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London close: FTSE flops as PLC and GDP growth disappoints
London stocks erased most of their earlier losses but still finished in the red on Thursday as bond yields retreated and the pound struggled for direction after disappointing UK economic growth figures.
The FTSE 100 lost 29 points or 0.4% to finish the session at 7,252.39. Equities were on the back foot from the opening bell after overnight minutes from the US central bank's recent policy meeting pointed to at least three rate hikes this year. Although this more or less priced in, the potential for a fourth hike was keeping investors on edge.
Yields had risen overnight but eased off as the session wore on. The yield on 10-year US Treasuries was down by four basis points to 2.91% after hitting a high of 2.96%.
Sterling, which is being moved by the many Brexit stories that emerge every day as much as by immediate economic data, was lower in the morning, falling as much as 0.4% as the dollar strengthened in line with yields. Having fallen to 1.386 around midday, the pound climbed above 1.3944 as the US session began.
There was disappointing data for London investors to mull too, with second reading on UK gross domestic product growth for the fourth quarter of 2017 revised down, though this had only a small effect on the pound.
Figures from the Office for National Statistics showed that GDP growth rose just 0.4% in the fourth quarter compared to the third, down from an initial estimate of 0.5%, meaning year-on-year growth was cut to 1.4% from 1.5%. This put the UK back at the bottom of the G7 growth leaderboard for 2017.
The 0.1 percentage point revision down from the preliminary estimate was partly due to a downward revision to the estimated output of the production and services industries, ONS said, revealing a disappointing expenditure component mix. Business investment was flat, consumer spending growth slowed to 0.3% compared to the prior quarter and net trade subtracted 0.5 percentage points as exports fell 0.2% and imports rose 1.5%.
Howard Archer, chief economist advisor at the EY Item Club, said: "The downward revision to UK GDP growth may dilute expectations that the Bank of England will raise interest rates in May, but we suspect that the MPC remains more likely than not to act then.
"With the Bank of England keen to gradually normalise monetary policy and the economy likely to see essentially stable growth during 2018, we expect two interest rate hikes this year in May and November. This also assumes that earnings growth will trend up gradually."
Retail sales were also in focus following the release of the latest quarterly distributive trades survey from the Confederation of British Industry.
Sales growth slowed for the third month in a row, with 32% of respondents reporting a rise in sales volumes from a year ago and 24% reporting a drop, giving a retail sales balance of +8. This was down from +12 in January and missed expectations for a nudge up to +13.
Still, the survey also found that most retailers expect volumes to increase next month, while investment intentions also strengthened to their highest level since August 2015.
In corporate news, British American Tobacco retreated even as it reported on what it claimed was a record year, with its "transformational" acquisition of Reynolds American leading to a 37.6% surge in revenue to £20.29bn.
Analyst Mike Van Dulken at Accendo Markets noted that revenues missed consensus of £20.6bn, pre-tax income was either a beat on an adjusted basis or bang in-line when adjusted for constant currencies. The real problem, however, he said was volumes falling 2.6% when excluding Reynolds, together with comments about a challenging trading environment.
BAE Systems was weaker after saying it expects profits for 2018 to be flat, outweighing earnings for 2017 being better than expected.
Moneysupermarket.com tumbled 16% as its full-year earnings and revenue missed expectations and investors were left disappointed by the 2018 outlook, while Hays fell even as the FTSE 250 recruiter said interim profit rose 18% on the back of strong growth in its international markets and good cost control in the UK.
Kaz Minerals was in the red despite reporting a rise in full-year profit as its numbers missed across the board.
Safestore was on the back foot as it reported a 9.8% rise in first-quarter revenues, while gambling software development company Playtech tanked 10% after its full-year results fell short, with growth rates slowing from 2016.
GlaxoSmithKline, Diageo, Carnival, HSBC and Imperial Brands were lower as they numbered among the companies whose stock went ex-dividend.
Bucking the trend were a few big names, with Barclays rallying as it declared its intention to more than double dividend payouts in 2018 to 6.5p per share after lower costs helped lift profits last year. Peer RBS was in the black ahead of its annual results on Friday.
Centrica rose despite reporting a 17% drop in full-year adjusted operating profits, as investors welcomed a steady dividend, an increase to the cost efficiency programme and signs that management will be more focused on turning around the overall performance. The British Gas owner was the standout gainer on the blue chip index as this cost cutting drive saw it announce 4,000 job cuts by 2020.
RSA Insurance gained as it posted a jump in full-year profit and bumped up its dividend as a strong performance in Scandinavia, Canada, the Middle East and Ireland helped to offset a poor showing the UK.
Anglo American, trading around its highest level in almost five years, reversed initial losses after it reported a 45% jump in full-year EBITDA thanks to higher commodity and copper prices.
Bus and rail group Go-Ahead surged as its first-half operating profit beat forecasts, but this was thanks to one-offs resulting from losing its London Midland franchise.
Serco racked up good gains as the outsourcer's 2017 results beat analysts' expectations.
In broker note action, Rotork and Weir were lifted to 'hold' from 'underperform' at Jefferies, while TalkTalk was cut to 'hold' from 'buy' at HSBC. Barratt Developments sank again as Shore Capital reiterated its 'sell' recommendation.
Market Movers
FTSE 100 (UKX) 7,252.39 -0.40%
FTSE 250 (MCX) 19,736.06 -0.27%
techMARK (TASX) 3,332.75 -0.42%
FTSE 100 - Risers
Centrica (CNA) 142.15p 7.53%
Barclays (BARC) 211.00p 4.40%
NMC Health (NMC) 3,510.00p 3.24%
RSA Insurance Group (RSA) 632.60p 3.20%
BHP Billiton (BLT) 1,521.20p 1.82%
Royal Bank of Scotland Group (RBS) 282.00p 1.66%
Shire Plc (SHP) 3,037.00p 1.50%
SSE (SSE) 1,237.00p 1.44%
Evraz (EVR) 433.60p 1.40%
Standard Life Aberdeen (SLA) 385.70p 1.23%
FTSE 100 - Fallers
Barratt Developments (BDEV) 551.80p -2.75%
BAE Systems (BA.) 585.00p -2.73%
HSBC Holdings (HSBA) 728.10p -2.57%
TUI AG Reg Shs (DI) (TUI) 1,545.00p -2.15%
British American Tobacco (BATS) 4,354.50p -2.15%
Imperial Brands (IMB) 2,609.50p -2.12%
Kingfisher (KGF) 353.60p -1.94%
Carnival (CCL) 4,839.00p -1.71%
Mondi (MNDI) 1,894.50p -1.66%
GlaxoSmithKline (GSK) 1,303.00p -1.63%
FTSE 250 - Risers
Go-Ahead Group (GOG) 1,527.00p 14.13%
AA (AA.) 88.00p 5.29%
Capita (CPI) 180.15p 5.20%
TalkTalk Telecom Group (TALK) 98.00p 3.70%
Stagecoach Group (SGC) 138.00p 3.60%
Aveva Group (AVV) 2,944.00p 3.59%
Mitie Group (MTO) 163.20p 3.42%
Tullow Oil (TLW) 186.65p 3.12%
BCA Marketplace (BCA) 167.60p 2.95%
Wood Group (John) (WG.) 633.00p 2.93%
FTSE 250 - Fallers
Moneysupermarket.com Group (MONY) 283.60p -13.75%
Acacia Mining (ACA) 141.15p -6.68%
CLS Holdings (CLI) 211.00p -6.64%
Hikma Pharmaceuticals (HIK) 898.00p -5.47%
Hays (HAS) 195.40p -4.50%
Fisher (James) & Sons (FSJ) 1,392.00p -4.00%
Marshalls (MSLH) 405.20p -3.75%
Lancashire Holdings Limited (LRE) 572.50p -3.46%
Inmarsat (ISAT) 444.00p -3.27%
Greencore Group (GNC) 176.35p -3.10%