European equities moved lower on Monday, missing a spark from New York, and as investors eagerly anticipate a week of UK data that could be key for the Bank of England interest rate outlook.
The FTSE 100 index closed down 30.02 points, 0.4%, at 7,594.91. The FTSE 250 ended up just 3.22 points at 19,200.84, and the AIM All-Share closed down 1.69 points, or 0.2%, at 747.37.
The Cboe UK 100 ended down 0.5% at 758.07, the Cboe UK 250 closed down 0.3% at 16,615.72, and the Cboe Small Companies ended 0.2% lower at 15,062.74.
The downbeat mood was replicated in Europe, with the CAC 40 in Paris down 0.7% and the DAX 40 in Frankfurt 0.5% lower.
The falls in London came with US markets closed for Martin Luther King Jr Day and ahead of a key week of economic data releases.
Joshua Mahony at Scope Markets pointed out this week sees ‘a deluge of data’ headed up by Wednesday’s UK inflation readout.
‘Wage data due on Tuesday provides a reminder over the elevated underlying pressures being felt by UK businesses,’ with the 7.3% average earnings figure seen last time around standing in stark contrast to the 3.9% consumer price index figure from November, he noted.
This week sees an inflation reading on Wednesday plus unemployment and average earnings data on Tuesday.
Goldman Sachs expects Tuesday’s November labour market report to show the unemployment rate remaining at 4.2% and three-month year-over-year private sector regular pay growth moderating to 6.7% from 7.3% in October.
Goldman thinks Wednesday’s inflation print will show services and core inflation declining to 5.9% year-on-year, and 4.8% year-on-year, respectively.
Taken together with further declines in food and energy inflation, it expects headline inflation to moderate to 3.6% year-on-year, well below the Bank of England’s November projection of 4.6%.
Looking ahead, given the significant decline in energy prices over the past few weeks, Goldman now expects headline inflation to fall below the BoE’s 2% target in April, and end the year at 1.8%, down from a previous prediction of 2.4%.
The pound was quoted at $1.2734 at the London equities close Monday, down compared to $1.2760 at the close on Friday. The euro stood at $1.0950 at the European equities close Monday, down against $1.0971 at the same time on Friday. Against the yen, the dollar was trading at JP¥145.77, up compared to JP¥144.62 late Friday.
The fall in the euro came despite hawkish rhetoric from European Central Bank Governing Council member Robert Holzmann.
Holzmann said in an interview in Davos, Switzerland, where he’s attending the World Economic Forum that it is ‘much too early’ to talk about trimming borrowing costs.
‘Once such a date would be set, it would trigger immediately a dynamics which we cannot control,’ he added.
‘And with all the knowledge we currently have, it would not be honest to do it because we don’t know how inflation will develop.’
In the FTSE 100, Flutter Entertainment was the biggest riser, up 2.4%, and Ocado a big faller, down 4.5%. Both will issue trading updates this week, the bookmaker on Thursday, and grocer and warehouse technology firm Ocado on Tuesday.
Burberry suffered again, with shares down 5.1% as analysts reacted to Friday’s profit warning.
The luxury goods manufacturer cut its forecast for adjusted operating profit for the financial year ending March 30 to be in the range of £410 million to £460 million. The latest guidance would at worst represent a decrease of over a third from the £634 million achieved in financial 2023.
Back in November, it had guided for profit towards the lower end of the consensus range at that time of £552 million to £668 million.
Goldman Sachs downgraded the company to ’neutral’ from ’buy’ while UBS, JPMorgan, Morgan Stanley and Deutsche Bank were among those lowering price targets.
Lloyds Banking Group fell 2.5% after it was seen as facing the largest monetary hit among UK banks from the review of motor finance, being undertaken by the Financial Conduct Authority.
Barclays suggested a potential provision range of £500 million to £1.0 billion for Lloyds, while RBC Capital Markets put the figure at £1.2 billion.
Bank of America downgraded Lloyds to ’neutral’ from ’buy’.
While RBC said Lloyds could see the largest absolute impact from the FCA review, Close Brothers could see the largest relative impact at around 120 basis points of capital.
‘Any action taken here could have implications for [Close Brothers Group’s] go forward [net interest margin] NIM, with premium financing making up around 10% of the banking loan book,’ RBC said.
Shares in Close Brothers fell 2.6%.
Another bank on the wane was HSBC, falling 2.3%, downgraded by Exane BNP to ’underperform’ from ’neutral.’
Shares in Crest Nicholson eased 1.1% after it lowered its profit outlook.
The housebuilder said it had identified ‘further additional costs’ associated with its Brightwells Yard, Farnham project, as well as other legacy sites which will impact results.
Based on this, Crest Nicholson now expects pretax profit in its financial year to October 31 to be £41 million. In November, the company had guided pretax profit to be between £45.0 million and £50.0 million for the financial year ended October 31, having guided for £50.0 million in August. In financial 2022, the company reported pretax profit of £137.8 million.
On AIM, Fevertree Drinks fizzed 4.9%, supported by positive comments from Liberum Securities.
The broker upgraded the London-based drinks maker to ’buy’ from ’hold’ and increased its price target to 1,300p from 1,200p.
‘Despite the ’bad news’ maybe not being over, the valuation.....looks reasonable. For those wanting to build a position, now is the time,’ the broker commented.
Brent oil was quoted at $78.09 a barrel at the London equities close Monday, down from $78.65 late Friday.
Gold was quoted at $2,053.53 an ounce at the London equities close Monday, little changed from $2,053.68 at the close on Friday.
In Tuesday’s UK corporate calendar, trading statements are due from Experian, Ocado, Rio Tinto and Wise Group.
The economic calendar for Tuesday has the UK unemployment figures at 0700 GMT.
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