London close: FTSE 100 back to where it was six weeks ago

The FTSE 100 gave up its early gains on Thursday to sink to its lowest close in six weeks, as the shift out of bonds knocked confidence in stocks and softer UK manufacturing data was not enough to depress the pound.

The FTSE 100 lost just over 43 points or 0.57% to close at 7,490.39 as the pound regained ground to climb more than 0.3% against the dollar to 1.4246 but fell 0.2% versus the euro to 1.1412.

The manufacturing purchasing managers' index from IHS Markit and CIPS fell to 55.3 in January from 56.2 in December, below the consensus forecast of 56.5 as weaker domestic demand undermined strong support from the global economy.

This was the index's lowest reading since June last year and the second decline since November’s four-year high, with the forward-looking new orders index also slipped to a seven-month low.

On the upside, January's seasonally adjusted PMI was still well above its long-run average of 51.7, with manufacturing companies reporting higher production from continued rising new orders, albeit the growth was the slowest in seven months. The PMI survey indicated industrial production rising at a solid quarterly rate of around 0.6% in January.

Howard Archer, chief economic adviser to the EY ITEM Club, said the data indicates a loss of momentum in the manufacturing sector after a buoyant performance through the second half of 2017.

"This is a slight dent to hopes that the UK economy can sustain the improved performance seen in the fourth quarter of 2017, when GDP grew 0.5% quarter-on-quarter. However, it needs to be kept in mind that the manufacturing sector only accounts for 10.1% of total output."

Archer added that while the outlook for manufacturing continues to look bright on the export side, domestic conditions could prove challenging over the coming months.

Analyst Joshua Mahoney at IG pointed to sovereign bonds as the main reason for the fall in London stocks: "The equity selloff has regained its dominance in today’s trade, with the shift out of bonds raising nervousness in global stocks, leading European and US indices into the red.

"The shift out of bonds has seemingly spooked market confidence despite the fact that such a move has its root in a stronger economic performance. With Treasuries showing signs of a reversal, the prospect of higher yields raises the likeliness that investors will begin to shift their allocation out of stocks, and into the bond market."

Other UK data included the latest survey from Nationwide, which showed British house prices grew more than expected in January. Prices were up 3.2% on an annual basis compared to a 2.6% jump in December and beating expectations for a 2.5% increase. On the month, house prices were up 0.6%, in line with December but ahead of expectations for a 0.2% rise.

In company specific news, 3i Group was one of the leading gainers thanks to its net asset value per share of 701p for the nine months to the end of December beating analysts’ expectations.

Unilever edged up as a strong fourth quarter that helped it hit full-year growth targets. Underlying earnings per share of €2.24 was slightly ahead of the consensus forecast of €2.21.

"In short, it’s driving sales growth and improving margins at the same time; shareholders will find it hard to complain with that," said analyst Neil Wilson at ETX Capital. With the shares up moderately since the Anglo-Dutch group turned down suitor Kraft-Heinz a year ago, Wilson said the question now is "whether steady margin and sales growth is good enough to warrant the new multiples and a yield that is less than 3%".

Smurfit Kappa was up on the back of the latest edition of Paper Packaging Monitor Europe, which calling market conditions exceptionally tight in Europe and North America, with containerboard sold out globally as stocks are tight and operating rates high. "We remain positive on the sector as box prices recover and most capacity additions have again been delayed," said Deutsche Bank, reiterating 'buy' ratings on Smurfit and Mondi, which was also up.

Nex Group surged after saying that changes to the US tax system will see its effective tax rate drop to between 22% and 24% next year from 26% to 28% and posting a 3% rise in third-quarter revenue.

Engineer GKN was just the black as it urged shareholders to reject Melrose Industries’ “derisory” offer, after the turnaround specialist outlined the formal terms of its £7.4bn bid, promising to simplify and declutter the business. Melrose was in the red however, admitting also that it was still having problems with its Brush arm.

Cranswick was also higher as it said both total and like-for-like revenue in the third quarter were up on the previous year.

On the downside, Vodafone fizzled into the red as it revealed a 3.6% drop in revenue for the third-quarter, though management were confident the group remained on track to meet forecasts for annual profit.

Oil giant Royal Dutch Shell leaked lower despite better-than-expected fourth-quarter earnings, with profits more than doubling to £8.5b for the year. Profit taking was blamed after a good run since last spring.

Shares in IWG tumbled after the serviced office provider confirmed that discussions with Canada’s Brookfield Asset Management and private equity firm Onex had ended. “The board remains highly confident in the prospects of IWG and believes that IWG continues to have an exciting future as an independent company," it said, adding that revenue growth for open centres accelerated to 7.5% in the fourth quarter from 4.4% in the third.

RPC Group retreated even as it reported a 31% jump in third-quarter revenue, while building materials supplier SIG was under pressure after saying its 2016 profit was overstated after a whistleblower revealed irregularities in its accounts.

In broker note action, Relx was hit by a downgrade from Exane BNP Paribas, while Inchcape was lower as Barclays initiated coverage of the stock at ‘underweight’.

Thomas Cook was knocked lower by a downgrade from Stifel, but Superdry gained on the back of an initiation at ‘overweight’ by JPMorgan.

Market Movers

FTSE 100 (UKX) 7,490.39 -0.57%
FTSE 250 (MCX) 20,184.53 -0.29%
techMARK (TASX) 3,391.75 -1.05%

FTSE 100 - Risers

ITV (ITV) 172.40p 3.23%
Smurfit Kappa Group (SKG) 2,532.00p 2.43%
3i Group (III) 951.40p 2.15%
Evraz (EVR) 379.60p 2.13%
WPP (WPP) 1,304.00p 2.03%
London Stock Exchange Group (LSE) 3,995.00p 1.73%
Kingfisher (KGF) 351.10p 1.18%
Old Mutual (OML) 236.30p 1.07%
International Consolidated Airlines Group SA (CDI) (IAG) 646.80p 1.03%
Taylor Wimpey (TW.) 192.45p 0.97%

FTSE 100 - Fallers

Vodafone Group (VOD) 214.40p -4.54%
Royal Dutch Shell 'B' (RDSB) 2,432.50p -2.54%
Relx plc (REL) 1,520.00p -2.44%
Royal Dutch Shell 'A' (RDSA) 2,406.50p -2.27%
Severn Trent (SVT) 1,910.50p -2.20%
SSE (SSE) 1,276.50p -2.15%
Centrica (CNA) 130.85p -1.95%
NMC Health (NMC) 3,274.00p -1.92%
Croda International (CRDA) 4,399.00p -1.90%
Hammerson (HMSO) 485.80p -1.46%

FTSE 250 - Risers

Nex Group (NXG) 639.00p 7.76%
Royal Mail (RMG) 496.30p 5.71%
Cranswick (CWK) 3,098.00p 5.45%
AA (AA.) 132.40p 5.08%
Stobart Group Ltd. (STOB) 243.00p 3.40%
Hunting (HTG) 633.50p 3.34%
William Hill (WMH) 319.60p 3.10%
Ocado Group (OCDO) 518.60p 2.98%
Equiniti Group (EQN) 279.00p 2.95%
Investec (INVP) 560.80p 2.52%

FTSE 250 - Fallers

IWG (IWG) 227.30p -14.42%
Capita (CPI) 160.25p -12.19%
Vectura Group (VEC) 90.00p -7.50%
Mitie Group (MTO) 164.90p -6.94%
Aggreko (AGK) 757.00p -6.15%
Cobham (COB) 124.75p -4.59%
SIG (SHI) 155.80p -4.18%
Ultra Electronics Holdings (ULE) 1,464.00p -4.06%
Alfa Financial Software Holdings (ALFA) 494.50p -3.79%
Dignity (DTY) 788.50p -3.72%