London close: Stocks weaker on fresh inflation fears

The FTSE 100 ended the session down 1.9% at 7,017.47, and the FTSE 250 lost 0.94% at 22,324.19.

Sterling was also in the red, last down 0.77% on the dollar at $1.3815, and 0.51% weaker against the euro at €1.1633.

“It’s been a disappointing end to the week for stock markets in Europe, with the after effects from Wednesday’s Fed decision still reverberating, wiping out any prospect of gains in a week that saw new record highs,” said CMC Markets chief market analyst Michael Hewson.

“In what can only be described as choppy trading conditions, sentiment was given an additional knock this afternoon on the back of comments from St Louis Fed President James Bullard who said he was leaning towards a US rate rise in 2022, much sooner than Wednesday’s changed ‘dots’ of two by the end of 2023.

“While Bullard may be not a voting member this year, he is a voting member next year, and as such his vote will count, furthering muddying the timeline for markets as to when the Fed will move in response to inflation concerns.”

Hewson said that had given the US dollar an additional shove higher, and cut the ground out from industrial metals, though oil prices remained “fairly resilient” so far.

“Consequently, equity markets have fallen back sharply, with all sectors getting clobbered, with the FTSE 100 moving back towards the lows this month, and the DAX following suit, as market confidence that the US central bank would look through concerns about slightly higher average inflation, taking a bit of a knock.”

Earlier, figures from the Office for National Statistics showed retail sales unexpectedly fell in May as restaurants reopened, although they remained above pre-pandemic levels.

Retail sales declined by 1.4% on the month, versus expectations for a 1.5% increase.

Sales at food stores saw the biggest drop, with volumes down 5.7% as the hospitality industry reopened after Covid-19 restrictions eased and people returned to eating and drinking in pubs and restaurants.

Meanwhile, clothing and department stores reported monthly declines of 2.5% and 6.7%, respectively, while sales at non-store retailers fell 4.2% as non-essential retail reopened.

Despite the overall monthly fall, the ONS said that over April and May combined, retail sales were still 7.7% higher than in March 2021, and 9.1% above where they were in February 2020, before the impact of the coronavirus pandemic.

“Rather than suggest the economic recovery is already spluttering, the decline in retail sales in May is probably just a result of the reopening of indoor hospitality in mid-May prompting households to spend less time shopping and more time socialising,” said Paul Dales, chief UK economist at Capital Economics.

Worries about inflation also weighed on sentiment, with IG market analyst Joshua Mahony noting that European markets were on the back foot into the weekend, with declines for the Dow Jones Industrial Average and S&P 500 highlighting ongoing concerns that rising inflation could soon curtail the expansive monetary policy mix globally.

“Despite promises that central banks will remain accommodative, we are evidently moving towards a phase which will become increasingly dominated by attempting to quantify just how long we have left until the pendulum starts to swing back towards monetary tightening.”

In equity markets, internationally-focused consumer goods giant Reckitt Benckiser fell 3.02% as the pound lost ground.

Supermarket giant Tesco was 4.07% weaker after it revealed a slowdown in first-quarter sales as coronavirus pandemic restrictions were lifted and people started to eat out more.

Safety equipment specialist Halma fell into the red in late trading, closing down 0.81% after Berenberg said the stock’s valuation "remains a hurdle".

On the upside, precious metals miner Fresnillo held onto its earlier gains, rising 2.26% after an increase in gold prices earlier in the day, although peer Polymetal International slipped below the waterline by the close.

Car dealership Inchcape rallied 3.08% as it said full-year pre-tax profit was set to be "significantly ahead" of market consensus of £216m after a better-than-expected performance in the first half.

Rotork managed gains of 0.18% after an upgrade to ‘overweight’ at Morgan Stanley, while Wizz Air ascended 1.96% following an upgrade to ‘hold’ at HSBC.

Market Movers

FTSE 100 (UKX)7,017.47-1.90%
FTSE 250 (MCX)22,324.19-0.94%
techMARK (TASX)4,452.06-1.04%

FTSE 100 - Risers

Fresnillo (FRES)823.40p2.26%
Pershing Square Holdings Ltd NPV (PSH)2,580.00p0.78%
Auto Trader Group (AUTO)628.00p0.45%
Sainsbury (J) (SBRY)260.10p0.31%
Admiral Group (ADM)3,205.00p0.25%
Avast (AVST)493.00p0.10%
AstraZeneca (AZN)8,384.00p0.01%
Intertek Group (ITRK)5,540.00p0.00%
Spirax-Sarco Engineering (SPX)13,245.00p-0.11%
Entain (ENT)1,822.00p-0.14%

FTSE 100 - Fallers

Melrose Industries (MRO)156.05p-5.67%
Anglo American (AAL)2,717.50p-5.07%
Mondi (MNDI)1,841.00p-4.70%
Whitbread (WTB)3,202.00p-4.50%
Tesco (TSCO)222.35p-4.07%
Royal Dutch Shell 'B' (RDSB)1,362.20p-3.96%
Rolls-Royce Holdings (RR.)107.52p-3.93%
Barclays (BARC)171.86p-3.89%
Johnson Matthey (JMAT)3,018.00p-3.82%
Informa (INF)521.20p-3.76%

FTSE 250 - Risers

Chrysalis Investments Limited NPV (CHRY)230.00p4.55%
Sirius Real Estate Ltd. (SRE)107.00p3.25%
Inchcape (INCH)786.00p3.08%
UK Commercial Property Reit Limited (UKCM)80.00p2.96%
ICG Enterprise Trust (ICGT)1,050.00p2.75%
Baillie Gifford US Growth Trust (USA)327.00p2.35%
Syncona Limited NPV (SYNC)218.50p2.33%
Essentra (ESNT)332.50p2.31%
GCP Infrastructure Investments Ltd (GCP)98.20p2.29%
Oxford Instruments (OXIG)2,310.00p2.21%

FTSE 250 - Fallers

Provident Financial (PFG)213.80p-5.48%
Restaurant Group (RTN)121.00p-5.32%
Energean (ENOG)740.00p-5.07%
Telecom Plus (TEP)1,158.00p-4.93%
WH Smith (SMWH)1,691.00p-4.71%
SSP Group (SSPG)305.90p-4.27%
Pets at Home Group (PETS)445.00p-4.07%
Chemring Group (CHG)287.00p-4.01%
TI Fluid Systems (TIFS)302.50p-3.97%
Marks & Spencer Group (MKS)148.35p-3.79%