London: Britain’s main stock index stumbled on Thursday as equities across Europe sold off, with investors positioning for a European Central Bank policy shift following a hawkish outlook from the U.S. Federal Reserve.
The FTSE 100 .FTSE was down 0.5 percent by 1015 GMT, in line with European peers, after Fed policymakers said they expected two additional hikes this year, more than the market had priced in.
Markets were focused on an ECB meeting at which the euro zone’s central bank could announce the timetable for the end of its huge bond-buying programme.
Consumer goods stocks including Diageo (DGE.L) and British American Tobacco (BATS.L) led losses as investors reacted to signs of higher interest rates by shedding the high-dividend yielding “bond proxies”.
“The Fed makes it more likely that the ECB will announce a timetable for tapering, probably no later than December this year. I think people see that not tightening in Europe is not an option,” said Colin McLean, CEO at SVM Asset Management.
Retail sales data for May smashed forecasts as the royal wedding and sunnier weather drove Britons to spend more freely. That boosted sterling, adding extra pressure on the internationally-exposed FTSE 100.
Unilever (ULVR.L) shares fell 3.7 percent, the biggest weight on the FTSE, after the consumer goods giant said it is “extremely unlikely” to stay in the blue-chip index after moving its headquarters to the Netherlands.
In other notable single-stock movers, Rolls Royce (RR.L) shares gained 2.9 percent after the engine maker announced it would cut 4,600 jobs, targeting 400 million pounds of annual savings in a restructuring effort that investors welcomed.
The biggest boost to the index was pharmaceutical company GlaxoSmithKline (GSK.L) which gained 0.7 percent after its two-drug treatment for HIV met its main goal in late stage studies, after regulators warned of possible birth defects from one of the two drugs.
“At face value this is good news as competition in the HIV space has heated up, threatening GSK’s highest-margin business,” said UBS analysts, adding that they needed to see more details on the trial.
Mining stocks weighed after copper prices slipped to a one-week as weaker Chinese data, including industrial output, pointed to lower-than-expected activity last month.
Rio Tinto (RIO.L), Glencore (GLEN.L), Antofagasta (ANTO.L) and BHP Billiton (BLT.L) were among the biggest fallers, down 1.4 to 2.5 percent.
Stocks going ex-dividend - including Persimmon, Severn Trent, Intermediate Capital and WPP - took 4.5 points off the index.
The FTSE 100 outperformed European markets in May, and Bank of America Merrill Lynch’s June fund manager survey showed investors’ underweight in UK stocks fell to its smallest in more than a year.
But the defensive weighting of the FTSE 100 could make it more vulnerable to monetary tightening.
“If we see weakness in bonds as yields rise that’s going to affect more the bond proxies. We’ve tended to avoid some of those higher-yielding stocks more exposed to the tightening cycle,” said SVM’s McLean.
Among mid-caps, Aveva (AVV.L) shares rose 13.4 percent to a record high after the engineering software company reported better full-year results and targeted cost savings of 25 million pounds.
“The first update on financials for the combined pro forma business reads well,” said Investec analysts.