London Midday: Stocks Fall as Banking Sector Hit; US PCE Eyed

Warren Takunda

Summary:

London stocks fell on Friday, led by banks after a think tank floated the idea of a windfall tax on the sector, dragging the FTSE 100 down 0.3%. NatWest, Lloyds and Barclays were the biggest losers, while business confidence rose despite weaker economic optimism.

London stocks had fallen further by midday on Friday, with banks under the cosh after a think tank raised the possibility of a potential windfall tax on the sector, as investors eyed the latest US PCE inflation numbers.

The FTSE 100 was down 0.3% at 9,193.59.

Russ Mould, investment director at AJ Bell, said: "The UK stock market ended the week on a sour note amid suggestions that the government could help to fill its fiscal hole with a new tax on the banking sector.

"Some of the biggest names in the FTSE 100 are lenders so if they’re out of favour on the stock market, it acts as a drag on the whole UK blue-chip index.

"NatWest, Lloyds and Barclays were the FTSE 100’s biggest fallers on Friday morning as investors wondered if the era of bumper profits, dividends and buybacks is now under threat.

"These companies have enjoyed a strong run on the stock market in recent years, and they’ve also played an important role in lending money to small and large businesses which helps to create jobs and support the UK economy.

"The timing of the tax debate, fuelled by a report from think-tank IPPR, is unfortunate given it coincides with a new poll from Lloyds suggesting a rise in business confidence, despite cost pressures. This positive sentiment could be threatened if businesses take the view that a new tax on banks might force lenders to tighten their lending criteria."

Away from banks, engineering and consulting business Wood Group was in focus after selling its transmission and distribution division in North America as it sheds non-core businesses ahead of its possible takeover by Sidara.

North America T&D, which provides power infrastructure engineering for substations, transmission, distribution and renewable generation across Canada and the US, is being sold to Qualus for $110m.

Investors were also mulling the latest Lloyds Business Barometer, which showed that business confidence rose in August despite a drop in economic optimism.

The index of business confidence ticked up two points to 54% this month, marking the fourth consecutive monthly increase.

Economic optimism edged down for the first time since April, however, with a three-point decline to 44%, but it remains above the long-term average of 19%.

Lloyds said the increase was driven by a five-point rise in businesses confidence in their trading prospects to 63 - the highest level since 2014.

Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said: "This continued upward trend in business confidence suggests UK firms remain optimistic about their own trading prospects while there is a modest cooling of confidence in the wider UK economy.

"Firms are focusing on what they can control, with many looking to pursue growth opportunities, including entering new markets and adopting new technologies. Wage expectations have seen a notable shift this month, but it remains to be seen whether this signals the start of a sustained trend or a temporary uplift, as they have been broadly stable in recent months."

Looking ahead to the rest of the day, attention will turn to the US PCE numbers for July, due at 1330 BST.

Mould said: "Inflation data will take centre stage later today across the pond. The core PCE price index is the Federal Reserve’s preferred method of measuring inflation in the US economy. The consensus forecast is for inflation to stay level at 0.3% month-on-month for July.

"Fed chair Jerome Powell has already indicated that the central bank has had a slight shift in thinking, with the market now expecting an 85% chance of a 25-basis point interest rate cut at September’s meeting. Today’s inflation figure will play a crucial role, alongside jobs data, in determining whether the Fed cuts at this meeting, and if so, by how much."

Source: Sharecast

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