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(Alliance News) - Stocks in London were lower at midday on Tuesday as investors continued to fret about the prospect of another hefty rate hike from the Federal Reserve following the release of a better-than-expected reading on the health of the US service sector.
"We're very much in looking-glass territory again with investors desperate for the Fed to ease up on rate hikes and therefore taking any bit of good news about the economy as bad news because it will delay the longed-for pivot," said AJ Bell's Russ Mould.
The Fed will announce its next interest rate decision on Wednesday next week. At its last meeting in November, the central bank lifted US interest rates by 75 basis points, in-line with expectations.
Prior to Monday, a smaller 50-basis-point hike had been expected from this month's meeting, after the Fed Chair Jerome Powell last week said the Fed could ease its pace of increases "as soon as" December.
The FTSE 100 index was down 23.23 points, or 0.3%, at 7,544.31. The FTSE 250 was down 117.57 points, or 0.6%, at 19,212.01. The AIM All-Share was down 9.48 points, or 1.1%, at 841.24.
The Cboe UK 100 was down 0.4% at 754.40, the Cboe UK 250 was down 0.8% at 16,598.95, and the Cboe Small Companies was down 0.5% at 13,216.69.
On Monday, the Institute for Supply Management reported that the US service sector picked up in November.
ISM's services PMI rose to 56.5 points last month from 54.4 in October. November's reading came in ahead of consensus of 53.1 points. It was the 30th month of growth for the US service sector, according to ISM.
The data fuelled Fed hawks, with the data hinting, according to Swissquote's Ipek Ozkardeskaya, that economic activity in the US continues to grow "un-ideally faster-than-expected despite the Federal Reserve's efforts to cool it down".
Ricardo Evangelista at ActivTrades agreed: "US PMI data revealed that the country's economy is still running hot, creating scope for more interest rate hikes."
The dollar was mixed at midday on Tuesday. The euro stood at USD1.0516, flat against USD1.0515 late Monday. Against the yen, the dollar was trading at JPY136.34, down from JPY136.42.
The pound was quoted at USD1.2212 at midday on Tuesday in London, up from USD1.2189 at the London equities close on Monday.
Growth in the UK's construction sector slowed by more than expected in November, according to the latest figures from S&P Global.
The S&P Global/CIPS UK construction purchasing managers' index fell to 50.4 in November from 53.2 in October. Falling close to the 50.0 no-change mark, it shows that growth in the sector has slowed to almost a standstill.
The reading came in lower than FXStreet-cited market consensus of 52.0 points.
Meanwhile, the rate of grocery price inflation in the UK has slowed for the first time in nearly two years, the latest market survey from Kantar revealed.
In the four-weeks to November 27, price inflation eased to 14.6% from the record high 14.7% in the four-weeks to October 30. This marked the first slowdown in price rises in 21 months.
In London, Phoenix Group rose 2.9% to the top of the FTSE 100. The insurance services provider said it expects to achieve strong organic growth in 2022, with GBP1.2 billion of new business to be delivered in the year.
Phoenix said its GBP1.2 billion long-term cash generation comprises around GBP900 million from its Retirement Solutions business, and GBP300 million from its Pensions & Savings, Europe and SunLife businesses.
Ashtead was up 0.4% after it reported strong revenue and profit growth in its second quarter. It also raised its interim dividend and upped its rental revenue outlook.
In the three months that ended October 31, the industrial equipment rental company said revenue grew by 28% to USD2.54 billion from USD2.03 billion a year before. Pretax profit jumped 40% to USD658 million from USD474 million.
Ashtead now expects annual results ahead of its previous guidance. "Our business is performing well with clear momentum in robust end markets. We are in a position of strength and, with increased market clarity, have the operational flexibility to capitalise on the opportunities arising from the market and economic environment we face," Ashtead said.
For the whole group, Ashtead expects rental revenue growth of 18% to 21%, up from 15% to 17% previously.
Mondi dropped 4.3%, the worst blue-chip performer at midday after Credit Suisse cut the paper and packaging firm firm to 'underperform' from 'overperform'.
In the FTSE 250, SSP was up 3.4% after it swung to an annual profit and multiplied its revenue due to a recovery in domestic and leisure travel in the aviation and rail sectors.
The travel food and beverage outlet operator said pretax profit for the financial year that ended September 30 was GBP25.2 million, swinging from a loss of GBP411.2 million a year prior. Revenue also multiplied to GBP2.19 billion from GBP834.2 million.
SSP said this was due to a recovery in passenger numbers in airports and rail transport hubs.
Elsewhere in London, Schroder European Real Estate Investment Trust was up 1.3% as the property investor reported a 77% surge in pretax profit to EUR16.6 million for the financial year to September 30 from EUR9.4 million in the prior year.
On AIM, Vela Technologies jumped 17% following the disposal of 568,653 shares in electronic chip maker EnSilica, between May 24 and December 2.
The early-stage investment firm generated GBP349,469 in net proceeds from the disposal, which it said will be used to make further investments.
Gold was priced at USD1,778.30 an ounce at midday on Tuesday, up from USD1,776.79 late Monday. Brent oil was quoted at USD81.46 a barrel, lower against USD84.95.
Oil majors BP and Shell fell 2.2% and 2.0%, respectively, tracking oil's lower price.
In European equities on Tuesday, the CAC 40 in Paris and the DAX 40 in Frankfurt were both 0.3% lower. Stocks in New York were set for a mixed open on Tuesday, with the Dow Jones called 0.1% lower, the S&P 500 called flat, and the Nasdaq called up 0.1%.
Still to come on Tuesday, the US will publish its goods and services trade balance at 1330 GMT. Canada will publish export and import data at the same time.
By Heather Rydings, Alliance News senior economics reporter
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