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(Alliance News) - Stocks in London ended lower on Tuesday as investors bet on imminent moves by the US Federal Reserve to tighten monetary policy.
The yield on the US ten-year Treasury note stood at 1.83% on Tuesday afternoon, moving to its widest point in two years from 1.79% at the same time on Friday.
The FTSE 100 ended down 47.68 points, 0.6%, at 7,563.55. The mid-cap FTSE 250 index closed down 218.93 points, or 1.0%, at 22,652.71. The AIM All-Share index lost 12.11 points, or 1.0%, at 1,154.64.
The Cboe UK 100 index closed down 0.5% at 751.63 points. The Cboe 250 ended down 1.2% at 20,259.78, and the Cboe Small Companies finished flat at 15,839.91.
The CAC 40 stock index in Paris closed down 0.5%, while the DAX 40 in Frankfurt shed 1.0%.
"Equities are under pressure as the rise in US government bond yields suggests the markets are pricing-in an interest rate hike from the Federal Reserve. In recent weeks, there has been growing speculation the US central bank will hike rates three or possibly four times in 2022. The US 10-year yield was above 1.83% today, its highest level in two years. It was the fresh multi-year high in the yield that sparked today's wave of selling in stocks," explained Equiti Capital analyst David Madden.
"The upward move in yields is not just confined to the US, as the UK 10-year gilt yield hit a three-month high, and the German bund yield reached its highest level since 2019. The increase in yields across the board is an indication that we are moving closer to a period of tighter monetary policy," Madden added.
In the FTSE 100, BT Group ended up 3.1% after Goldman Sachs promoted the telecommunications firm to its Conviction Buy List.
Vodafone Group closed up 2.2%. Vodacom Group announced on Tuesday its shareholders had approved the proposed acquisition of a 55% stake in Vodafone Egypt from Vodafone Group PLC.
Vodafone Egypt is 55% held by Vodafone and provides telecommunication services in Egypt to around 43 million customers. The remaining 45% is held by Telecom Egypt.
At a general meeting held on Tuesday, up to 99% shareholders voted in support of the proposed USD2.74-billion acquisition.
Vodacom will fund 80% of the acquisition through the issue of 242.0 million new shares at a price of ZAR135.75 each, which will increase Vodafone's shareholding in Midrand-based Vodacom from 61% to 65%.
The remaining USD548 million is to be settled through cash.
Oil majors ended in the green after oil prices hit multi-year highs. BP closed up 0.5%, while Royal Dutch 'A' and 'B' shares gained 1.6% and 1.5% respectively.
Brent oil was quoted at USD87.22 a barrel at the equities close, up sharply from USD86.01 at the close Monday. The North Sea benchmark touched an intraday high of USD88.13 in early trade - its highest level since 2014.
In the FTSE 250, Just Group ended the best performer, up 8.2%. The retirement specialist said its retirement income jumped in 2021, hailing a "buoyant" pension de-risking market.
The company said retirement income sales surged 25% to GBP2.67 billion in 2021. They were boosted by defined-benefit de-risking sales jumping 28% to GBP1.94 billion.
Elsewhere, THG shares slipped 9.6% to take the Manchester-based firm's 12 month decline to 78%.
The latest fall was due to a margin warning on Tuesday. The online retail platform operator reported strong revenue growth last year, but flagged a margin hit from foreign exchange movements and slower sales growth in the year ahead.
Fourth-quarter revenue was GBP711.7 million, up 27% on a year ago and nearly double on a two-year basis. For 2021 as a whole, revenue rose 35% to GBP2.18 billion.
However, the beauty products retailer's full-year adjusted earnings before interest, tax, depreciation and amortisation margin is expected to be in the range of 7.4% to 7.7%, compared to market expectations of around 7.9%, after taking into account 90 basis points of adverse foreign currency movements, it said.
For 2022, the margin is expected to improve throughout the year, and revenue growth is seen in a region of 22% to 25% at constant currencies, slowing from the 38% achieved in 2021.
Sterling showed little reaction to upbeat economic data which saw the UK unemployment rate falling in November, according to the Office for National Statistics.
The pound was quoted at USD1.3583 at the London equities close, down from USD1.3650 at the close Monday.
The UK unemployment rate unexpectedly edged down to 4.1% in the three months to November, having been forecast by analysts to remain steady at 4.2% for the three months to October.
The jobless rate remains 0.1 percentage point above pre-virus levels, but was 0.4 percentage point below the previous three-month period, which ran to August.
Annual growth in total pay - or including bonuses - was 4.2% for the three months to November, and regular pay, which strips out bonuses, rose 3.8%. Both were below the annual UK inflation rate for November, which was 5.1%.
These wage growth figures were as expected and marked a slowdown from the previous month, when growth had been 4.9% and 4.3% respectively.
Commenting on the market reaction to the data, Shane O'Neill, head of Interest Rate Trading for Validus Risk Management, said: "This number, though positive, will be taken with a pinch of salt - it predates both the Bank of England rate hike and the onset of Omicron, which caused significant economic scarring. It will serve as partial confirmation that the decision to hike rates in December was the right course of action, though the true test for this will be post-Omicron data.
"This data point is further evidence that any nerves surrounding post-furlough employment were unfounded as the labour market continues to tighten. These figures represent another box ticked on the path to more rate hikes, the first of which is expected as early as February."
The euro stood at USD1.1335 at the European equities close, down from USD1.1405 late Monday. Against the yen, the dollar was trading at JPY114.61, unmoved from JPY114.60 late Monday.
Stocks in New York were firmly in the red at the London equities close having been shut on Monday for Martin Luther King Jr Day.
The DJIA was down 1.5%, the S&P 500 index down 1.5% and the Nasdaq Composite down 1.7%.
Dow member Goldman Sachs sank 7.8% as the bank reported record annual earnings but fourth-quarter profit missed expectations due to higher costs associated with staff retention.
Activision Blizzard surged 29% after software provider Microsoft announced a USD69 billion deal to purchase the 'Call of Duty' video game publisher. Microsoft dipped 0.2%.
Gold stood at USD1,812.88 an ounce at the London close, lower against USD1,818.80 late Monday.
The economic events calendar on Wednesday has UK inflation data and ONS house price index readings at 0700 GMT and 0930 GMT respectively.
The UK corporate calendar on Wednesday has trading statements from education publisher Pearson, pub chain JD Wetherspoon and construction firm Galliford Try. Fashion house Burberry Group posts third-quarter earnings.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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