London midday: Stocks fall further ahead of Fed decision, after IMF downgrade
London stocks were firmly in the red by midday on Tuesday as investors grew jittery ahead of the latest rate decision from the US Federal Reserve and after the International Monetary Fund downgraded its UK growth forecast.
The FTSE 100 was down 0.8% at 7,721.00, extending earlier losses.
Russ Mould, investment director at AJ Bell, said: "This week’s US central bank decision on interest rates is incredibly important to the future direction of stock markets. Investors have been feeling quite relaxed of late, with a risk-on mentality when it comes to bidding up equities. Increasingly a lot of people have become confident that US rates are close to their peak in this part of the cycle, hence a strong run for many markets since late 2022.
"But what if they’re wrong? A sense of nervousness has been creeping into the markets in recent sessions, evident by another bad showing on Wall Street last night. That’s extended to Asian and European stocks on Tuesday, causing a wobble among the main indices.
"With many stocks delivering large gains in the past few months, it’s understandable that some people want to take their money off the table. Locking in profits now means they are not gambling on what the Fed does next.
"If the central bank says rates are going to keep going up for some time, then we could easily see a sea of red on the markets. But if the Fed acknowledges inflation is cooling and notes signs of demand weakness linked to the economy, then the market might take that to mean the scale and pace of rate hikes could become more muted."
The mood was also dented after the IMF said UK GDP was set to shrink 0.6% this year, down 0.9 percentage point from October’s forecast and the worst outlook for any G7 country this year.
On the macro front, data out earlier from the Bank of England showed that mortgage approvals fell sharply in December as higher borrowing costs weighed heavily.
According to the latest Money and Credit report, mortgage approvals for house purchases fell to 35,600 in December from 46,200 in November. The lowest since May 2020, when the UK was still in lockdown at the start of the pandemic, it was also well below consensus expectations of 42,500.
Net borrowing of mortgage debt by individuals also decreased, to £3.2bn from £4.3bn, while the effective interest rates - the actual rate paid - on newly-drawn mortgages increased 32 basis points to 3.67%.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "House purchase mortgages continue fall sharply, despite more lenders returning to the market after they ran scared in the immediate aftermath of the mini-budget.
"Don’t forget, however, that mortgage applications can take many months to go through, and the lending in December will have been based on mortgage offers three months ago, largely before the mini-budget. We expect the effective interest rate on new mortgages to soar in January, three months on from the peak in quoted rates."
In equity markets, Pets at Home surged as it lifted its full-year profit guidance following record third-quarter consumer revenues. The pet retailer now expects FY23 group underlying pre-tax profit to be towards the upper end of the consensus range of £126m to £136m, up from previous guidance of around £131m.
Irn-Bru and Rubicon maker AG Barr was also a high riser after saying it was set to deliver full-year profit "slightly ahead" of current market expectations following a strong second-half sales performance.
In broker note action, drinks company Diageo was the standout gainer after an upgrade to 'buy' at Investec, while caterer Compass Group was boosted by an upgrade to ‘buy’ at HSBC. JD Wetherspoon was knocked lower by a downgrade to ‘hold’ at HSBC.
Market Movers
FTSE 100 (UKX) 7,721.00 -0.82%
FTSE 250 (MCX) 19,766.61 -0.86%
techMARK (TASX) 4,441.52 -0.40%
FTSE 100 - Risers
Diageo (DGE) 3,490.50p 2.35%
Compass Group (CPG) 1,933.00p 1.39%
GSK (GSK) 1,421.60p 0.61%
British American Tobacco (BATS) 3,085.50p 0.60%
Frasers Group (FRAS) 783.00p 0.38%
BAE Systems (BA.) 857.20p 0.16%
Imperial Brands (IMB) 2,025.00p 0.15%
London Stock Exchange Group (LSEG) 7,398.00p 0.14%
Coca-Cola HBC AG (CDI) (CCH) 1,944.00p 0.13%
Johnson Matthey (JMAT) 2,169.00p 0.05%
FTSE 100 - Fallers
Ocado Group (OCDO) 655.40p -3.96%
Anglo American (AAL) 3,406.00p -3.25%
Fresnillo (FRES) 812.80p -2.82%
Smurfit Kappa Group (CDI) (SKG) 3,303.00p -2.68%
Glencore (GLEN) 535.90p -2.42%
M&G (MNG) 202.10p -2.37%
Endeavour Mining (EDV) 1,870.00p -2.35%
Airtel Africa (AAF) 114.40p -2.31%
Berkeley Group Holdings (The) (BKG) 4,085.00p -2.30%
Mondi (MNDI) 1,509.00p -2.04%
FTSE 250 - Risers
Pets at Home Group (PETS) 357.60p 7.91%
Barr (A.G.) (BAG) 555.00p 5.31%
Drax Group (DRX) 642.00p 2.07%
FirstGroup (FGP) 109.70p 1.57%
PZ Cussons (PZC) 219.00p 0.92%
Network International Holdings (NETW) 262.00p 0.85%
Close Brothers Group (CBG) 969.00p 0.73%
Premier Foods (PFD) 113.40p 0.71%
Oxford Instruments (OXIG) 2,295.00p 0.66%
Greencoat UK Wind (UKW) 158.90p 0.57%
FTSE 250 - Fallers
Helios Towers (HTWS) 103.80p -10.36%
888 Holdings (DI) (888) 69.45p -7.21%
Darktrace (DARK) 205.50p -6.59%
Hochschild Mining (HOC) 74.40p -6.18%
Trainline (TRN) 276.40p -4.66%
IP Group (IPO) 60.85p -3.41%
Serco Group (SRP) 147.90p -3.33%
Future (FUTR) 1,496.00p -3.17%
Molten Ventures (GROW) 355.60p -3.00%
Intermediate Capital Group (ICP) 1,367.00p -2.98%