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(Alliance News) - Stocks in London returned from the long weekend on Tuesday to close in the red despite spending most of the session in the green, as investors wiped out the morning's gains following selling pressure in the US.
"An upbeat European morning has soon turned swiftly around today, with the afternoon seeing sharp declines across both sides of the Atlantic," senior IG analyst Joshua Mahony said.
"Unfortunately, markets will be at risk for some time yet, with inflationary pressures ensuring that rates remain higher for longer. With Jerome Powell hammering home the point that monetary policy will be utilised to address inflation rather than potential employment or growth concerns, today's 50-year high for German CPI served to highlight the pressure on the ECB when they meet next month."
The FTSE 100 index closed down 65.68 points, or 0.9%, at 7,361.63 on Tuesday. The mid-cap FTSE 250 index ended down 20.07 points, or 0.1%, at 19,149.65. The AIM All-Share index closed down 9.47 points, or 1.1%, at 887.31.
The Cboe UK 100 index closed up 0.9% at 734.73. The Cboe 250 closed flat at 16,441.83 and the Cboe Small Companies closed down 0.6% at 14,039.06.
In mainland Europe, the CAC 40 in Paris was down 0.2%, while the DAX 40 in Frankfurt was up 0.5% on Tuesday.
The picture was not any brighter in the US. Stocks in New York were in the red at the London equities close, with the Dow Jones Industrial Average down 0.8%, the S&P 500 index down 1.0%, and the Nasdaq Composite was down 1.2%.
AJ Bell Investment Director Russ Mould added: "The US Federal Reserve has spent more than a decade trying to fuel inflation with the blunt instruments of interest rates and Quantitative Easing and now it has (over)done it, the central bank seems determined to use the same tools to choke inflation, almost regardless of the damage done elsewhere.
"Fed chair Jay Powell seems to be focusing on inflation alone, and jettisoning prior concerns about unemployment and financial market volatility, so it is no wonder investors are getting jittery."
In London, Bunzl shed 6.1%. This was despite the distribution firm reporting that pretax profit in the six months to June 30 grew 7.6% to GBP296.6 million from GBP275.7 million.
Inflation was "somewhat supportive" to margins, Bunzl said, though the reduction of Covid-19 sales meant they still narrowed to 7.3% from 7.5%. Still, Bunzl now expects its full-year operating margin to be higher than historical levels and only slightly below 2021.
CMC Markets analyst Michael Hewson said: "The share price reaction does seem rather odd given that the company also upgraded its full year guidance compared to its pre-close statement, and expected operating margin to be higher than historical levels.
"Perhaps we can extrapolate some clues from the reaction last week which saw the shares briefly trade at a new record high, before slipping back. Since the start of the year, we've broadly traded in a range between 3,200p and 2,600p for most of this year."
Dechra Pharmaceuticals advanced 2.7%.
It acquired California-based veterinary pharmaceutical manufacturer Med-Pharmex for USD260.0 million. Med-Pharmex has been a "long-term acquisition target", it said, and will bolster Dechra's operations in the US.
Pub groups Marston's and Wetherspoons had a rough session, closing down 1.7% and 0.2% but recovered from being down 1.1%, after six of the UK's biggest pub and brewing firms said some pubs had seen a more than 300% hike in bills this year, as part of a wider cost of living crisis.
The brewers – Greene King, JW Lees, Carlsberg Marston's, Admiral Taverns, Drake & Morgan and St Austell Brewery – urged the government in an open letter to extend the cap to businesses.
The British Beer & Pub Association, an industry body, said energy price rises, caused by hikes in wholesale costs and a squeeze on supplies due to the war in Ukraine, could damage the sector more than the pandemic if nothing is done.
CMC's Hewson added: "This would not only see a huge rise in unemployment but also seriously impact the hospitality industry more broadly with restaurant closures also likely.
"This would be a serious dereliction of duty on the part of politicians if this were to happen given how important pubs are in some areas of the country, and their communities. Marston's shares have slipped to two-year lows, while Wetherspoon is also lower, and back at levels last seen in March 2020."
On AIM, Diurnal Group shares more than doubled after it agreed to a GBP48.3 million takeover from US biopharmaceutical firm Neurocrine Biosciences.
Under the cash acquisition, Diurnal shareholders will be entitled to receive 27.5 pence for each Diurnal share. This is more than double the 11.25p Diurnal closing price on Friday. The stock was quoted at 26.25p at the close on Tuesday.
The takeover is conditional on the approval of Diurnal shareholders. Diurnal directors consider the terms "fair and reasonable" and have unanimously recommended the offer.
Sterling was quoted at USD1.1662 on Tuesday evening, lower than USD1.1764 at the London equities close on Friday. The pound was on the back foot on Tuesday.
"The pound has continued to struggle, hitting its lowest level since March 2020 for the second day in succession. Sterling has become a bit of a whipping boy in recent days from the big US banks who appear to be indulging in punishment beatings when it comes to a new game called 'guess how high UK CPI can go'," CMC's Hewson said.
"Yesterday it was the turn of Goldman Sachs, after Citigroup last week, with the US bank saying that headline inflation could rise as high as 22.4%, if gas prices remain elevated, while also revising upward the likelihood of a more severe UK recession."
The euro traded at USD1.0022, up against USD0.9997 late Friday. Against the yen, the dollar was quoted at JPY138.75, up from JPY137.31.
Gold was quoted at USD1,725.60 an ounce, lower than USD1,736.54 on Friday. Brent oil was trading at USD99.99 a barrel, up from USD99.59 late Friday but some way off a morning high above USD105 a barrel.
The international economic calendar on Wednesday has UK BRC shop price index and Japanese industrial production overnight, followed by China's manufacturing PMI. In the morning, there is German import prices and unemployment alongside France inflation data. At 1000 BST, there is eurozone inflation figures, then at 1315 BST there is US ADP employment data.
The local corporate calendar has interim results from Bank of Cyprus, BBGI Global Infrastructure, Irish hotel operator Dalata Hotel Group and insurance company Chesnara.
By Paul McGowan; paulmcgowan@alliancenews.com
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