London close: Stocks down but off lows as BoE stands pat, Fed disappoints

London stocks ended in the red on Thursday as the Bank of England stood pat on rates amid growing Brexit uncertainty and as the Fed’s latest policy announcement turned out to be less dovish than expected.

The FTSE 100 ended down 0.8% at 6,711.93, on the back foot but off lows, having fallen to its weakest level since August 2016 earlier in the day.

The pound was up 0.3% against the dollar at 1.264 and down 0.1% versus the euro at 1.1075 after the Bank of England left interest rates unchanged at 0.75%, as expected, with the decision unanimous.

The BoE also trimmed its forecast for British quarterly economic growth in the last three months of 2018 to 0.2% from 0.3%.

"The broader economic outlook will continue to depend significantly on the nature of EU withdrawal," the meeting minutes said. "The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction."

Stocks had kicked the session off with much heavier losses, taking their cue from weakness on Wall Street following a less dovish than expected policy announcement from the US central bank.

US equity markets slumped to a 15-month low on Wednesday after the Fed hiked interest rates by 25 basis points for the fourth time this year, but lowered projections for future rate hikes and economic growth and downplayed the recent turmoil in financial markets.

The US central bank said it now expects two more rate hikes next year, down from a previous projection of three, but disappointing market participants who were pricing in just one. The Fed also cut its GDP growth estimate for this year by 0.1 percentage points to 3%, while 2019 growth outlook was reduced by 0.2 percentage points to 2.3%.

London Capital Group analyst Jasper Lawler said the tweaks to the policy statement weren’t dovish enough for the market.

"Going into the announcement traders were braced for a much more dovish Fed, given the mounting concerns over the health of the global economy. Questions were being raised as to whether the Fed could even hike given the growing risks. Whilst the Fed’s subtle tweaks to the statement, GDP and inflation outlook cast acknowledgment to the market’s concerns, the changes were by no means significant."

Data released earlier by the Office for National Statistics showed UK retail sales rose more than expected in November.

Sales last month - which included Black Friday promotions - were up 1.4% from October, beating expectations for a 0.3% increase and compared to a 0.4% drop the month before. The ONS highlighted particularly strong growth of 5.3% in household goods stores, which provided the largest contribution to overall growth within non-food stores.

On the year, retail sales were 3.6% higher compared to a 2.4% rise in October and expectations for a 1.9% jump.

"Retailers reported strong growth on the month due to Black Friday promotions in November, which continues the shifting pattern in consumer spending to sales occurring earlier in the year," the ONS said.

However, in the three months to November, retail sales were just 0.4% higher compared to the previous three-month period, marking the weakest growth since April.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the jump will be revised away in time.

"It’s unsurprising that the official measure of retail sales picked up in November, given the decline in sales in the previous two months and the still-growing tendency of consumers to do more Christmas shopping on Black Friday.

"Most of the pick-up in total sales, however, will be revised away in time, when the seasonal adjustment process updates for the new pattern on spending generated by Black Friday."

Data from the Confederation of British Industry was less cheery, pointing to a poor end to a challenging quarter for retailers.

The reported sales balance fell to -13 in December from +19 in November, falling short of expectations of +15. Sales volumes for the time of year were significantly below average to the greatest degree since November 2011 and were expected to remain below average in January.

CBI head of economic intelligence Anna Leach said: "Retailers report a sharp drop in sales volumes in the year to December, so it’s clear the sector continues to feel the impact from pressures on household incomes and digital disruption. Brexit uncertainty may also be affecting consumer sentiment and spending.

"High street shops - like other businesses - are concerned about the rising risk of a disorderly no-deal exit from the EU. Urgent action to resolve the Brexit stalemate is needed to give the retail sector confidence to make crucial decisions about investment."

In corporate news, Carnival was the worst performer as it posted a rise in fourth-quarter income and hailed record full-year earnings, but warned that the first quarter of next year would take a hit from fuel prices.

Stagecoach fell as it agreed to sell its North America bus and coach division to a US private equity firm for $271.4m.

AstraZeneca slipped even as the pharmaceuticals giant said two clinical trials of its roxadustat drug showed positive results for the treatment of patients with anaemia in chronic kidney disease. The company also said on Thursday that it had received EU approval for its Bevespi Aerosphere inhaler to be used in the treatment for symptoms of chronic obstructive pulmonary disease.

Oil giants BP and Shell both gushed lower as oil prices resumed their slide amid worries about oversupply. Premier Oil, Cairn Energy, Weir and Hunting were also under the cosh.

Greencore bucked the trend, surging as the sandwich maker said it would pay 195p a share to shareholders as part of already announced £509m buyback.

Construction, services and property group Kier recovered from an earlier slump, after investors bought up just 38% of the new shares it issued as part of a fundraising.

In broker note action, Ashmore and Funding Circle were cut to ‘sell’ at Citi, while Man Group was downgraded to ‘neutral’.

Market Movers

FTSE 100 (UKX) 6,711.93 -0.80%
FTSE 250 (MCX) 17,446.94 -0.89%
techMARK (TASX) 3,313.38 -0.49%

FTSE 100 - Risers

Smurfit Kappa Group (SKG) 2,087.17p 3.63%
Severn Trent (SVT) 1,872.50p 2.88%
National Grid (NG.) 796.00p 2.39%
Fresnillo (FRES) 848.80p 2.27%
SEGRO (SGRO) 603.00p 1.52%
SSE (SSE) 1,075.00p 1.46%
easyJet (EZJ) 1,090.50p 1.44%
United Utilities Group (UU.) 759.60p 1.33%
Shire Plc (SHP) 4,491.00p 1.33%
Centrica (CNA) 135.80p 1.15%

FTSE 100 - Fallers

Carnival (CCL) 3,881.00p -10.74%
Scottish Mortgage Inv Trust (SMT) 458.80p -3.94%
Antofagasta (ANTO) 757.00p -3.69%
Micro Focus International (MCRO) 1,355.00p -3.59%
Glencore (GLEN) 284.70p -3.29%
Just Eat (JE.) 571.00p -3.09%
Wood Group (John) (WG.) 499.20p -3.07%
Next (NXT) 4,114.00p -3.02%
NMC Health (NMC) 2,702.00p -3.02%
Ocado Group (OCDO) 755.00p -2.96%

FTSE 250 - Risers

Greencore Group (GNC) 178.00p 7.23%
IP Group (IPO) 117.40p 5.20%
Indivior (INDV) 114.90p 3.56%
TBC Bank Group (TBCG) 1,426.00p 3.48%
Pennon Group (PNN) 722.60p 3.26%
Energean Oil & Gas (ENOG) 610.00p 2.69%
FirstGroup (FGP) 82.40p 2.68%
TI Fluid Systems (TIFS) 164.00p 2.63%
Avast (AVST) 266.00p 2.49%
Galliford Try (GFRD) 601.00p 2.21%

FTSE 250 - Fallers

Premier Oil (PMO) 56.80p -8.97%
Cairn Energy (CNE) 140.80p -7.97%
AA (AA.) 70.06p -7.52%
Mediclinic International (MDC) 315.50p -5.28%
Weir Group (WEIR) 1,241.00p -5.05%
Baillie Gifford Japan Trust (BGFD) 684.00p -5.00%
Hikma Pharmaceuticals (HIK) 1,751.00p -4.99%
Hunting (HTG) 463.40p -4.77%
Ultra Electronics Holdings (ULE) 1,315.00p -4.36%
CYBG (CYBG) 181.50p -4.32%