London close: Stocks fall as investors recalibrate rate hike expectations
London stocks were knocked lower on Monday by the prospect of further rates hikes from the Federal Reserve and as Sino-US tensions dented sentiment.
The FTSE 100 slipped 0.89% to 7,836.71, having closed at a record high of 7,901.80 on Friday. In parallel, the yield on the benchmark 10-year Gilt climbed 19 basis points to 3.243%.
Victoria Scholar, head of investment at Interactive Investor, said: "The FTSE 100 is giving back some of Friday’s gains after the US downed an alleged Chinese spying balloon, putting a strain on US-China relations, and raising concerns about geopolitical instability.
"Plus, a strong US jobs report on Friday has indicated that the Federal Reserve may have more work to do on interest rates, pressurising global equity markets.
"The FTSE 100 closed at a record high on Friday driven by expectations of a dovish tilt from the Bank of England, a weaker pound after a very strong US jobs report and its favourable sectoral mix which provided a tailwind to the index over the last year."
Since Friday, Fed funds futures had priced in a further 25 basis point rate hike in the US in May, to 5.0-5.25%, and expectations for a first rate cut had been pushed out to December.
On home shores, a survey out earlier showed that activity in the construction sector fell in January at its fastest pace since May 2020 as house building took a hit, but business optimism rebounded.
The S&P Global/CIPS construction purchasing managers’ index declined for the fourth month in a row, to 48.4 from 48.8 in December. Analysts had been expecting a reading of 48.5. A reading above 50.0 signals expansion, while a reading below indicates contraction.
House building was the weakest-performing category, with the index falling to 44.8 in January from 48.0 a month earlier, and the rate of contraction the steepest since May 2020. Lower volumes of residential work were attributed to rising borrowing costs, unfavourable market conditions and greater caution among clients.
Tim Moore, economics director at S&P Global Market Intelligence, said: "A sharp and accelerated decline in house building activity led to the weakest UK construction sector performance for just over two-and-a-half years in January.
"Construction companies once again cited a headwind from lacklustre market conditions, rising interest rates and fewer new project starts in the residential segment. Commercial building also slipped into contraction as the subdued UK economy weighed on business investment."
Still, Moore said there were positive signals for longer-term prospects across the construction sector, with business activity expectations staging a rebound from the low point seen last December.
Investors were also digesting comments from Bank of England rate-setter Catherine Mann, who said at a conference in Budapest that further interest rate hikes were still more likely than not.
In equity markets, Hargreaves Lansdown slumped after a rating downgrade by Credit Suisse.
Asia-focused insurer Prudential was also on the back foot, while Virgin Money was hit by downgrade to ‘equalweight’ at Barclays.
Molten metal flow engineering and technology firm Vesuvius slid after saying it had been hit by a cyber attack involving "“unauthorised access" to its systems.
On the upside, online trading platform Plus500's shares continued to push towards their all-time highs after it secured a licence from the Dubai Financial Services Authority for "the significant and high growth market" of the United Arab Emirates.
FTSE 100 (UKX) 7,836.71 -0.82%
FTSE 250 (MCX) 20,409.38 -0.89%
techMARK (TASX) 4,525.39 -0.49%
FTSE 100 - Risers
Airtel Africa (AAF) 117.40p 3.53%
Centrica (CNA) 96.96p 1.78%
GSK (GSK) 1,461.00p 1.49%
Fresnillo (FRES) 827.40p 1.30%
National Grid (NG.) 1,040.00p 0.58%
Admiral Group (ADM) 2,291.00p 0.48%
Haleon (HLN) 330.65p 0.35%
Endeavour Mining (EDV) 1,932.00p 0.26%
Associated British Foods (ABF) 1,936.00p 0.23%
Compass Group (CPG) 1,927.50p 0.08%
FTSE 100 - Fallers
Prudential (PRU) 1,289.50p -4.76%
Ocado Group (OCDO) 713.80p -3.36%
Hargreaves Lansdown (HL.) 918.40p -3.29%
BT Group (BT.A) 130.35p -3.19%
Land Securities Group (LAND) 723.20p -2.78%
Informa (INF) 675.00p -2.71%
Next (NXT) 6,800.00p -2.58%
Scottish Mortgage Inv Trust (SMT) 784.60p -2.56%
Persimmon (PSN) 1,450.00p -2.52%
Taylor Wimpey (TW.) 121.00p -2.50%
FTSE 250 - Risers
Bakkavor Group (BAKK) 119.00p 4.94%
Plus500 Ltd (DI) (PLUS) 1,951.00p 2.96%
Syncona Limited NPV (SYNC) 180.00p 2.51%
Drax Group (DRX) 644.50p 2.38%
Serco Group (SRP) 152.30p 2.21%
UK Commercial Property Reit Limited (UKCM) 57.30p 2.14%
Telecom Plus (TEP) 1,942.00p 1.57%
Tate & Lyle (TATE) 787.00p 1.55%
Crest Nicholson Holdings (CRST) 245.00p 1.49%
CMC Markets (CMCX) 244.50p 1.45%
FTSE 250 - Fallers
ASOS (ASC) 915.00p -4.98%
Ferrexpo (FXPO) 152.50p -4.81%
Darktrace (DARK) 232.00p -4.57%
Tullow Oil (TLW) 33.96p -4.55%
Just Group (JUST) 81.55p -4.51%
Future (FUTR) 1,691.00p -3.32%
Vesuvius (VSVS) 405.00p -3.30%
Moonpig Group (MOON) 127.70p -3.26%
Harbour Energy (HBR) 297.10p -3.16%
Genuit Group (GEN) 338.00p -3.15%