London close: Stocks fall on commodity prices, recession fears
London stocks closed well below the waterline on Thursday, having taken their opening cue from a selloff on Wall Street on the back of hot inflation data, as weak UK GDP figures fuelled recession fears.
The FTSE 100 ended the session down 1.56% at 7,233.34, and the FTSE 250 was off 0.85% at 19,480.88.
Sterling was in a mixed state, meanwhile, last trading down 0.34% against the dollar at $1.2209, while it strengthened 0.92% on the euro to €1.1758.
“Yesterday’s positive European session appears to have been a sucker’s rally coming as it has between a big decline on Monday and another hefty decline today,” said CMC Markets chief market analyst Michael Hewson.
“Today’s weakness appears to have been prompted by the sudden reversal seen in US markets overnight.”
Hewson said Thursday’s price action was driven by falling bond yields and weaker commodity prices, which were pointing to a market that was becoming more concerned about slowing growth, alongside sticky inflation - or rising stagflation - as well as recession risk.
“We’re not being helped by big moves in cryptocurrencies which in turn could be creating further instability because of forced selling as investors try and meet cryptocurrency margin calls, by selling more traditional assets like shares.”
On the economic front, the UK economy unexpectedly contracted in March amid rising prices, figures from the Office for National Statistics showed earlier, fuelling fears the cost of living crisis will plunge the country into recession.
GDP shrank by 0.1% following no growth in February and versus expectations for no change, leaving the economy just 1.2% above its pre-Covid level.
The data showed that the main contributor to the monthly decline was a 0.2% contraction in the services sector.
February’s GDP was revised down from an initial estimate of 0.1% growth.
During the first three months of the year growth slowed to 0.8% from 1.3% in the previous quarter, versus expectations for 1% growth, marking the lowest quarterly growth in a year.
“The UK economy grew for the fourth consecutive quarter and is now clearly above pre-pandemic levels, although growth in the latest three months was the lowest for a year,” said Darren Morgan, ONS director of economic statistics.
“This was driven by growth in a number of service sectors as the economy continued to recover from Covid-19 effects, including hospitality, transport, employment agencies and travel agencies. There was also strong growth in IT.”
Morgan said there were some downward effects from other services, including retailing, wholesaling and car sales and also health, due to continuing decreases in the test and trace service and vaccination programmes.
“Our latest monthly estimates show GDP fell a little in March, with drops in both services and in production.
“Construction, though, saw a strong month thanks partly to repair work after the February storms.”
In political news, prime minister Boris Johnson insisted earlier that he was still opposed to a windfall tax on energy companies, but refused to rule out the possibility of introducing a one-off levy.
Maintaining his claim that a levy would deter investment, despite BP chief executive Bernard Looney saying otherwise, Johnson said he did not believe they were “the right way forward”.
Across the pond, US first-time jobless claims ticked up by 1,000 in the week ended 7 May to hit 203,000, ahead of both the prior week's upwardly revised print of 202,000 and estimates for a reading of 195,000.
According to the Labor Department, the four-week moving average was 192,750, an increase of 4,250 from the previous week's revised reading, which grew from 188,000 to 188,500,
Still stateside, growth in the US producer price index slowed as expected in April, according to figures released on Thursday by the Labor Department.
The producer price index for final demand rose 0.5%, in line with analysts’ expectations and down from 1.6% in March and 1.1% in February.
On the year, PPI rose 11% in April, versus 11.5% the month before and expectations for a 10.7% jump.
“Coupled with yesterday’s modest reprieve in consumer price inflation, the latest PPI data offer tentative signs that price pressures perhaps peaked early in the second quarter,” said Mahir Rasheed, US economist at Oxford Economics.
“Still, with demand remaining fairly buoyant and the supply side of the economy facing persistent supply-side headwinds, it may be too early to celebrate April's moderation in the PPI.
“We remain patient and will look for future PPI readings to confirm whether inflation pressures are indeed subsiding.”
In equity markets, miners were among the worst performers amid worries about a global slowdown, with Antofagasta down 4.46%, Glencore losing 54.41%, Anglo American off 4.56%, and Rio Tinto Group 2.87% lower.
Tech-heavy Scottish Mortgage Investment Trust was also in the red, losing 3.84% by the close.
“Investors feared portfolio company valuations would be worth less based on discounted cash flow models because of rising interest rates,” said Russ Mould, investment director at AJ Bell.
“Once seen as a superstar vehicle for the world’s next big things in the world of business, Scottish Mortgage has lost its shine big time.
“Its share price is down 43% year-to-date and has more than halved in value since last November’s peak.”
Hargreaves Lansdown lost 3.6% after the investment platform reported a drop in assets under management and net new business for the four months to 30 April.
Food producer Cranswick crumbled 2.2% after it emerged that a number of retailers including Aldi, Sainsbury’s and M&S had recalled their food-to-go products containing chicken due to concerns about salmonella contamination.
On the upside, retailer JD Sports jumped 6.6% after it said like-for-like sales were more than 5% higher year-on-year, driven by both the "strength and breadth" of its brand relationships and category offerings.
BT Group managed gains of 0.96% after the telecoms and broadcasting group said it was moving its sports TV division into a 50-50 joint venture with Warner Bros Discovery, and reported a small rise in adjusted annual core earnings after revenue fell 2%.
Engine maker Rolls-Royce was 1.09% higher after it said it continued to trade in line with expectations, with low double-digit percentage underlying revenue growth in the civil aerospace business expected as it backed its 2022 guidance.
Elsewhere, Coca-Cola HBC jumped 5.57% and RHI Magnesita was ahead 5.53%, after well-received updates.
Grainger was in the green by 3.13%, after the firm reported a 23% rise in adjusted earnings to £46.3m on the back of high occupancy across its private rented sector (PRS) portfolio.
The UK's largest listed landlord with a £3.1bn portfolio and £2.4bn pipeline, revealed half year results to investors showing group revenue of £126.6m in the six months to the end of March, up from £101.1m in the same period of 2021.
Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesti and Iain Gilbert.
FTSE 100 - Risers
JD Sports Fashion (JD.) 126.75p 6.60%
Coca-Cola HBC AG (CDI) (CCH) 1,687.00p 5.57%
Next (NXT) 6,428.00p 3.44%
Kingfisher (KGF) 252.20p 2.19%
Aveva Group (AVV) 2,139.00p 1.86%
Rightmove (RMV) 553.80p 1.82%
Associated British Foods (ABF) 1,641.50p 1.74%
Compass Group (CPG) 1,717.50p 1.39%
Howden Joinery Group (HWDN) 678.40p 1.31%
Ocado Group (OCDO) 774.00p 1.28%
FTSE 100 - Fallers
Fresnillo (FRES) 704.40p -8.90%
Endeavour Mining (EDV) 1,811.00p -7.02%
BP (BP.) 400.15p -4.70%
Anglo American (AAL) 3,242.50p -4.56%
Antofagasta (ANTO) 1,340.00p -4.46%
Glencore (GLEN) 455.00p -4.41%
Harbour Energy (HBR) 450.70p -4.07%
Scottish Mortgage Inv Trust (SMT) 750.80p -3.84%
Hargreaves Lansdown (HL.) 861.80p -3.60%
Shell (SHEL) 2,247.50p -3.28%
FTSE 250 - Risers
Baltic Classifieds Group (BCG) 139.00p 8.76%
RHI Magnesita N.V. (DI) (RHIM) 2,366.00p 5.53%
Playtech (PTEC) 518.00p 3.85%
Convatec Group (CTEC) 212.60p 3.71%
Grainger (GRI) 289.80p 3.13%
Marks & Spencer Group (MKS) 141.90p 3.07%
Trainline (TRN) 298.80p 3.00%
Helios Towers (HTWS) 112.70p 2.45%
Beazley (BEZ) 448.40p 2.23%
Genuit Group (GEN) 419.00p 2.20%
FTSE 250 - Fallers
Hochschild Mining (HOC) 99.25p -9.28%
Chrysalis Investments Limited NPV (CHRY) 122.00p -8.96%
Auction Technology Group (ATG) 900.00p -6.04%
Centamin (DI) (CEY) 80.96p -5.93%
Polymetal International (POLY) 235.00p -5.47%
BlackRock World Mining Trust (BRWM) 633.00p -5.38%
Molten Ventures (GROW) 551.00p -5.17%
Discoverie Group (DSCV) 693.00p -4.94%
Carnival (CCL) 1,021.50p -4.84%
Tullow Oil (TLW) 51.10p -4.66%