(Alliance News) - Stocks in London on Wednesday continued to give back some of the strong gains seen at the start of the week, with rising yields and robust US retail sales prompting caution.
The FTSE 100 index closed down 37.96 points, or 0.6%, at 6,710.90 - nonetheless, the blue-chip index remains 1.8% higher since the week began due to a 2.5% surge on Monday.
The FTSE 250 ended down 266.88 points, or 1.3%, at 21,149.49, and the AIM All-Share closed down 5.14 points, or 0.4%, at 1,223.12.
The Cboe UK 100 ended down 0.5% at 667.43, the Cboe UK 250 closed down 1.0% at 18,696.78, and the Cboe Small Companies ended up 0.4% at 12,814.32.
In European equities on Wednesday, the CAC 40 in Paris ended down 0.4%, while the DAX 30 in Frankfurt ended down 1.1%.
"Rising yields have caught markets off guard today, causing some modest losses across indices, while a stronger reading on US retail sales has also sent some jitters through the investing community," said Chris Beauchamp, chief market analyst at IG.
"The market rally has been built on the twin pillars of low interest rates and fiscal stimulus," said Beauchamp. "Rising rates pose a risk to the former, in the unlikely event the Fed decides to alter its 'lower for longer' approach, while the stronger retail sales data, likely a one off, upsets the idea that the economy is in need of more assistance."
"Neither of these threats is likely to withstand close analysis, but the overstretched nature of the market leaves it vulnerable to these brief outbreaks of nervousness."
US retail sales for January smashed expectations, data showed on Wednesday.
Monthly retail sales surged 5.3% in January, following an upwardly revised 1.0% drop in December. The latest print beat market forecasts of a 1.1% increase.
The Commerce Department said the biggest contributors to the rise came from increases sales at electronics and appliance stores, nonstore retailers - meaning online sales - and furniture shops.
"We expect sales to continue to increase in the coming months as vaccines are more widely administered, state and local governments loosen restrictions, households receive additional income support checks from the government, and the pandemic ebbs. Today's data support our above-consensus forecast of 6.5% real GDP growth in 2021," Berenberg commented.
The dollar strengthened further after the strong retail sales figures.
The pound was quoted at USD1.3845 at the London equities close Wednesday, down compared to USD1.3911 at the close on Tuesday and unable to get a boost from figures showing UK inflation edged higher annually in January, beating analyst expectations.
On an annual basis, UK consumer prices rose 0.7% in January, accelerating from 0.6% in December. The reading beat market consensus, cited by FXStreet, for an 0.5% increase. The ONS said furniture and household goods, restaurants, food, and transport made the largest upward contributions to inflation in January.
The euro stood at USD1.2036 at the European equities close Wednesday, down against USD1.2110 at the same time on Tuesday.
Against the yen, the dollar was trading at JPY105.82, higher compared to JPY105.78 late Tuesday.
Stocks in New York were in the red at the London equities close, with the DJIA down 0.3%, the S&P 500 index down 0.7%, and the Nasdaq Composite down 1.6%.
In London, British American Tobacco weighed on the FTSE 100, closing down 4.0%.
For 2020, the Dunhill cigarette maker posted a pretax profit of GBP8.67 billion, a 9.6% rise from GBP7.91 billion in 2019. Diluted earnings per share on an adjusted basis increased 5.5% to 331.7 pence, from 323.8p the prior year.
Revenue declined by 0.4% to GBP25.78 billion in 2020 from GBP25.88 billion in 2019. On a constant currency basis, revenue rose by 3.3%.
Looking ahead, BAT expects adjusted earnings per share in constant currency to rise by a mid-single figure for 2021, while revenue is set to grow by between 3% and 5%. However, the global cigarette market is expected to be down 3%, while the US market remains dependent on Covid-19 uncertainty.
"Cost cutting was a big contributor to the better-than-expected performance and investors may be concerned about the sustainability of future growth given Covid-19 has served a further reminder of the health risks of smoking," commented AJ Bell investment director Russ Mould.
Hargreaves Lansdown shares tumbled 6.9% after Co-Founder Peter Hargreaves sold GBP300 million shares in the fund supermarket.
Peter Hargreaves - who founded the firm alongside Stephen Lansdown in 1981 - sold 19.5 million shares at GBP15.35 each. Following the GBP300 million bookbuild, he holds just shy of a 20% stake in the FTSE 100 firm.
TP ICAP advanced 3.7% in the FTSE 250. The interdealer broker confirmed the underwriters for its rights issue have secured acceptances for all the remaining shares not originally taken up in the offer.
Underwriters HSBC, BofA Securities, JP Morgan and Peel Hunt procured subscribers for 3.9 million shares at 200 pence per share. This follows TP ICAP netting acceptances for 98.3% of the 225.3 million shares offered in its 2-for-5 rights issue at 140.00p each.
The rights issue will raise about GBP315 million, and proceeds will go towards funding part of the USD575 million acquisition of Liquidnet Holdings, first announced in October.
Precious metals miners Polymetal International and Fresnillo shed 3.6% and 3.1% respectively as the price of gold slid.
Gold was quoted at USD1,774.53 an ounce at the London equities close Wednesday against USD1,803.32 at the close on Tuesday.
"The greenback's upward move has hit the metal on account of the inverse relationship that exists between the markets. For over one month, gold has been trending lower and a break below USD1,764 should put USD1,747 on the radar," commented David Madden at CMC Markets.
Oil was faring better. Brent oil was quoted at USD63.53 a barrel at the London equities close Wednesday, up from USD62.98 late Tuesday.
Madden commented: "The adverse weather in Texas is a factor in the sharp move in the price as the deep freeze prompted the closure of refineries. Overall optimism that demand will increase as economies are slowly re-opened has helped support prices too."
BP shares closed up 0.9%, while Royal Dutch Shell 'A' and 'B' stock both edged up 0.6%.
The UK corporate calendar on Thursday has full-year results from lender Barclays, medical technology firm Smith & Nephew, gold miner Hochschild Mining and recruitment firm Hays.
In the economic calendar for Thursday, there is Irish inflation at 1100 GMT and US initial jobless claims at 1330 GMT.
By Lucy Heming; lucyheming@alliancenews.com
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