London close: Rising bond yields keep stocks in the red
London stocks remained weaker by the close on Tuesday amid rising bond yields, as investors digested the latest UK jobs data.
The FTSE 100 ended the session down 0.63% at 7,563.55, and the FTSE 250 was 0.96% lower at 22,652.71.
Sterling was mixed, meanwhile, last trading down 0.48% on the dollar at $1.3582, while it gained 0.23% against the euro to €1.1990.
“Equities are under pressure as the rise in US government bond yields suggests the markets are pricing-in an interest rate hike from the Federal Reserve,” said Equiti Capital market analyst David Madden.
“In recent weeks, there has been growing speculation the US central bank will hike rates three or possibly four times in 2022.”
Madden noted that the US 10-year yield spiked above 1.83% today - its highest level in two years.
“It was the fresh multi-year high in the yield that sparked today’s wave of selling in stocks.
“The upward move in yields is not just confined to the US, as the UK 10-year gilt yield hit a three-month high, and the German bund yield reached its highest level since 2019.
“The increase in yields across the board is an indication that we are moving closer to a period of tighter monetary policy.”
On the economic front, official data showed the UK unemployment rate easing as companies continued to hire more staff despite the emergence of the Omicron variant.
According to the latest data from the Office of National Statistics, there were 29.5 million payrolled employees in the UK in December, up 184,000 on November’s revised figure, and 409,000 higher than in February 2020.
Analysts had been looking for an increase closer to 125,000.
The broader unemployment rate for September to November eased by 0.4 percentage points to 4.1%, marginally below consensus for 4.2%.
It meant the rate was now just 0.1 percentage points higher than before the pandemic.
“The burden of the withdrawal of the furlough scheme at the end of September and the Omicron hit to consumer services demand has fallen squarely on the shoulders of employers, not their staff,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
“Meanwhile, the further rise in payroll employee numbers in December provides reassurance that business did not immediately fire staff when demand weakened in response to Omicron, though recent provisional estimates have been revised downwards substantially.”
Looking ahead, however, Tombs suggested that employment growth would likely slow from the strong pace seen over the last nine months.
“Few people who want a job don’t have one currently.
“In addition, April’s increase in employer’s National Insurance contributions likely will undermine demand for labour.
"At least immigration should pick up, as the impact of the pandemic on international labour mobility eases, but inflows will fall well short of the levels when the UK was an EU member.”
In equity markets, 888 Holdings slipped 0.75% even after the online betting and gaming company said full-year revenues had grown year-on-year despite a drop in the final quarter of 2021.
Online review website Trustpilot Group sank 8.07% after a lockup preventing a group of shareholders from selling stock expired.
Howden Joinery Group was knocked 2.93% lower by a downgrade to ‘hold’ from ‘buy’ at Berenberg.
"With significant organic earnings upgrades necessary for the shares to outperform in 2022, we prefer exposure elsewhere in the sub sector given additional drivers and less demanding valuation," the bank said.
Elsewhere, Russian steelmaker Evraz lost 2.76%, joined on the red side of the top-flight index by Rightmove, which slid 4.58%, and Polymetal, which closed down 1.86%.
On the upside, education publisher Pearson closed up 2.66% ahead of its January trading update on Wednesday.
Oil giants BP and Shell gushed 0.51% and 1.54% higher, respectively, amid a surge in oil prices that saw Brent crude hitting its highest level since 2014.
Just Group surged 8.24% after it posted a 25% jump in full-year retirement income sales to £2.7bn.
Qinetiq rose 6.87% after the defence technology firm said it was on track to meet its full-year expectations after "strong" progress in the third quarter.
Marshalls pushed 3.56% higher after the landscaping specialist lifted full-year guidance after a strong final quarter of the last fiscal year which helped drive a 26% increase in annual revenue.
Alternative asset management firm Petershill Partners advanced 0.21% after saying it made $458m in acquisitions in the fourth quarter, which are expected to be immediately accretive to consensus earnings forecasts.
FTSE 100 - Risers
DCC (CDI) (DCC) 6,482.00p 3.32%
BT Group (BT.A) 186.60p 3.07%
Pearson (PSON) 632.40p 2.66%
Phoenix Group Holdings (PHNX) 701.40p 2.24%
Vodafone Group (VOD) 121.50p 2.20%
Sainsbury (J) (SBRY) 298.70p 2.08%
Royal Dutch Shell 'A' (RDSA) 1,872.20p 1.60%
Royal Dutch Shell 'B' (RDSB) 1,873.80p 1.54%
BAE Systems (BA.) 599.00p 1.46%
Rio Tinto (RIO) 5,443.00p 0.93%
FTSE 100 - Fallers
Ashtead Group (AHT) 5,444.00p -4.98%
Rightmove (RMV) 658.60p -4.58%
Unilever (ULVR) 3,516.50p -3.97%
Smith (DS) (SMDS) 381.70p -3.79%
JD Sports Fashion (JD.) 189.10p -3.52%
Ferguson (FERG) 12,125.00p -3.23%
Croda International (CRDA) 8,268.00p -3.12%
Halma (HLMA) 2,593.00p -2.88%
Evraz (EVR) 557.20p -2.76%
Scottish Mortgage Inv Trust (SMT) 1,118.50p -2.70%
FTSE 250 - Risers
Just Group (JUST) 93.55p 8.24%
QinetiQ Group (QQ.) 289.40p 6.87%
Darktrace (DARK) 433.80p 4.99%
Baltic Classifieds Group (BCG) 234.00p 4.46%
Energean (ENOG) 949.50p 3.66%
Marshalls (MSLH) 711.50p 3.56%
Plus500 Ltd (DI) (PLUS) 1,477.00p 2.26%
Elementis (ELM) 137.70p 2.23%
Serco Group (SRP) 138.60p 2.06%
Diversified Energy Company (DEC) 113.20p 1.79%
FTSE 250 - Fallers
Hipgnosis Songs Fund Limited C Shs NPV (SONC) 112.50p -100.00%
Petropavlovsk (POG) 14.76p -11.46%
Trustpilot Group (TRST) 223.20p -8.07%
Chrysalis Investments Limited NPV (CHRY) 195.00p -7.58%
Drax Group (DRX) 586.50p -4.79%
Liontrust Asset Management (LIO) 1,796.00p -4.57%
Ferrexpo (FXPO) 254.40p -4.43%
Auction Technology Group (ATG) 1,180.00p -4.38%
Games Workshop Group (GAW) 8,115.00p -4.11%
Watches of Switzerland Group (WOSG) 1,220.00p -3.95%