London close: Market volatility leaves traders licking their wounds

London stocks finished firmly in the red on Tuesday, taking their cue from a bloodbath on Wall Street and in Asia as investors fret that rising inflation will force the Fed to hike rates more than initially expected this year.

At the close of trading, the FTSE 100 was down 2.64% or 193.58 points to 7,141.40, which was slightly above the 7,117.88 plumbed at the weakest point of the day, while the pound was flat against the dollar at 1.3967 and 0.14% weaker versus the euro at 1.1271.

Stateside, Wall Street's main equity market gauge were trading on either side of the unchanged mark but only after having begun the session with another dose of heavy selling and amid wild moves in some of the most widely-followed gauges of volatility.

That was on top of losses overnight that saw the S&P 500 and the Dow Industrials suffer their biggest declines since August 2011, alongside similar declines in Asia, with the Nikkei and Hang Seng closing down 4.7% and 5.1%, respectively.

US stocks had enjoyed record highs recently as investors welcomed President Donald Trump’s tax overhaul, but a strong non-farm payrolls report last Friday, which showed the best US wage growth in eight-and-a-half years, prompted fears that the Fed may need to hike rates more than previously anticipated.

Some market commentators also suggested that automatic trades could have been behind the sharp move lower seen on Monday.

Commenting on Tuesday's price action, analysts at Oxford Economics said: "The ongoing correction in global equities was overdue. The pretext and triggers are less important. Extended valuations often find their own triggers. But worries about a 1994-style rise in interest rates derailing global risk appetite look overblown to us.

"Both the macro and policy environments are vastly different. Given strong earnings (EPS) cycles and no evident liquidity stresses, we look to buy more into the correction. Japan, EM Asia and the even US are on our radar."

For his part, Chris Beauchamp, chief market analyst at IG, said: "A host of indicators, including market breadth, are at the kind of levels that signal short-term bottoms, suggesting that a bounce from here is entirely within the bounds of possibility, even if it is then followed by fresh declines."

Beauchamp said that for those investors with a horizon beyond the next 48 hours, the chance to pick up some stocks at cheaper prices should be too good to pass up.

"The relative calm seen in gold prices also points to the idea that this isn’t some kind of major risk-on/risk-off move as we were used to years ago. The speed of the correction, not its size, is the real shock, particularly to a market inured to low volatility. A crystal ball would be handy at this point, but in the absence of such a device it is possible that equities will resume their climb higher in due course, although not perhaps in the same quiet fashion."

According to Neil Wilson at ETX Capital, the FTSE 100 was trading at less than 14 times earnings on a forward 12-month p/e basis, while S&P was below 16x and the Stoxx 600 below 15x.

"Versus current multiples this does not look bad at all and might help weighted buyers come in to shore things up," Wilson said. "On a forward earnings basis, equities haven’t looked this cheap in half a decade – the big guys might just be tempted but then again there could be a little further for this to go and they may decide to wait another day or two before hoovering up bargains. In many ways we’re seeing the same kind of situation as after the Brexit vote – a significant correction without any fundamental (ex-UK) reason for the selloff, presenting buyers with a boat-load of opportunities."

With stocks mired in the red across the board, it didn’t seem to matter too much whether individual company news flow was good or bad.

Oil giant BP was weaker even as it reported a surge in profit to $2.1bn (£1.5bn) in the fourth quarter from $400m a year earlier as the oil company increased production. Underlying replacement cost profit for the three months to the end of December jumped as BP increased production at its upstream business. For the full year profit more than doubled to $6.2bn from $2.6bn.

Hargreaves Lansdown was lower even as it said interim assets under administration rose 9% to £86.1bn and pre-tax profit was up 12%, and lifted its dividend by 17% to 10.1p per share.

Ocado slumped as it posted strong sales growth from a "transformational" year, but also asked investors for extra cash as profits in 2018 will be hit by investment in new facilities.

EasyJet on the other hand managed to buck the wider market trend after it reported an 8.7% jump in January traffic on Tuesday as the load factor ticked up, while Babcock International fell after saying that adjusted earnings for 2018 will be in line with management expectations, but revenue will fall short due to tough trading conditions.

Stagecoach shares crashed as the UK transport minister said on Monday that the government could take over the company’s running of the rail route between London and Edinburgh after it got its numbers wrong when bidding to run the franchise.

Sanne Group retreated as it said it still expects to report underlying earnings per share in line with the board's expectations for the year.

St Modwen Properties was on the back foot after posting a rise in full-year profit and announcing the retirement of chairman Bill Shannon.

Softcat, a provider of IT infrastructure products and services, managed to eke out gains after saying results are expected to be “slightly exceed” of previous expectations for the full year.

On the broker note front, LSE was upgraded to ‘overweight’ at JPMorgan, while Direct Line was lifted to ‘overweight’ at Barclays.

Market Movers

FTSE 100 (UKX) 7,141.40 -2.64%
FTSE 250 (MCX) 19,262.56 -2.17%
techMARK (TASX) 3,217.81 -2.72%

FTSE 100 - Risers

Tesco (TSCO) 199.90p 0.58%
easyJet (EZJ) 1,643.00p 0.09%
Antofagasta (ANTO) 912.60p -0.41%
Berkeley Group Holdings (The) (BKG) 3,853.00p -0.44%
Sky (SKY) 1,045.00p -0.48%
GKN (GKN) 408.00p -0.51%
Barratt Developments (BDEV) 563.00p -0.71%
Anglo American (AAL) 1,647.60p -0.76%
Burberry Group (BRBY) 1,541.00p -0.80%
Randgold Resources Ltd. (RRS) 6,458.00p -1.01%

FTSE 100 - Fallers

Standard Life Aberdeen (SLA) 396.00p -5.10%
Schroders (SDR) 3,451.00p -5.06%
Scottish Mortgage Inv Trust (SMT) 422.20p -4.95%
Mediclinic International (MDC) 556.60p -4.76%
Hargreaves Lansdown (HL.) 1,751.50p -4.37%
Hammerson (HMSO) 456.00p -4.30%
BAE Systems (BA.) 561.20p -4.17%
National Grid (NG.) 748.70p -4.16%
United Utilities Group (UU.) 693.00p -4.10%
Evraz (EVR) 352.30p -4.08%

FTSE 250 - Risers

Capita (CPI) 197.45p 13.41%
Investec (INVP) 558.80p 3.79%
AA (AA.) 127.05p 3.55%
Hochschild Mining (HOC) 220.10p 1.85%
Diploma (DPLM) 1,095.00p 1.67%
Renewi (RWI) 95.20p 1.49%
Superdry (SDRY) 1,708.00p 0.83%
Acacia Mining (ACA) 176.40p 0.74%
Brown (N.) Group (BWNG) 201.40p 0.70%
Redrow (RDW) 593.50p 0.68%

FTSE 250 - Fallers

Petrofac Ltd. (PFC) 467.00p -7.16%
Man Group (EMG) 194.40p -6.49%
BGEO Group (BGEO) 3,342.00p -6.07%
Stagecoach Group (SGC) 137.00p -5.71%
F&C Global Smaller Companies (FCS) 1,265.00p -5.60%
Go-Ahead Group (GOG) 1,440.00p -5.45%
Genus (GNS) 2,222.00p -5.45%
Alfa Financial Software Holdings (ALFA) 444.50p -5.43%
Marshalls (MSLH) 384.80p -5.22%
Fisher (James) & Sons (FSJ) 1,408.00p -4.99%