London stocks slipped on Wednesday following an unexpected drop in UK manufacturing and a sharp fall in construction output, as the bright spot of Tesco's results was overshadowed by investor caution over geopolitical tensions and ahead of the release of the Federal Reserve meeting minutes.
“Threats of military action have driven gold and oil higher this afternoon, as Trump takes to Twitter to engage in his usual delicate diplomacy. The world is now on notice for US, and potentially allied, military strikes in Syria, as the US attempts to take action for chemical warfare attacks. With Russia having pledged itself to the defence of Syrian bases, it looks like we have the makings of a confrontation,” said Chris Beauchamp at IG.

“Even if no Russian response is forthcoming to any possible US strike, it looks like relations between the two powers have hit a new low. Trade wars now seem quite petty compared to the prospect of conflict, but the limited reaction in equities might suggest the market is not prepared to 'sell the rumour and buy the fact' just yet.”

Against that backdrop, the FTSE 100 closed down by 0.13% or 9.61 points to 7,257.14, while the pound was off 0.05% against the euro at 1.1469 but 0.14% firmer versus the dollar at 1.4195.

Feeding off of the heightened tensions in the Middle East, front month Brent crude oil futures were higher by 1.77% to $72.32 a barrel on the ICE, alongside a 1.17% advance for US gold futures.

Back in the UK, the big economic news was the data released mid-morning by the Office for National Statistics showing UK manufacturing output growing at the slowest rate since last summer.

UK industrial production rose 0.1% in February compared to January, well short of the 0.4% growth the market had expected and sharply lower than the 1.3% seen at the start of the year.

The reason for the slowdown was a 0.2% month-on-month fall in manufacturing production, undershooting forecasts for 0.2% growth and the 0.1% reported a month earlier. Compared to February last year, manufacturing production was up 2.5% when economists had pencilled in a 3.3% rise.

IP was only in positive territory boosted by growth in the energy supply sector due to the colder than normal weather. Compared to last year, February's IP fell short of expectations, up 2.2% versus the 2.9% predicted, but higher than the revised 1.2% in January.

Economist Samuel Tombs at Pantheon Macroeconomics said the poor manufacturing output was consistent with the message from the Markit and CBI surveys that growth has slowed this year.

“Total production likely will rise in March; we have pencilled in a 0.4% month-to-month gain,” he said, noting average temperatures were even further below their seasonal norm in March than in February, with mining and quarrying output likely to have rebounded.

Meanwhile, UK construction output was down 1.6% on the month in February, which was better than the revised 3.1% drop the month before but much worse than the 0.9% increase expected.

On the year, construction output was down 3%, which was worse than the 2.5% drop predicted and the previous month's revised 2.1% fall.

The biggest decline was seen in repair and maintenance work, with private housing and infrastructure new work providing the only positive contributions to growth. Private hosing grew by £232m in February, while infrastructure work increased by £60m.

For later in the day, the big focus will be the release of the Fed's minutes from the 20-21 March meeting, as investors try to gauge how many rate hikes we will see this year.

In corporate news, Tesco was the standout gainer after it declared its first year-end dividend since 2014 as it reported a 28% rise in underlying operating profits thanks to improved margins and surging cash generation.

Webuyanycar.com owner BCA Marketplace surged as it said full year trading was ahead of expectations with “strong profit growth and with a net debt position lower than market forecasts”.

Vedanta Resources gained as it posted a 3% jump in fourth-quarter average gross production.

On the downside, Hammerson fell after saying it had received and rejected a second bid from French shopping mall owner Klépierre. The revised offer, made on April 9, was 635p a share, made up of 50% in new Klépierre shares and the rest in cash.

Retirement housebuilder McCarthy & Stone dropped after reporting a 52% decline in half-year pre-tax profit, while recruiter PageGroup retreated despite delivering record quarterly gross profit, as the UK was a sore spot.

Budget airline EasyJet shares flew lower after saying on Tuesday that it had submitted a revised expression of interest for a restructured Alitalia as part of a consortium.

In broker note action, Man Group and Hargreaves Lansdown were upgraded to 'buy' and 'hold', respectively, by Jefferies.

Ophir Energy was lifted to 'overweight' at Barclays, while Premier Oil was upgraded to 'equal-weight'.

British Gas owner Centrica was hit by a downgrade to 'reduce' from 'hold' at HSBC.

Market Movers

FTSE 100 (UKX) 7,257.14 -0.13%
FTSE 250 (MCX) 19,654.96 -0.10%
techMARK (TASX) 3,355.25 -0.28%

FTSE 100 – Risers

Tesco (TSCO) 225.40p 7.18%
Fresnillo (FRES) 1,285.50p 3.63%
Randgold Resources Ltd. (RRS) 5,876.00p 2.62%
GKN (GKN) 434.50p 2.00%
Intertek Group (ITRK) 4,805.00p 1.80%
Paddy Power Betfair (PPB) 7,230.00p 1.76%
Morrison (Wm) Supermarkets (MRW) 228.80p 1.51%
Evraz (EVR) 394.60p 1.26%
Hargreaves Lansdown (HL.) 1,690.00p 1.20%
Scottish Mortgage Inv Trust (SMT) 448.20p 1.17%

FTSE 100 – Fallers

Coca-Cola HBC AG (CDI) (CCH) 2,510.00p -4.42%
Centrica (CNA) 138.90p -2.56%
Carnival (CCL) 4,501.00p -2.15%
International Consolidated Airlines Group SA (CDI) (IAG) 616.00p -1.85%
easyJet (EZJ) 1,609.50p -1.80%
NMC Health (NMC) 3,374.00p -1.75%
Shire Plc (SHP) 3,589.50p -1.74%
InterContinental Hotels Group (IHG) 4,251.00p -1.67%
Croda International (CRDA) 4,599.00p -1.58%
Informa (INF) 720.00p -1.53%

FTSE 250 – Risers

FirstGroup (FGP) 101.80p 7.38%
Tullow Oil (TLW) 218.60p 6.89%
BCA Marketplace (BCA) 173.40p 6.12%
Vedanta Resources (VED) 745.80p 5.40%
Inmarsat (ISAT) 368.70p 4.63%
Hunting (HTG) 708.00p 3.89%
Card Factory (CARD) 222.00p 3.74%
Cairn Energy (CNE) 225.00p 3.40%
Daejan Holdings (DJAN) 5,880.00p 3.16%
Petrofac Ltd. (PFC) 558.60p 3.10%

FTSE 250 – Fallers

Ferrexpo (FXPO) 217.80p -5.14%
Ted Baker (TED) 2,632.00p -4.78%
McCarthy & Stone (MCS) 132.00p -3.72%
Capita (CPI) 140.00p -3.45%
TBC Bank Group (TBCG) 1,798.00p -3.33%
Hikma Pharmaceuticals (HIK) 1,191.00p -3.33%
Ultra Electronics Holdings (ULE) 1,348.00p -3.08%
Sanne Group (SNN) 603.00p -2.89%
CYBG (CYBG) 301.60p -2.77%
Drax Group (DRX) 289.00p -2.76%


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