by 40% to reflect weaker trading for both UK and GLS.

Greeting cards retailer Moonpig Group tumbled 7.05%, having rallied on Tuesday after it lifted its revenue outlook for the current financial year.

Capricorn Energy fell 8.57% even after Barclays upped its price target on the shares to 285p from 245p, while precious metals miner Polymetal International plunged 14.5% after a downgrade to ‘hold’ at Berenberg.

On the upside, tobacco company Imperial Brands rallied 3.28% after saying it had made "good progress" in delivering on its strategic objectives in the six months ended 31 March, with the group continuing to perform in line with the five-year strategy launched in 2021.

The company said it was on track to deliver full-year results in line with revised guidance issued on 15 March.

British American Tobacco also rose, ending the session 2.37% higher.

Educational publisher Pearson was ahead 1.39% after an upgrade to ‘buy’ at Citi, while IWG managed gains of 0.19% after an upgrade to ‘buy’ at Peel Hunt.

Housebuilder Redrow reversed earlier losses to close up 1.81%, after it confirmed it signed the UK government's pledge to make properties safe following the Grenfell Tower fire, and that it expected to make an additional provision of £164m as a result.

Market Movers

FTSE 100 (UKX) 7,587.70 -0.34%
FTSE 250 (MCX) 21,100.73 -1.20%
techMARK (TASX) 4,359.60 -0.60%

FTSE 100 - Risers

Imperial Brands (IMB) 1,669.00p 3.28%
British American Tobacco (BATS) 3,305.00p 2.37%
Berkeley Group Holdings (The) (BKG) 3,947.00p 2.12%
Barratt Developments (BDEV) 530.40p 2.08%
Vodafone Group (VOD) 127.98p 1.99%
Pearson (PSON) 775.00p 1.39%
Phoenix Group Holdings (PHNX) 631.80p 1.28%
AstraZeneca (AZN) 10,466.00p 1.24%
GlaxoSmithKline (GSK) 1,724.80p 1.23%
Persimmon (PSN) 2,241.00p 1.13%

FTSE 100 - Fallers

Intermediate Capital Group (ICP) 1,696.50p -6.31%
Smurfit Kappa Group (CDI) (SKG) 3,130.00p -6.03%
Scottish Mortgage Inv Trust (SMT) 978.40p -5.19%
JD Sports Fashion (JD.) 146.05p -5.10%
Flutter Entertainment (CDI) (FLTR) 8,570.00p -4.78%
ITV (ITV) 78.68p -4.05%
Next (NXT) 5,920.00p -3.80%
Electrocomponents (ECM) 1,015.00p -3.80%
Whitbread (WTB) 2,774.00p -3.55%
International Consolidated Airlines Group SA (CDI) (IAG) 134.76p -3.52%

FTSE 250 - Risers

Premier Foods (PFD) 124.40p 5.96%
Syncona Limited NPV (SYNC) 172.20p 5.64%
Indivior (INDV) 316.00p 4.02%
Countryside Partnerships (CSP) 278.60p 2.80%
Crest Nicholson Holdings (CRST) 276.20p 2.68%
Ascential (ASCL) 342.80p 2.51%
Harbour Energy (HBR) 479.80p 2.35%
Bellway (BWY) 2,554.00p 2.16%
Plus500 Ltd (DI) (PLUS) 1,455.00p 1.90%
Redrow (RDW) 534.50p 1.81%

FTSE 250 - Fallers

Polymetal International (POLY) 289.00p -14.50%
Capricorn Energy (CNE) 207.00p -8.57%
Aston Martin Lagonda Global Holdings (AML) 903.20p -7.53%
888 Holdings (888) 192.00p -7.51%
Moonpig Group (MOON) 210.80p -7.05%
Pets at Home Group (PETS) 335.20p -6.63%
Ferrexpo (FXPO) 171.60p -6.23%
Baltic Classifieds Group (BCG) 145.60p -6.06%
Carnival (CCL) 1,316.50p -5.69%
Watches of Switzerland Group (WOSG) 1,111.00p -5.25%