London close: Stocks end lower as US rally proves short-lived

London stocks ended on the back foot on Thursday amid falling US equities, as worries about global economic growth, the Fed’s policy path and Brexit continued to play on investors’ minds.

The FTSE 100 closed down 1.5% at 6,584.68 - at two-year lows - in thin volumes.

Equity markets in London had been in the green at the start of the day after the Dow surged more than 1,000 points on Wednesday, racking up its biggest one-day points gain ever. This followed Wall Street’s worst-ever performance on Christmas Eve.

Stocks in the US had rallied on the back of Mastercard data showing that sales during the holiday season rose the most in six years in 2018 and after Kevin Hassett, chairman of the White House Council of Economic Advisers, affirmed that Fed chairman Jerome Powell’s job was ‘100% safe’.

However, the buoyant mood didn’t last long and stocks in the UK quickly moved lower in line with US futures and then US stocks, as investors across the pond stepped in to take some profits. At the same time, weak US consumer confidence data and renewed worries about Sino-US relations also weighed on Wall Street equities.

Chris Beauchamp, chief market analyst at IG, said: "The inability of markets to follow-through on what was a classic ‘bear market rally’ sends a worrying signal - if this was the old bull market of a few months ago the momentum trade would have taken off by now, but instead Wall Street continues to edge lower, while in Europe the reversal has been swift and unrelenting.

"The low volume conditions make it hard to judge whether this bounce has legs, and from the looks of the European session there isn’t much to be positive about. If this is a Santa rally of the true sort, it didn’t last long."

Meanwhile, Russ Mould, investment director at AJ Bell, noted the 5% surge the S&P 500 index on Wednesday.

"Encouragingly, three of the seventeen other 5%-plus daily advances came immediately in the aftermath of the 1987 crash, when buying did prove a good plan, and two more in March 2009 when the S&P finally hit bottom as the Great Financial Crisis began to abate.

"But history also shows eight of the 5%-plus gains came during the bear market of 2007-2009 and three more during the market downturn of 2000-2003, to suggest there is still a risk that this year’s Boxing Day bonanza could be no more than a wicked bear trap set to lure investors into more trouble."

A survey of company directors from the Institute of Directors also weighed on sentiment, as it revealed that business confidence in the British economy has declined to the lowest level since the EU referendum. About 57% of more than 700 company directors surveyed said they expected things to get worse, while less than 20% expected an improvement. This was the worst net score since the IoD started its confidence survey in 2016.

UK retailers were in focus, with Marks & Spencer and Primark owner AB Foods on the back foot but Next and Debenhams higher after the latest data from Springboard showed that the number of people heading off to the Boxing Day sales has dropped for the third year running despite heavy discounting.

According to Springboard, the number of shoppers to shopping centres, high streets and retail parks had fallen 3.1%year-on-year by 1600 GMT on Wednesday.

In corporate news, Evraz slipped as it it confirmed it was looking at a potential combination of coal assets with fellow producer Sibuglemet. The company, responding to media speculation about a joint venture, said it was exploring ways to increase the long-term security of supply of a wide range of coking coal grades required for the group's operations.

Centamin lost its shine as it said gold production at its Sukari mine in Egypt will come in around 2% below full-year 2018 guidance of 480,000 ounces, following lower-than-expected production in October and November.

Oil heavyweight BP gushed lower as oil prices fell back following an 8% surge on Wednesday after Russian energy minister Alexander Novak said prices were likely to stabilise in 2019 thanks to pledges to cut production by OPEC and allies earlier this month.

British American Tobacco, BT and Dixons Carphone were all in the red as their stock went ex-dividend.

On the upside, with investors shunning risky equities, precious metals miners Fresnillo, Randgold Resources and Acacia Mining shone as gold prices held near six-month highs.

Contracts for differences online service provider Plus500 rallied after saying it expects its full-year performance to be ahead of expectations as the "strong momentum" reported last month continued.

Superdry racked up strong gains following reports earlier in the week that co-founder Julian Dunkerton was preparing to requisition an extraordinary general meeting to ask shareholders to reinstate him as a director.