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London open: Stocks slide after US selloff; BoE eyed
London stocks tumbled in early trade on Thursday following sharp losses on Wall Street after the Federal Reserve spooked markets with its rate outlook, and as investors eyed the latest policy announcement from the Bank of England.
At 0830 GMT, the FTSE 100 was down 1.1% at 8,106.17.
On Wednesday, the Fed cut interest rates by 25 basis points, as widely expected. However, it also signalled there would be just two rate cuts next year, down from a previous forecast of four.
Kathleen Brooks, research director at XTB, said: “The Federal Reserve may have cut rates on Wednesday, but the market thinks it could be a while before they cut again.
“The expectation was for a cut and then a pragmatic pause in the Fed’s rate cutting cycle, however, what the Fed delivered was a hawkish cut, which raises the possibility that the next move by the Fed may not be a rate cut.”
The shift in expectations weighed heavily on US markets, with the Dow tumbling 2.6%, while the S&P 500 and the Nasdaq ended down 3% and 3.6%, respectively.
On home shores, the BoE is due to make its policy announcement at midday, with interest rates expected to be left unchanged at 4.75%.
Brooks said there had been a “troika of bad economic news” for the UK in the past week.
“Firstly, GDP fell for October, secondly, wage growth shot higher and thirdly, inflation is also moving in the wrong direction. Annual headline inflation rose to 2.6% from 2.3% in November, which was mostly down to expected base effects. Service price inflation remained steady at 5% YoY; however, this is still far too high for the BOE to be comfortable with. Pay growth is another concern. Private sector pay growth was 5.4% YoY in October, which suggests that the consumer could thwart the BOE’s efforts to bring inflation back to the 2% target rate.
“Growth undershot the BOE’s expected rate, while inflation overshot the BOE’s forecast for November, thus recent data has complicated the path for the BOE in the coming months. The market has recalibrated UK rate cut expectations this week and have removed one full rate cut for next year. The BOE is still expected to cut rates by 25bps in February.”
In equity markets, water companies were the top performers on the FTSE 100 after regulator Ofwat announced its final determination for the five-year period to 2030, saying that average bills would increase by 36% in England and Wales, the equivalent of around £31 per year.
The amount is higher than the 21% Ofwat initially proposed but below the water companies’ request for an average rise of 40%.
United Utilities gained after Ofwat allowed the company to increase bills by 32%, less than the 36% it requested. Severn Trent was also higher as the regulator said it could lift bills by 47%.
Serco rallied as it said underlying operating profit rose 9% on the year to £270m in 2024 and upgraded its cash and net debt guidance.
On the downside, Scottish Mortgage Investment Trust, Barclays, Entain and Ashtead – all of which have large exposure to the US – slumped.
British American Tobacco was in the red as it traded without entitlement to the dividend.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Severn Trent Plc | +1.69% | +43.00 | 2,593.00 |
| 2 |  |
United Utilities Group Plc | +1.13% | +12.00 | 1,075.50 |
| 3 |  |
Imperial Brands Plc | +0.59% | +15.00 | 2,573.00 |
| 4 |  |
Reckitt Benckiser Group Plc | +0.15% | +7.00 | 4,830.00 |
| 5 |  |
Bp 8%pf | +0.00% | +0.00 | 138.50 |
| 6 |  |
China Yangtze S | +0.00% | +0.00 | 31.00 |
| 7 |  |
Intermediate Capital Group Plc | +0.00% | +0.00 | 2,124.00 |
| 8 |  |
Bp 9% 2nd Prf | +0.00% | +0.00 | 154.50 |
| 9 |  |
Barratt Redrow plc | +0.00% | +0.00 | 482.10 |
| 10 |  |
Ck Infrastructure Holdings Limited | +0.00% | +0.00 | 544.95 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Banco Santander S.a. | -3.49% | -13.00 | 360.00 |
| 2 |  |
Carnival Plc | -3.47% | -64.50 | 1,793.50 |
| 3 |  |
Scottish Mortgage Investment Trust Plc | -3.32% | -31.80 | 925.20 |
| 4 |  |
Experian Plc | -2.99% | -108.00 | 3,501.00 |
| 5 |  |
Barclays | -2.92% | -7.80 | 259.25 |
| 6 |  |
Antofagasta Plc | -2.84% | -46.50 | 1,591.50 |
| 7 |  |
Crh Plc | -2.71% | -208.00 | 7,476.00 |
| 8 |  |
Ferguson Enterprises Inc. | -2.70% | -390.00 | 14,080.00 |
| 9 |  |
Pershing Square Holdings Ltd | -2.53% | -98.00 | 3,780.00 |
| 10 |  |
Informa Plc | -2.46% | -20.40 | 807.60 |
US close: Stocks sharply lower following Powell comments
Major indices closed sharply lower on Wednesday as market participants digested comments from Federal Reserve chairman Jerome Powell.
At the close, the Dow Jones Industrial Average was down 2.58% at 42,326.87, while the S&P 500 lost 2.95% to 5,872.16 and the Nasdaq Composite saw out the session 3.56% weaker at 19,392.69.
The Dow tumbled 1,123.03 points on Wednesday, extending losses recorded in the previous session.
Stocks were firmly in the red at the close of trading on Wednesday after the US central bank cut rates as expected but policymakers indicated that they were now anticipating fewer reductions in 2025. Furthermore, macroeconomic projections from the Federal Reserve’s board members and regional presidents showed that they were also anticipating slightly higher inflation during the following year.
“We are significantly closer to neutral. We still think where we are is meaningfully restrictive,” Jerome Powell would go on to say during his post-meeting press conference. “And I think from this point forward, it’s appropriate to move cautiously and look for progress on inflation. We’ve done a lot to support economic activity by cutting a hundred basis points.”
Elsewhere on the macro front, mortgage applications fell 0.70% in the week ended 13 December, according to the Mortgage Bankers Association of America, cutting into the prior week’s 5.4% surge. Applications to refinance a mortgage fell 3%, while applications to purchase a home rose 1%.
Still on data, US building permits surged 6.1% in November to a seasonally adjusted rate of 1.50m, according to the Census Bureau, erasing October’s 0.4% decline and well and truly ahead of expectations for a print of 1.43m. Housing starts, on the other hand, unexpectedly fell 1.8% to 1.28m in November, the lowest reading in four months and missing expectations for an increase from 1.31m in October to 1.34m.
No major corporate earnings were released on Wednesday.
Thursday newspaper round-up: Water bills, Brexit, Imperial Brands
Households in England and Wales will see their water bills rise by an average of £31 a year, as suppliers pay to fix leaky pipes and cut pollution. The industry regulator Ofwat said on Thursday it would allow companies to raise average bills will rise by £157 over five years to an average of £597 by 2030 to help pay for investment. – Guardian
The damage from Brexit to trade links with the EU cost the UK £27bn in the first two years, but the overall impact was more limited than forecasters first estimated, according to the most comprehensive review of the issue since Britain fully left the bloc at the start of 2021. Researchers based at the London School of Economics found that trade barriers had been a “disaster” for small businesses and had forced thousands to stop trading with EU nations. – Guardian
Britain’s energy watchdog is set to be handed stronger powers as Ed Miliband battles to lower bills as part of an election manifesto pledge. On Thursday, the Government launched a review into the future of Ofgem, which could result in the regulator getting more power to force companies to compensate customers directly when things go wrong. – Telegraph
The Observer has appointed its first female editor in more than a century following its controversial sale to loss-making start-up Tortoise. Lucy Rock, who is currently acting editor of The Observer, will do the job permanently at the Sunday newspaper. James Harding, the former BBC News chief who leads Tortoise, will become editor-in-chief. – Telegraph
The chief executive of Imperial Brands, the maker of Gauloises and JPS cigarettes, has seen his total pay reach more than £9 million, making him one of the best-paid bosses on the FTSE 100. Stefan Bomhard, 57, was paid almost £9.1 million for the year to the end of September, up from £8.9 million the previous year and £3.4 million in 2021, his first full year in charge. – The Times
