London close: Stocks fall despite US producer inflation surprise
London stocks closed weaker on Tuesday after a session brimming with data, with UK unemployment ticking up, and producer prices rising stateside.
The FTSE 100 ended the session down 0.21% at 7,369.44, and the FTSE 250 was off 0.85% at 19,455.88.
Sterling was in positive territory, meanwhile, last trading up 1.05% on the dollar at $1.1879, as it strengthened 0.61% against the euro to change hands at €1.1454.
“Have they or haven’t they peaked and will cooling prices sway the Fed’s decision-making process,” asked AJ Bell financial analyst Danni Hewson.
“The fact that question is being asked again today has given investors another little rush of confidence.
“Last week’s cooler-than-expected consumer inflation data has been backed up by today’s news that producer prices increased by less than had been expected in October which nudges the door open, just a crack, to lower interest rate hikes going forward.”
Hewson said there were no guarantees, adding that the rhetoric from Fed players over the last few days suggested central bankers would demand greater evidence that the heat was off.
“But despite the murky picture many investors do seem to have rediscovered their risk appetite.
“The feeling is rate hikes will slow sooner, rather than later, and prices at the moment are just too tempting to ignore for long.”
In economic news, the UK unemployment rate ticked higher in September, while real wages continued to grow but lag inflation.
According to the Office for National Statistics, the unemployment rate edged up to 3.6% in the three months to September from 3.5% in August, after analysts had pencilled in no change.
Meanwhile, regular pay increased 5.7% from a year earlier, up from 5.4% and ahead of expectations for a 5.5% rise.
Taking into account inflation, however, average pay including bonuses fell by 2.6% in the year from July to September. Excluding bonuses, it fell 2.7%.
The figures showed that the number of people in employment fell by 52,000 in the three months to September.
That was much higher than consensus expectations for a 25,000 decline.
“The proportion of people neither working nor looking for work has risen again,” said Darren Morgan, director of economic statistics at the ONS.
“Since the onset of the pandemic, this shift has largely been caused by older workers leaving the labour market altogether, but in the most recent quarter the main contribution has actually come from younger groups.
“August and September saw well over half a million working days lost to strikes, the highest two-month total in more than a decade, with the vast majority coming from the transport and communications sectors.”
Elsewhere, the number of insolvencies in the UK spiked last month according to official figures, as the economic downturn took its toll.
According to the government’s Insolvency Service, the number of registered company insolvencies was 1,948 last month, a 38% jump on October 2021, and 32% higher than before the pandemic, in October 2019.
It was also a significant jump on September, when 1,694 insolvencies were recorded.
On the political front, chancellor Jeremy Hunt was apparently considering a 40% windfall tax on the "excess returns" of electricity generators as part of his Autumn Statement later in the week, it was reported earlier.
The levy - which would reportedly be applied to excess returns produced above an as-yet unspecified price per megawatt hour - would replace plans by former prime minister Liz Truss to cap the revenues of renewable energy producers.
It would sit alongside the current windfall tax on profits of oil and gas firms, which was introduced earlier this year.
Initially reluctant to introduce the tax, the government was now expected to extend it to 2028, and increase it to 35% from 25% in Thursday’s statement.
According to the Financial Times, citing people "close to discussions", combined the two windfall taxes were expected to raise more than £45bn over six years, although that would depend on future energy prices.
On the continent, economic activity in the euro area and employment both continued to grow modestly over the three months to September.
According to Eurostat, gross domestic product in the euro area was confirmed at up by 0.2% for the third quarter, as expected by economists.
That followed an 0.8% expansion in the second quarter.
German investor sentiment meanwhile improved more than expected in November, according to the ZEW Center for European Economic Research in Mannheim.
The headline ZEW investor expectations index rose to -36.7 from -59.2 in October, coming in above consensus expectations for a reading of -50.
At the same time, the current situation index improved to -64.5 in November from -72.2 a month earlier, also above expectations of -68.4.
Across the pond, the US Bureau of Labor Statistics' producer price index for final demand rose 0.2% on a seasonally adjusted basis in October, driven by a 0.6% advance in prices for final demand goods.
October's PPI print came in lower than the 0.4% reading expected on the Street, signalling that inflation may be slowing down, and comes hot on the heels of last week's cooler-than-expected consumer price index data.
In comparison to a year ago, producer prices were ahead by 11.1%, down from 12.3% for September and their 19.0% peak gain in March.
Prices for final demand less foods, energy, and trade services advanced 0.2% on the month of October, following a 0.3% rise in September, and for the 12 months ended 31 October, the index for final demand less foods, energy, and trade services increased 5.4%.
The index for final demand services decreased 0.1% - the first decline since moving down 0.2% in November 2020 - as margins for final demand trade services fell 0.5% and the index for fuels and lubricants retailing dropped 7.7%.
Commenting on the latest figures, Ian Shepherdson, chief economist at Pantheon Macroeconomics, recalled Fed vice chair Lael Brainard's two most recent speeches, in which she highlighted the scope for margin compression as a driver of lower inflation.
What Shepherdson termed the ‘Great Margin Recompression’, on the back of improving supply conditions, had much further to run, he said.
"Core PPI and the core PCE deflator follow very similar tracks, though the surge in rents this year has driven an unusually large wedge between them.
"But the pace of rent increases has peaked, and our chart suggests that the steep drop we expect to see in core PPI inflation will drag down the core PCE measure faster than markets and the Fed expect."
Staying stateside, manufacturing activity in the New York area improved a lot more than expected in November, with the New York Fed’s Empire State general business conditions index rising to 4.5 from -9.1 in September.
That was well ahead of analysts’ expectations for a reading of -5.0.
According to the survey, 33% of respondents reported that conditions had improved over the month, while 29% said they had deteriorated.
Finally on data, China’s economy lost momentum in October, official data showed earlier, hit by both Covid restrictions and weaker demand.
According to the National Bureau of Statistics, industrial production rose 5.0% year-on-year, down from September’s growth of 6.3% and below forecasts of 5.3%.
Retail sales, meanwhile, fell 0.5%, a sharp contraction on September’s growth of 2.5% and below expectations for a 1% rise.
It was the first decline since May, when Shanghai was under lockdown.
On London’s equity markets, Ocado Group tumbled 16.79% after the Tempus column in the Times looked at the huge rally in the shares since it announced a deal with South Korean conglomerate Lotte, and said it was a stock to avoid.
Vodafone Group slumped 7.94% after the telecoms giant said annual earnings would come in at the lower end of guidance as it battled higher energy costs and inflation.
Land Securities Group slipped 1.25% after saying it swung to a first-half loss, with growth in earnings offset by market yield shift.
Discount retailer B&M European Value was 2.68% weaker after a downgrade to ‘hold’ at Numis, while Aston Martin Lagonda was 6.96% lower after Jefferies downgraded the shares to ‘underperform’ from ‘hold’, and said that recapitalisation risks remained after the rights issue.
Abrdn was also lower, losing 3.66% after a downgrade to ‘underperform’ at Exane.
Elsewhere, investment manager Ninety One Group fell 4.91% after it reported a drop in interim profit, cut its dividend and struck a cautious note on the outlook.
On the upside, British Gas owner Centrica added 3.38%, Drax Group rose 3.01%, and SSE managed gains of 0.7% following the reports that the chancellor was considering a windfall tax on electricity generators.
BAE Systems added 1.71% after it held guidance as it said a weaker pound would provide a tailwind for reported annual earnings and sales.
Melrose Industries gained 3.3% after saying it was trading in line with expectations for the year, with momentum in the aerospace division improving.
Reporting by Josh White for Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesti, Abigail Townsend, Iain Gilbert and Alexander Bueso.
Market Movers
FTSE 100 (UKX) 7,369.44 -0.21%
FTSE 250 (MCX) 19,455.88 -0.85%
techMARK (TASX) 4,336.35 -0.73%
FTSE 100 - Risers
Centrica (CNA) 86.64p 3.38%
Melrose Industries (MRO) 131.40p 3.30%
Scottish Mortgage Inv Trust (SMT) 833.80p 3.12%
BAE Systems (BA.) 735.60p 1.71%
Rightmove (RMV) 566.00p 1.54%
Glencore (GLEN) 519.50p 1.46%
Compass Group (CPG) 1,847.50p 1.37%
Pearson (PSON) 963.60p 1.09%
Rio Tinto (RIO) 5,459.00p 0.96%
Harbour Energy (HBR) 344.00p 0.90%
FTSE 100 - Fallers
Ocado Group (OCDO) 770.20p -16.79%
Vodafone Group (VOD) 95.89p -7.94%
Endeavour Mining (EDV) 1,656.00p -2.93%
B&M European Value Retail S.A. (DI) (BME) 392.50p -2.68%
Severn Trent (SVT) 2,688.00p -2.47%
Fresnillo (FRES) 857.80p -2.46%
Hargreaves Lansdown (HL.) 909.60p -2.34%
Admiral Group (ADM) 2,073.00p -2.22%
United Utilities Group (UU.) 1,008.50p -2.14%
Halma (HLMA) 2,370.00p -2.03%
FTSE 250 - Risers
Carnival (CCL) 843.80p 4.25%
Fidelity China Special Situations (FCSS) 220.00p 3.77%
Petrofac Ltd. (PFC) 125.50p 3.12%
Man Group (EMG) 218.80p 3.06%
Drax Group (DRX) 564.00p 3.01%
FDM Group (Holdings) (FDM) 685.00p 2.97%
Schroder Asia Pacific Fund (SDP) 513.00p 2.60%
HGCapital Trust (HGT) 376.00p 1.90%
Templeton Emerging Markets Inv Trust (TEM) 147.00p 1.80%
Renishaw (RSW) 4,052.00p 1.76%
FTSE 250 - Fallers
Synthomer (SYNT) 143.70p -7.17%
Aston Martin Lagonda Global Holdings (AML) 133.10p -6.96%
Baltic Classifieds Group (BCG) 141.40p -6.73%
Auction Technology Group (ATG) 902.00p -6.04%
Ninety One (N91) 209.20p -4.91%
ASOS (ASC) 756.00p -4.67%
Vietnam Enterprise Investments (DI) (VEIL) 500.00p -4.58%
Moonpig Group (MOON) 172.20p -4.49%
Centamin (DI) (CEY) 101.50p -4.25%
Dunelm Group (DNLM) 970.50p -4.01%