Investors were in risk-off mode ahead of US Federal Reserve meeting minutes to be released later on Wednesday, with markets spooked by some hawkish comments from policymaker Lael Brainard.
Fed governor Brainard, who is considered a dove, said bringing US inflation down from 40-year highs was of ‘paramount importance’ and that the bank was ‘prepared to take stronger action’ if warranted.
Brainard also said bank policymakers were ready to start reducing its vast bond holdings, which have helped keep borrowing costs down.
Eyes now turn to minutes from the Fed’s March meeting, due to be released at 1800 BST.
The FTSE 100 index was down 20.73 points, or 0.3%, at 7,592.16. The mid-cap FTSE 250 index was down 191.16 points, or 0.9%, at 21,165.91. The AIM All-Share index was down 2.81 points, or 0.1%, at 1,053.69.
The Cboe UK 100 index was marginally lower at 756.03. The Cboe 250 was down 0.9% at 18,648.60, and the Cboe Small Companies was down 0.2% 15,504.58.
In Paris, the CAC 40 index was down 1.3%, while the DAX 40 in Frankfurt fell 1.4%.
‘Comments on Tuesday from Federal Reserve Governor Lael Brainard imply the central bank is about to quickly reduce its balance sheet while at the same time aggressively push up interest rates. Her remarks caused a big sell-off in US stocks and that negativity has now spread to Europe and Asia,’ said AJ Bell’s Russ Mould.
‘While investors have been expecting the Fed to do something about inflation for some time, it’s the likely pace of action that really worries the market. Tighten monetary policy too quickly and the economy could fall into recession,’ Mould added.
The dollar was higher across the board in the wake of Brainard’s hawkish comments.
The pound was quoted at $1.3084 at midday on Wednesday, down from $1.3115 at the London equities close Tuesday.
The euro was priced at $1.0906, down from $1.0927. Against the yen, the dollar was trading at JP¥123.98 in London, up from JP¥123.38.
Meanwhile, EU leaders said the bloc will soon have to sanction all of Russia’s hydrocarbon exports as they blamed Moscow for ‘war crimes’ discovered in Ukraine, especially in the town of Bucha.
The declarations, made to the European Parliament in the French city of Strasbourg, came as the EU was poised to implement a fifth round of sanctions cutting off Russian coal imports, while NATO and G7 foreign ministers gathered in Brussels for further steps on coordinated action.
The EU must also impose oil and gas sanctions on Russia ‘sooner or later’, European Council chief Charles Michel told MEPs.
In the FTSE 100, Imperial Brands was the best performer, up 3.2%, after the tobacco maker backed annual guidance and added it forecasts a ‘broadly flat’ first-half revenue performance, with tobacco market struggles in Europe offset by progress elsewhere.
Rival British American Tobacco was up 1.7% in a positive read-across.
Imperial Brands said net revenue for the six months ended March 31 is expected to be broadly flat annually on a constant currency basis, in line with expectations.
Interim adjusted operating profit is expected to grow by around 2% on a constant currency basis, benefiting primarily from reduced losses in the Next Generation Product range, which includes Blu. The tobacco performance, meanwhile, will be weighted to the second half.
In the first half of financial 2021, it reported net revenue of £3.57 billion. For the whole of that year, it reported revenue of £7.59 billion, as well as an organic adjusted operating profit of £3.57 billion.
Imperial said it was on track to deliver full-year results in line with revised guidance issued in March. It forecasts a full-year net revenue performance ranging from flat to 1% growth on a constant currency basis. It expects adjusted operating profit growth of around 1%.
In the FTSE 100, International Consolidated Airlines was among the worst performers, down 3.3%. Airline passengers were hit with further disruption as more than 100 UK flights scheduled for Wednesday were cancelled.
IAG’s British Airways axed at least 78 flights at Heathrow, while easyJet cancelled at least 30 at Gatwick. The aviation industry is suffering from a surge in coronavirus-related staff sickness and a shortage of workers following job cuts made during the virus crisis, in combination with a spike in demand as many families head abroad for the school Easter holiday.
Shares in easyJet were down 2.5%.
Elsewhere in the FTSE 100, ITV was down 2.2%. The Telegraph reported on Tuesday that the broadcaster is interested in launching a bid for soon-to-be privatised Channel 4.
The Telegraph reported ITV has told ministers it would be interested in making an offer for Channel 4, which has an estimated price tag of £1 billion. Channel 4 is to be privatised by 2024. ITV has turned to Credit Suisse and Robey Warshaw as advisers.
No bid has been made yet. The Telegraph noted ITV could face competition from elsewhere. Sky, Discovery and Paramount Global, which already owns Channel 5 in the UK, could all be interested.
Mid-cap Redrow was down 0.7% after the it became the latest housebuilder to sign the UK government’s pledge to for developers fund the remediation of life critical fire safety issues on high-rise buildings.
The housebuilder said that in signing the pledge it will be remediating all the buildings in which it was involved, going back 30 years.
Redrow said this was a ‘highly complex matter’ and the exact remediation work required and for the exact number of buildings would take time to determine. Its existing provision for fire safety in high rise buildings is £36 million, but it now believes an additional provision of £164 million will be required as a result of the pledge.
Hilton Food Group was down 1.4%. The food packaging company said it delivered a strong annual financial performance with volumes and revenue both growing, but profit was hit by exceptional items.
For the year ended January 2, the company generated revenue of £3.3 billion, up 22% from £2.8 billion the year before, driven by growth across proteins and geographies.
However, annual pretax profit was £47.4 million, down 12% from £54.0 million a year ago after exceptional items of £8.2 million. Adjusted pretax profit rose 13% to £67.2 million from £61.1 million.
Elsewhere, Avon Protection was down 23% after the military protection maker warned of lower-than-expected annual earnings after a soft start to its financial year.
Trading in the six months to the end of March saw a continuation of some of the challenges seen last year, it said, but with performance accelerating through the second quarter.
However, the personal protection company said half-year profit was hit by a weaker than expected sales mix and additional manufacturing costs, particularly in the helmets business, due to ‘supply chain and process inefficiencies.’
Profitability is expected to improve in the second half versus the first but still not offset the weakness seen in the first six months of its financial year - and, as a result, full-year underlying earnings will be below previous expectations.
On the economic front, UK construction sector activity remained robust in March against a backdrop of rising inflationary pressures, S&P Global said.
The S&P Global-CIPS UK construction purchasing managers’ index was unchanged at 59.1 points in March, the same as in February. The latest reading signalled the joint-fastest rate of output growth since June 2021.
The eurozone’s construction activity expanded at its slowest pace since October in March, with the sector hurt by rising prices and uncertainty stemming from Russia’s invasion of Ukraine.
S&P Global’s latest construction PMI print for the eurozone fell to 52.8 points in March from 56.3 in February. The figure edged closer to the 50.0 mark which separates expansion from decline, suggesting growth slowed in March.
New York was pointed to a lower open ahead of PMI readings at 1445 BST.
The Dow Jones Industrial Average was called down 0.6%, the S&P 500 down 0.7%, and the Nasdaq Composite down 1.1%, based on futures trading.
Brent was quoted at $107.80 a barrel Wednesday at midday, up from $107.07 late Tuesday. Gold stood at $1,925.35 an ounce, soft from $1,926.80.
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