7th Jan 2025 17:11
(Alliance News) - The FTSE 100 clawed back most of its early losses to close little changed on Tuesday but London markets still ended in the red after a slew of weak economic data.
European markets were lifted by as expected inflation figures but fresh inflation fears prompted falls on Wall Street.
The FTSE 100 index ended down 4.38 points, 0.1%, at 8,245.28. The FTSE 250 tumbled 262.28 points, 1.3%, at 20,350.37. The AIM All-Share fell 3.67 points, 0.5%, at 725.28.
The Cboe UK 100 closed down 0.1% at 825.84, the Cboe UK 250 shed 1.4% at 17,765.53, while the Cboe Small Companies fell 0.8% at 15,844.02.
Weak financials and housebuilders reflected a rise in the cost of government debt and a slew of weak data. NatWest fell 3.5%, Barclays slid 2.6% and Standard Chartered declined 1.8%.
The yield on 30-year gilts – the return on government bonds – increased on Tuesday by five basis points to 5.22%, surpassing the spike seen in 2023.
It ramps up the pressure on the Treasury's headroom for increased public spending, amid the prospect of higher interest costs.
The rise comes amid a fresh barrage of bond sales and investor concerns over the threat of stagflation.
On Tuesday, the UK's Debt Management Office sold GBP2.25 billion on 30-year notes, with a yield of 5.19%.
It is also expected to sell a further GBP4.25 billion of notes on Wednesday, while the Bank of England is also reducing its balance sheet through the sale of some securities as part of its quantitative tightening process next week.
Fears of stubborn inflation and stagnating growth have raised concerns about the UK's debt sustainability.
Rate sensitive housebuilders bore the brunt of the falls, with sentiment further dented as a report from lender Halifax showed house prices fell in December.
The average property price decreased 0.2% between November and December to GBP297,166, the Halifax said. Prices were still 3.3% higher than in December 2023, but the annual rate was down from a 4.7% increase in November.
Taylor Wimpey fell 4.5% and Persimmon declined 4.0%.
Separate figures showed growth in the UK construction sector hit a six-month low in December.
The S&P Global UK service purchasing managers' index fell to 53.3 points in December, from 55.2 in November. The reading stayed above the 50 point neutral mark, suggesting output growth was still accelerating, albeit at the slowest rate since June.
House building remained the weakest-performing area, with activity decreasing for the third consecutive month, the report showed.
The mood was brighter in Europe on Tuesday. The CAC 40 rose 0.6% while the Dax in Frankfurt climbed 0.6%.
Eurozone headline inflation rose to 2.4% in December from 2.2% in November, with core inflation stabilising at 2.7%, figures from Eurostat showed.
The small rise in headline inflation was in line with expectations and driven by unfavourable base effects in energy prices, analysts at Oxford Economics said.
"While annual core inflation is still too high to declare total victory, monthly price momentum in services is easing," Oxford Economics added.
Michael Kirker at Deutsche Bank Research still expects a further "gradual easing" in interest rates at the European Central Bank's January meeting despite the lack of any "major downside surprise".
ING feels the figures will keep the ECB on a "cautious easing path, diminishing the validity of the "behind the curve" statements."
"We still expect the ECB to continue cutting interest rates, but it is unlikely that the pace of loosening will accelerate. Those claiming that the ECB is "behind the curve" may therefore be further disappointed."
The pound was lower at USD1.2498 on Tuesday afternoon, down from USD1.2528 at the time of the local equities close on Monday.
The euro fell to USD1.0377 against USD1.0397. Versus the yen, the dollar was higher at JPY157.77 from JPY157.22.
The fresh dollar strength came after strong US economic data which also raised worries of a spike in inflation.
On Wall Street, US markets were mixed after the data. At the time of the London close, the Dow Jones Industrial Average was up 0.1%, the S&P 500 was 0.5% lower and the Nasdaq Composite was 1.1% worse off.
Demand for US workers rose above market expectations in November, figures showed.
According to the Labour Department's job openings and labour turnover summary, there were 8.10 million job vacancies on the last business day of November, up from 7.84 million in October. October's figure was revised upwards from 7.74 million.
Economists, who consider job openings to be a proxy for labour demand, had been expecting job vacancies to total 7.7 million.
Samuel Tombs at Pantheon Macroeconomics said the rise comes as a "surprise", given that the less volatile data from Indeed continued to deteriorate throughout the fourth quarter and reached a four-year low in December.
Separate figures showed the US service sector expanded for the sixth month in a row in December and at a faster-than-expected pace.
According to the Institute for Supply Management, the Services PMI registered 54.1 in December, rising from 52.1 in November, and above the 53.3 consensus forecast cited by FXStreet.
Of note, the Prices Index registered 64.4% in December, a sharp rise from November's reading of 58.2.
ISM Chair Steve Miller noted this month's reading is the first time the index has registered over 60 since January. It was the highest reading since February 2023.
Capital Economics said the surge in the prices paid index is a "worry for the Fed as it is consistent with PCE supercore inflation remaining at 3.5% until the middle of next year."
"This serves as a good reminder that the Fed's fight against inflation is not over, particularly going into a year where tariffs and immigration curbs are set to reignite price pressures."
The strong data added to fears that interest rate cuts in the US will be delayed.
"We believe the market is shifting into a "good news is bad news" environment again," analysts at Bank of America stated.
Back in London and retailers JD Sports, up 3.6%, and Next, up 3.8%, led the risers.
Bank of America highlighted JD Sports' "compelling" valuation and believes the de-rating at the sports retailer has been overdone.
Meanwhile, Next raised profit guidance again after a strong Christmas, boosted by strong online sales, particularly overseas.
The Leicester-based clothing and homewares retailer said full price sales in the nine weeks to December 28 rose 6.0% on-year. Adjusting for the effect of the end-of-season sale, which "flattered" its out-turn, full price sales were up 5.7%. It had guided for growth of 3.5%.
"The over-achievement adds GBP27 million to full price sales," Next said.
It now expects pretax profit for the year to January 25 of GBP1.01 billion, a rise of 10% on-year. It had previously expected a profit rise of 9.5%. It now predicts total group sales of GBP6.30 billion, its outlook raised from GBP6.27 billion.
Aarin Chiekrie, equity analyst, Hargreaves Lansdown said the trading update gave "investors plenty to be jolly about."
"Unwrapping some of the headline figures, revenue growth came entirely from the online channel, where sales growth is accelerating. Overseas sales are growing at an eye watering double-digit pace, helping to offset a small decline in its retail stores which have come under a bit of pressure given the structural decline of the high street."
On the FTSE 250, trading platform AJ Bell fell 6.6%, knocked by a downgrade by Citi to 'sell' while Pennon slid 3.4% as Deutsche Bank cut its rating to 'sell' from 'hold'.
A barrel of Brent firmed to USD76.83 on Tuesday afternoon, from USD76.65 at the time of the London equities close on Monday.
The renewed oil price strength supported Shell, up 1.5% and BP, also up 1.5%.
Shell, which is due to release a trading statement on Wednesday, also benefited from an upgrade by Morgan Stanley to 'outperform'.
Gold firmed to USD2,654.67 an ounce from USD2,638.63.
Wednesday's global economic diary sees minutes from December's Federal Open Market Committee meeting and ADP private payrolls figures.
Along with Shell, Wednesday's local corporate calendar sees a trading statement from Topps Tiles.
By Jeremy Cutler, Alliance News reporter
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