London stock prices recovered as the morning progressed on Monday, as investors came to terms with the prospect of continued aggressive rate hikes by the US central bank.
The FTSE 100 index was down 22.82 points, or 0.3%, at 6,968.27. It had been 1.0% lower earlier on Monday.
The FTSE 250 was down 151.90 points, 0.9%, at 17,201.38. The AIM All-Share was down by 7.25 points, or 0.9%, at 802.97.
The Cboe UK 100 was down 0.3% at 696.07, the Cboe UK 250 fell 0.7% at 14,720.55, and the Cboe Small Companies was down 0.3% at 12,587.09.
In mainland Europe, the CAC 40 in Paris was down 0.4%, though the DAX 40 in Frankfurt was 0.4% higher.
Friday's US nonfarm payrolls report put paid to any hopes that the Federal Reserve will slow its pace of interest rate hikes. Equity market investors hoped US jobs growth would fall short of estimates and stay the Fed's hand.
Employment growth topped expectations, however, giving the Fed the impetus to add to its run of hefty rate hikes.
According to CME's FedWatch tool, which tracks interest rate probabilities, the market now thinks there is an 80% likelihood of a fourth successive 75 basis point rate hike early next month.
On Wednesday, minutes from the Fed's last meeting are released. On Thursday, the US consumer price index is out. The annual inflation rate is expected to slow to 8.1% in September from 8.3% in August. A higher-than-expected figure will likely spook markets further.
‘With inflation still running hot in most...advanced economies, the immediate focus will be on continuing to deliver jumbo rate hikes in the months ahead. The pivot will come, but it won't be until 2023,’ said Neil Shearing, chief economist at Capital Economics.
The next Federal Reserve interest rate decision is on November 2.
A few days before that, the UK government will take centre-stage again.
UK Chancellor Kwasi Kwarteng has bowed to pressure to bring forward the publication of his financial strategy and independent economic forecasts - to Halloween.
Completing another U-turn, Kwarteng agreed to set out his medium-term fiscal plan alongside Office for Budget Responsibility predictions on October 31.
The chancellor had been resisting setting out the details ahead of November 23 after he set out his multibillion-pound package of tax cuts to be paid for by borrowing.
The last big fiscal policy announcement, the mini-budget, spooked markets last month. It forced the Bank of England to intervene in bond markets.
The BoE on Monday doubled the size of that temporary bond-buying programme, but affirmed that it will end on Friday. The bank doubled the size of daily auctions to a maximum of £10 billion, from £5 billion before.
Following the announcement of the mini-budget last month, and the turmoil that ensued, the Bank of England decided to buy up long-dated UK government bonds, or gilts.
The dollar continued to rise following Friday's jobs report. The pound fell to $1.1052 midday Monday in London from $1.1130 late Friday. The euro declined to $0.9698 from $0.9779. Against the yen, the dollar was trading at JP¥145.52, up from JP¥145.15.
On the London Stock Exchange, DS Smith shares jumped 11%. It was the best large-cap performer heading into Monday afternoon.
The packaging firm lifted annual guidance, hailing ‘effective cost mitigation’.
DS Smith expects adjusted operating profit of £400 million in the six months to October 31, up 45% from £276 million a year earlier.
For the full year, DS Smith's performance is ‘expected to be ahead of our previous expectations’.
Peers Smurfit Kappa and Mondi were up 6.2% and 4.9% in a positive read across.
Moneysupermarket.com climbed 7.9%. RBC raised its recommendation for the price comparison site to 'outperform' from 'sector perform'.
Elsewhere in London, Evgen Pharma was the standout performer on AIM, jumping 65%.
It has signed a licencing deal for the global rights to its lead asset SFX-01 in neurodevelopmental disorders and schizophrenia.
The clinical stage drug development company said the deal with Swiss biotechnology company Stalicla may be worth as much as $160.5 million.
According to the terms of the licencing deal, Evgen will receive $500,000 upfront, followed by a further $500,000 on completion of the fully financed phase one study.
Up to commercial launch, milestone payments are $26.5 million, including $5.0 million once the US Food & Drug Administration has granted investigational new drug status, anticipated in late 2023.
Total milestones of $160.5 million are payable to Evgen in relation to the first neurodevelopmental disorder indication under the licence.
Evgen has a market capitalisation of just under £13 million.
Gold fell to $1,678.84 an ounce midday Monday from $1,702.27 at the time of the London equities close on Friday. Brent oil was quoted at $97.33 a barrel, up from $97.09 a barrel late Friday.
Stocks in New York were called lower on Monday, having suffered a sell-off on Friday. The Dow Jones Industrial Average was called down 0.1%, the S&P 500 down 0.3%, and the Nasdaq Composite down 0.4%.
The US third-quarter earnings season kicks off this week, with numbers from PepsiCo, BlackRock, JPMorgan Chase and Wells Fargo due.
‘Earnings from PepsiCo on Wednesday, Walgreen Boots Alliance and Delta Airlines on Thursday, and then a slew of megabanks on Friday, kick-off the third-quarter results season in the USA and wobbling stock markets will be looking for reassurance that corporate profits are holding up,’ AJ Bell analyst Russ Mould commented.
‘After recent stink-bombs from Nike, Seagate, Micron, AMD and Hasbro, to name but five, such reassurance may be hard to find and analysts' overall profit forecasts for the S&P 500 continue to fall.’
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