London midday: Stocks in the red as investors eye Fed; National Grid slumps

The FTSE 100 was down 0.5% to 6,738.38, faring pretty well considering the heavy losses seen in the US a day earlier, when the S&P closed at a 14-month low amid worries about economic growth.

Stocks in Asia also slumped as investors were left disappointed after Chinese President Xi Jinping failed to mention any new reforms or stimulus in his speech commemorating the 40th anniversary of China's economic reforms.

IG's chief market analyst, Chris Beauchamp, said: "Tentative signs of a recovery are in evidence across equities in Europe, while US futures have begun to look more encouraging after yet another heavy day of losses. The only question is whether a rebound will begin ahead of the Fed decision tomorrow, or whether another quick flush is due before tomorrow’s widely-expected rate hike.

"Looking back at the history of equities in the wake of each hike since the end of 2015, the near-term picture is not pretty, with most increases followed by either sideways trading or a swift drop. Although last December’s rate hike was followed by the usual Santa rally, the cheery feeling was followed by January’s stomach-churning sell-off. Dip buyers might have a last hurrah in 2018, but beyond that the outlook is not encouraging."

In currency markets, the pound was up 0.6% against the dollar at 1.2701, with the greenback likely under pressure ahead of the meeting of the Fed's rate setters.

Said Rabobank's analysts: "It is widely expected that rates are being raised to between 2.25%-2.50%, but the market will be focused on what the FOMC says about its expectations going forward and whether this contains a signal that it is prepared to turn off the autopilot."

Against the euro, sterling was 0.1% firmer at 1.1142 as Cabinet sat down to discuss increasing preparations for a no-deal Brexit, including allocating cash from a contingency fund as MPs were told they wouldn't vote on Theresa May's proposals until mid-January.

A day earlier, Labour leader Jeremy Corbyn tabled a motion of no confidence in May, but Downing Street said the motion will not be granted parliamentary time for debate, dismissing it as a "stunt".

On the corporate front, National Grid was the standout loser on the FTSE 100 as it said it was "disappointed" with Ofgem's proposed financial package, which will sees "smarter, fairer and cleaner" reforms to the energy that could save consumer £45 a year. The proposal includes price controls on National Grid. SSE and Severn Trent were also in the red.

Russ Mould, investment director at AJ Bell, said National Grid, loved by many investors for its dividends, is particularly affected by the announcement.

"National Grid is not happy, saying the proposed finance package doesn’t reflect the level of risk borne by transmission networks.

"The consensus analyst forecast is for National Grid to pay 48.9p per share in dividends for the financial year to March 2020, implying a 6.1% yield. One could expect dividends beyond 2021 to potentially be less generous should Ofgem’s proposals be finalised without any amendments.

"It shows that even the most defensive companies are still at risk from regulatory changes."

Shire was in doldrums following heavy falls for Takeda overnight, after Moody's cut its credit rating on the pharmaceutical company by three notches to Baa2 from A2.

Royal Dutch Shell gushed lower following a report that the oil giant is in talks to buy Endeavor Energy Resources for about $8bn. Bloomberg cited a person familiar with the matter as saying that discussions have not reached an advanced stage, with matters complicated by founder Autry Stephens' desire to retain a large quantity of its mineral rights.

More broadly, energy-related shares took a hit, with BP and Premier Oil lower as oil prices slid. West Texas Intermediate was down 2.6% to $48.62 a barrel and Brent crude was 2.7% weaker at $58.02 amid supply glut worries.

Wood Group was in the red as it said it had has won a 10-year contract worth $66m to supply programmable digital control technologies to the Sellafield nuclear site in Cumbria, UK.

On the upside, housebuilders were recovering from losses in the previous session, with Barratt Developments and Taylor Wimpey among the risers. The sector had been under pressure a day earlier after the latest Rightmove survey showed that house prices suffered their biggest two-month drop in December since 2012.

Retailers were also bouncing back from heavy falls following a shock profit warning from online giant Asos on Monday, with Next, B&Q owner Kingfisher, Marks & Spencer, Dunelm and Dixons Carphone all trading higher.

Oil services engineer Petrofac bucked the trend after saying it was trading in line with expectations for the calendar year, with new order intake rising to $5.0bn so far in 2018 from $3.3bn at the half-year stage.

In broker note action, Asos was cut to 'hold' from 'sell' at Liberum and to 'sell' from 'hold' at Stifel following its shock profit warning on Monday, but upgraded by Credit Suisse, which also downgraded Intu Properties to 'underperform'.

Cineworld was lifted to 'top pick' from 'outperform' by RBC Capital Markets.

British American Tobacco and Cairn Energy were started at 'overweight' by Barclays, along with Premier Oil and Tullow, while Faroe Petroleum was initiated at 'equalweight'.

Elsewhere, IG Group, Euromoney and CMC Markets were started at 'buy' by Peel Hunt, while Plus500 was initiated at 'hold'.

Market Movers

FTSE 100 (UKX) 6,738.38 -0.51%
FTSE 250 (MCX) 17,489.55 0.42%
techMARK (TASX) 3,299.29 -0.59%

FTSE 100 - Risers

GVC Holdings (GVC) 710.91p 3.63%
Barratt Developments (BDEV) 445.40p 2.63%
Taylor Wimpey (TW.) 134.20p 2.44%
Fresnillo (FRES) 838.68p 2.40%
Kingfisher (KGF) 220.95p 2.29%
Next (NXT) 4,230.00p 2.25%
easyJet (EZJ) 1,075.00p 2.23%
Burberry Group (BRBY) 1,744.00p 1.96%
Evraz (EVR) 473.20p 1.94%
Royal Mail (RMG) 290.30p 1.90%

FTSE 100 - Fallers

National Grid (NG.) 784.90p -6.03%
Shire Plc (SHP) 4,373.00p -3.52%
NMC Health (NMC) 2,812.00p -3.37%
Severn Trent (SVT) 1,823.50p -2.51%
Micro Focus International (MCRO) 1,374.00p -2.41%
SSE (SSE) 1,033.00p -2.09%
Wood Group (John) (WG.) 523.00p -2.06%
Royal Dutch Shell 'B' (RDSB) 2,294.00p -1.92%
Royal Dutch Shell 'A' (RDSA) 2,280.50p -1.79%
Vodafone Group (VOD) 158.04p -1.66%

FTSE 250 - Risers

Thomas Cook Group (TCG) 30.00p 10.13%
Superdry (SDRY) 462.27p 7.31%
Indivior (INDV) 101.10p 6.51%
IP Group (IPO) 108.20p 5.66%
Dunelm Group (DNLM) 507.50p 5.12%
Vivo Energy (VVO) 119.90p 4.52%
Rank Group (RNK) 143.00p 4.38%
Mediclinic International (MDC) 324.60p 4.14%
CYBG (CYBG) 188.70p 3.74%
Synthomer (SYNT) 365.60p 3.51%

FTSE 250 - Fallers

Softcat (SCT) 556.61p -4.03%
Premier Oil (PMO) 63.25p -2.69%
Dixons Carphone (DC.) 131.40p -2.63%
Pennon Group (PNN) 691.06p -2.59%
Provident Financial (PFG) 587.00p -2.36%
Domino's Pizza Group (DOM) 228.60p -1.89%
Stagecoach Group (SGC) 140.00p -1.75%
Polar Capital Technology Trust (PCT) 1,128.00p -1.74%
Cranswick (CWK) 2,586.27p -1.74%
Lancashire Holdings Limited (LRE) 598.05p -1.72%