London stocks fell in early trade on Thursday, taking their cue from downbeat US and Asian sessions following a hawkish update from the Federal Reserve, as investors looked ahead to the latest policy announcement from the European Central Bank.
At 0830 BST, the FTSE 100 was down 0.6% to 7,654.08, while the pound was flat against the euro at 1.1341 and 0.1% firmer versus the dollar
As expected, the Fed hiked interest rates by 25 basis points on Wednesday, for the second time this year. The central bank also upgraded its forecasts for this year and the next and said it expects to deliver another two rate hikes this year and another three next year.
London Capital Group analyst Jasper Lawler said: "Whilst the Fed's second rate rise this year was broadly expected, the central bank's increasingly hawkish tone came as a bit more of a surprise, sending US equities and treasuries lower, whilst also causing a brief spike higher in the dollar. The US economic outlook has improved with the Fed expecting a continued fall in unemployment to 3.5% and a rise in inflation (PCE ) to 2%.
"The upbeat outlook from the Fed, along with the bank's more aggressive stance, of four hikes rather than three previously expected across the year, raised concerns over higher borrowing costs, which dragged the markets lower. These same concerns, coupled with further trade war talk from the White House saw a mixed performance from Asia, whilst Europe is also set for a softer start."
But Neil Wilson at Markets.com said it was disappointing that the long run rate was not increased, "which means the Fed is pulling forward rate hikes earlier without planning to go much further and it therefore moves into contraction territory sooner. This means we could be heading for a recession in the next couple of years."
He noted that the 10-year/2-year US Treasury spread has flattened on the announcement further and is now at a decade low. "This could be the moment in the future that we talk about a 'Fed mistake'."
On the UK data front, retail sales at 0930 BST will be the main event. But investors will also watch for the ECB rate decision at 1245 BST amid expectations that it will make an announcement on quantitative easing tapering.
"It's not a forgone conclusion, but consensus is that the eurozone's shift toward economic normalisation will begin sooner rather than later," said Interactive Investor's head of equity strategy, Lee Wild.
Before that, investors were mulling over the latest RICS survey, which showed that house prices stemmed their declines in May and there were other tentative signs of life in the property market. After falling in April, prices stabilised in May, the survey showed. Estate agents questioned showed a balance of -3% reporting price rises, a broadly flat picture, compared with -7% the month before.
The number of houses put on the market turned positive for the first time in more than two years. The number of new enquiries from potential customers fell but the decline was weaker than earlier in 2018. But RICS said indications of a pickup in activity should be treated with caution.
The survey, one of the most closely watched indicators for the UK property market, showed a varied picture across the country. Prices held steady overall but sales in London and the South East continued to fall. After almost three years of solid increases the South West recorded its second month of falling prices.
In corporate news, consumer products peddler PZ Cussons was firmly in the red after saying in a trading update that pre-tax profit for the full year was likely to be at the lower end of the £80m to £85m range it announced in March.
Anglo American also retreated as it agreed to sell a stake in its Quellaveco copper project in Peru to Mitsubishi Corporation for $600m.
Rathbone Brothers edged down after announcing the acquisition of Scotland's largest independent wealth manager, Speirs & Jeffrey, for an initial cash and shares
consideration of £104m, while Safestore fell following the release of broadly in-line interim results.
On the upside, Rolls-Royce was a high riser after it announced 4,600 job cuts - mainly in the UK - to save £400m a year in the latest round of restructuring under chief executive Warren East. The aero-engine maker will cut support staff and management over the next two years with a third of the jobs disappearing by the end of 2018. The cost of the restructuring will be £500m.
GlaxoSmithKline was on the rise after it said that its two-drug treatment for HIV met its main goal in late-stage studies. Also in the news, Mylan said the US Food and Drug Administration will reject its generic version of Glaxo's blockbuster asthma drug Advair after finding "minor deficiencies".
Aveva surged after its full-year earnings per share came in well ahead of expectations, while Sky nudged higher as Comcast made a $65bn bid to buy 21st Century Fox's entertainment assets overnight, trumping an earlier takeover agreed with Disney for just over $52bn.
Persimmon, WPP, 3i Group, Severn Trent, Mediclinic, NMC Health, UBM, Electrocomponents, Pets at Home, Shaftesbury and Stobart were among the companies whose stock went ex-dividend.
FTSE 100 (UKX) 7,654.08 -0.64%
FTSE 250 (MCX) 21,106.04 -0.60%
techMARK (TASX) 3,557.86 0.11%
FTSE 100 - Risers
Rolls-Royce Holdings (RR.) 853.80p 3.04%
GlaxoSmithKline (GSK) 1,560.80p 1.01%
Paddy Power Betfair (PPB) 8,620.00p 0.64%
Direct Line Insurance Group (DLG) 353.20p 0.63%
Kingfisher (KGF) 311.02p 0.52%
Smurfit Kappa Group (SKG) 2,966.68p 0.36%
Imperial Brands (IMB) 2,599.50p 0.35%
Experian (EXPN) 1,877.00p 0.19%
Sky (SKY) 1,337.44p 0.18%
Carnival (CCL) 4,711.00p 0.08%
FTSE 100 - Fallers
Persimmon (PSN) 2,673.00p -4.74%
Severn Trent (SVT) 1,854.00p -3.99%
3i Group (III) 952.00p -3.43%
WPP (WPP) 1,196.50p -3.12%
Pearson (PSON) 869.40p -2.99%
Antofagasta (ANTO) 1,057.50p -2.22%
Relx plc (REL) 1,621.50p -2.02%
Evraz (EVR) 546.00p -1.90%
Glencore (GLEN) 390.75p -1.82%
BHP Billiton (BLT) 1,722.00p -1.53%
FTSE 250 - Risers
Aveva Group (AVV) 2,810.00p 10.98%
Inmarsat (ISAT) 534.58p 1.98%
Card Factory (CARD) 198.90p 0.96%
Rank Group (RNK) 190.00p 0.96%
Tate & Lyle (TATE) 647.40p 0.68%
Syncona Limited NPV (SYNC) 226.50p 0.67%
Sequoia Economic Infrastructure Income Fund Limited (SEQI) 111.70p 0.63%
Virgin Money Holdings (UK) (VM.) 351.70p 0.60%
Dixons Carphone (DC.) 193.45p 0.60%
Mercantile Investment Trust (The) (MRC) 224.91p 0.54%
FTSE 250 - Fallers
FirstGroup (FGP) 81.10p -4.42%
PZ Cussons (PZC) 222.80p -4.30%
Pets at Home Group (PETS) 121.58p -3.58%
Ted Baker (TED) 2,193.39p -3.46%
Intermediate Capital Group (ICP) 1,129.00p -3.34%
TalkTalk Telecom Group (TALK) 120.10p -2.99%
Templeton Emerging Markets Inv Trust (TEM) 721.60p -2.75%
Electrocomponents (ECM) 736.00p -2.28%
Stobart Group Ltd. (STOB) 257.50p -2.09%
RHI Magnesita N.V. (DI) (RHIM) 4,798.00p -1.96%