London close: Stocks weaker amid interest rate fears

London stocks closed in the red on Thursday, as investors digested an easing in service sector growth, as well as a surprise jump in initial jobless claims across the pond.

The FTSE 100 ended the session down 0.88% at 7,450.37, and the FTSE 250 was off 1.49% at 23,416.92.

Sterling was also in negative territory, last trading down 0.17% on the dollar at $1.3534, and weakening 0.08% against the euro to €1.1973.

“Will this be the tale on repeat for early 2022? Banking and energy shares heading up and rate sensitive growth stocks heading down?” quipped AJ Bell financial analyst Danni Hewson.

“Investors shouldn’t have been surprised by the increasingly hawkish tone being employed by the Federal Reserve, and yet just the anticipation of seeing its most recent comments in black and white prompted a tech stock sell off yesterday which has just kept on rolling.

“It certainly feels like the piper is calling to be paid, inflation numbers for the next few months look pretty nailed on if Germany’s latest update is anything to go by.”

Hewson said that squeeze on households was not a good look for any government, particularly those looking to raise taxes to pay for some of the battering Covid-19 inflicted.

“Pressure might be mounting on the UK Chancellor to u-turn on his plans to boost the NHS but at the moment it seems Rishi Sunak is not for turning.

“But how can consumers be expected to keep spending the country out of the pandemic if their cash reserves are dwindling? And how will this government’s popularity cope with people’s mounting discomfort as energy bills climb higher and higher?

“Home working on a day when temperatures are plunging takes on a new hue, and there will be many donning extra layers in order to keep icy fingers from thermostats.”

First-time claims for unemployment benefits in the United States came in at 207,000 in the week ended 1 January, according to the Labor Department, rising from 200,000 in the previous week and above the 195,000 forecast by economists.

Continuing claims, which run a week behind the headline number, also increased, rising by 36,000 to 1.75 million, while the four-week moving average, which accounts for weekly volatility in the numbers, grew to 204,500.

Despite the increase, the latest report showed that claims were still sitting at a level lower than before the Covid-19 pandemic, when claims averaged roughly 215,000.

On home shores, a survey released earlier showed growth in the UK services sector easing to a 10-month low in December as the Omicron Covid variant took its toll.

The IHS Markit/CIPS services purchasing managers’ index (PMI) fell to 53.6 from 58.5 in November, hitting its lowest level since February.

It still, however, remained above the 50.0 mark that separates contraction from expansion.

The survey found that travel, leisure and hospitality businesses overwhelmingly cited a slump in activity due to tighter pandemic restrictions and cancelled events during the festive period.

“December data revealed a severe loss of momentum for the UK economy as many customer-facing businesses experienced a drop in demand due to escalating Covid-19 cases,” said Tim Moore, economics director at IHS Markit.

“Total new orders in the service sector increased at the weakest pace for 10 months.

“Mass cancellations of bookings in response to the Omicron variant led to a slump in consumer spending on travel, leisure and entertainment.”

Moore said survey respondents also noted that renewed pandemic restrictions had slowed the recovery in business services.

New car registrations, meanwhile, recorded a slight rise in 2021, but were still well behind pre-pandemic levels, as semiconductor shortages continued to hinder sales.

According to the Society of Motor Manufacturers and Traders (SMMT), around 1.65 million new cars were registered last year, up 1% from 2020 but 28.7% fewer than in 2019.

December sales were 18.2% lower year-on-year, with 108,596 new cars registered.

“It's been another desperately disappointing year for the car industry as Covid continues to cast a pall over any recovery,” said SMMT chief executive Mike Hawes.

“Manufacturers continue to battle myriad challenges - above all, the global semiconductor shortage which is decimating supply.”

Sentiment was already dented at the start of the session, after the latest minutes from the US Federal Reserve overnight revealed that it could raise rates sooner than expected, as a potential cost of living crisis loomed.

In equity markets, high-street fashion stalwart Next fell 3.33% after it upped full-year profits guidance and announced a special dividend, as Christmas sales exceeded expectations, although it did warn on the impact inflation could have on sales in 2022.

Pastie peddler Greggs was also in the red, tumbling 8.04% after it said the full-year outcome looked set to be "slightly ahead" of its previous expectations.

It also announced that retail and property director Roisin Currie would succeed long-serving chief executive Roger Whiteside.

Fashionable footwear furnisher Dr Martens slid 10.73% after private equity firm Permira sold 65 million shares in the bootmaker in a placing.

Discounter B&M European Value Retail was 2.3% weaker, despite saying that full-year profits were set to be above analyst expectations following a "strong" performance over the Christmas period.

On the upside, banks were among the top performers, with Standard Chartered ahead 3.72%, Lloyds Banking Group rising 2.6%, HSBC up 2.12%, and NatWest Group 2.61% higher.

Market Movers

FTSE 100 (UKX) 7,450.37 -0.88%
FTSE 250 (MCX) 23,416.92 -1.49%
techMARK (TASX) 4,495.36 -1.72%

FTSE 100 - Risers

Standard Chartered (STAN) 477.30p 3.72%
NATWEST GROUP PLC ORD 100P (NWG) 243.60p 2.61%
Lloyds Banking Group (LLOY) 52.00p 2.60%
HSBC Holdings (HSBA) 478.25p 2.12%
Barclays (BARC) 200.45p 1.28%
British Land Company (BLND) 543.60p 1.00%
Rio Tinto (RIO) 5,078.00p 0.85%
British American Tobacco (BATS) 2,809.50p 0.68%
Land Securities Group (LAND) 769.00p 0.55%
BAE Systems (BA.) 549.80p 0.51%

FTSE 100 - Fallers

Aveva Group (AVV) 3,135.00p -5.80%
Dechra Pharmaceuticals (DPH) 4,570.00p -4.84%
Relx plc (REL) 2,237.00p -4.77%
Flutter Entertainment (CDI) (FLTR) 11,300.00p -4.52%
Experian (EXPN) 3,412.00p -4.48%
Fresnillo (FRES) 820.60p -4.09%
Halma (HLMA) 3,007.00p -4.08%
Polymetal International (POLY) 1,200.50p -3.88%
Intermediate Capital Group (ICP) 2,100.00p -3.49%
Spirax-Sarco Engineering (SPX) 15,535.00p -3.48%

FTSE 250 - Risers

Babcock International Group (BAB) 341.90p 4.34%
Syncona Limited NPV (SYNC) 212.00p 3.92%
Plus500 Ltd (DI) (PLUS) 1,421.50p 1.86%
Investec (INVP) 422.90p 1.83%
Wood Group (John) (WG.) 206.70p 1.77%
Capricorn Energy (CNE) 196.80p 1.76%
WH Smith (SMWH) 1,590.50p 1.69%
Hammerson (HMSO) 35.66p 1.57%
Energean (ENOG) 922.50p 1.43%
Genuit Group (GEN) 619.00p 1.31%

FTSE 250 - Fallers

Dr. Martens (DOCS) 376.20p -10.73%
Bridgepoint Group (Reg S) (BPT) 432.50p -8.17%
Greggs (GRG) 3,101.00p -8.04%
Molten Ventures (GROW) 914.00p -6.54%
Trustpilot Group (TRST) 297.40p -6.36%
Liontrust Asset Management (LIO) 2,000.00p -6.32%
Baillie Gifford US Growth Trust (USA) 274.50p -5.67%
Chrysalis Investments Limited NPV (CHRY) 234.00p -5.65%
Petershill Partners (PHLL) 255.00p -5.56%
Impax Environmental Markets (IEM) 518.00p -5.47%