London close: Stocks tumble on Powell comments as GDP stagnates

London markets declined on Friday as investors reacted to hawkish remarks by Federal Reserve chair Jerome Powell made overnight.

The release of data indicating stagnation in the UK economy during the third quarter further contributed to the negative sentiment.

At the close, the FTSE 100 was down 1.28% at 7,360.55 points, while the FTSE 250 declined 1.02%, finishing at 17,853.09.

In the foreign exchange market, sterling was last down 0.16% on the dollar, trading at $1.2203, while it decreased 0.16% against the euro to change hands at €1.1439.

“Following hawkish comments by Fed chair Jerome Powell in which he stated that the central bank remains focused on combating inflation and that he could not guarantee a halt to rate hikes, several Asian and European stock indices slid substantially ahead of the weekend,” said IG senior market analyst Axel Rudolph.

“Despite Thursday’s disappointing US 30-year treasury bond auction driving bond yields higher and US consumer sentiment falling for a fourth straight month, US indices remained in the green.

“The British economy stalled in the third quarter, the weakest performance in four quarters, which provoked a fall in the FTSE 250 and FTSE 100, with the British pound depreciating against its peers ahead of next week’s retail sales, unemployment and inflation data releases.”

Economy stagnates in third quarter, retail sales rise

In economic news, the Office for National Statistics (ONS) reported that the UK economy remained stagnant in the third quarter, defying consensus expectations for a 0.1% contraction.

According to figures released earlier, gross domestic product (GDP) showed no change over the three months leading up to September.

During the period, the services sector saw a 0.1% decline, while construction experienced a modest 0.1% growth, and production remained flat.

For September alone, there was a 0.2% increase in GDP, following a revised-down 0.1% growth in August from the original 0.2%, contrary to economists’ predictions of no growth.

“The economy is estimated to have shown no growth in the third quarter – services dropped a little with falls in health, management consultancy and commercial property rentals,” said Darren Morgan, ONS director of economic statistics.

“These were partially offset by growth in engineering, car sales and machinery leasing.

“In the month of September the economy grew slightly, with increases in film production, health and education … partially offset by falls in retail and computer programming.”

Elsewhere, UK retail sales saw an uptick in the latest industry data report published on Friday.

The BDO high street sales tracker revealed that total like-for-like sales increased by 4.69% in the week ended 5 November.

Within the data, online sales surged by 4.88%, while in-store sales showed a respectable growth of 3.19%.

The figures contrasted with last year’s performance during the same week, which saw marginal growth of just 0.2%.

“Strong results for both in-store and non-store sales helped lift sales in a week that opened with Halloween on Tuesday and closed with the Bonfire Night weekend,” BDO noted.

Diageo tumbles on Latin America warning, oil stocks rise

In equity markets, distilling giant Diageo dropped 13.77% after announcing an expected growth slowdown for the first half.

The company attributed the deceleration to a weaker performance in Latin America and the Caribbean (LAC), which accounts for 11% of group net sales values.

Diageo previously expressed optimism about first-half organic net sales growth, but the LAC region was now projected to experience a decline of more than 20% in organic net sales during the second half compared to the prior year.

“The consumer slowdown is prompting customers to switch to cheaper substitute drinks instead, weighing on Diageo’s branded sales,” said Victoria Scholar, head of investment at Interactive Investor.

“Trading down among consumers is a key risk to Diageo’s strategy, which has been to focus on quality over quantity.

“The economic downturn is likely to mean fewer consumers are willing or able to pay more for expensive high margin premium spirits.”

Elsewhere, Redrow slid 4.31% after the housebuilder warned that full-year sales and profits would likely fall at the lower end of guidance due to a subdued trading period in the autumn.

Various key performance metrics, including the value of reservations, average reservations per outlet, cancellations, selling prices, and the order book, showed a year-on-year deterioration since the start of the financial year on 3 July.

Sector peers Berkeley Group Holdings, Barratt Developments, and Taylor Wimpey also saw declines.

In the mining sector, Fresnillo, Anglo American, and Antofagasta reported losses of 4.6%, 3.33%, and 2.21%, respectively.

The falls resulted from substantial decreases in the prices of precious metals, including gold, silver, copper, and platinum.

Wizz Air Holdings saw a modest decline of 0.63%, following a price target reduction by RBC Capital Markets from 3,400p to 3,200p.

The bank, which rates the stock as ‘outperform,’ cited the adjustment in estimates and price targets after evaluating the first-half results.

“In 2023-2024, we forecast net income of €354m towards the lower end of Wizz Air’s €350m to €400m guided range,” RBC said.

“Our largest downgrades are in 2024-2025, reflecting guidance for flattish capacity.

“We remain outperform; expectations on engine headwinds have been rebased and even a partial margin recovery offers scope for more than 150% potential share price upside.”

On the upside, a handful of companies showed resilience, with oil giants Shell and BP gaining 0.59% and 0.49%, respectively, as crude prices rebounded after recent heavy declines.

Brent crude futures were last up 1.89% to reach $81.53 per barrel, following a four-month low in the previous session.

Defensive stocks were also above the waterline, with British Gas owner Centrica and defence company BAE Systems posting respective gains of 0.4% and 0.96%.

Reporting by Josh White for Sharecast.com.

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