London close: Stocks mixed as investors look to Fed

(Sharecast News) - London stocks ended Monday with a mixed performance as investors braced for a week dominated by key interest rate decisions and major corporate earnings.

The FTSE 100 index edged up by 0.02% to close at 8,503.71 points, while the FTSE 250 declined 0.72% to 20,369.50 points.

In currency markets sterling was last down 0.06% on the dollar to trade at $1.2476, as it remained unchanged against the euro, changing hands at €1.1894.

"The Nasdaq 100's near 4% and S&P 500 over 2% pre-market drop, following China's DeepSeek R1 AI, which surpassed ChatGPT as the top free app on the US App Store and apparently cost less than $6m to develop, made investors question lofty US tech valuations," said IG senior technical analyst Axel Rudolph, noting that Nvidia shares sank 13%, erasing $465bn in market value.

"Falling US Treasury yields and bargain hunters helped US indices recover with the Dow flatlining, S&P 500 trading less than 1.5% lower and Nasdaq down less than 2.5% in the end.

"European indices were mixed, some like the FTSE 100, Italian and Spanish stock indices regained all of their Monday losses and ended up in positive territory on the day."

Rudolph said data, including a rise in German business morale and US home sales topping expectations, played second fiddle on a day of high volatility.

"The US VIX volatility index briefly spiked to over 20, as it did in mid-January, before falling back as US indices stabilised amid rapidly falling US 10-year yields which dropped by 12 basis points to 4.5% before recovering.

"The WTI crude oil price dropped by a percentage point, as did the price of gold."

China manufacturing sector contracts, German business sentiment improves

In economic news, China's manufacturing sector contracted in January for the first time in four months, signaling a slowdown in private-sector activity ahead of the Lunar New Year.

Official data showed the manufacturing purchasing managers' index (PMI) fell to 49.1 from 50.1 in December, dipping below the neutral 50 mark and missing analyst expectations for a stable reading.

Weaker demand contributed to the decline, with output, new orders, and purchasing activity all shrinking.

The services sector also showed signs of weakness, with the non-manufacturing PMI easing to 50.2 from December's nine-month high of 52.2.

The overall composite PMI dropped to 50.1, marking the slowest pace of growth since August and falling short of market forecasts.

In Germany, business sentiment saw a modest improvement in January, but companies remained cautious about economic prospects.

The Ifo Institute's business climate index rose slightly to 85.1 from 84.7 in the previous month, surpassing expectations for no change.

While the assessment of current conditions improved, future expectations edged lower.

The manufacturing index continued to show contraction, slipping further into negative territory, while the services sector experienced a modest rebound.

Sentiment in the trade and construction sectors remained weak, reinforcing concerns about the broader economic outlook.

"All told, we continue to expect GDP to expand a little this year as rising real incomes and looser monetary policy give household spending a boost," said Franziska Palmas, senior Europe economist at Capital Economics.

"But with sentiment still weak, the election unlikely to bring with it much fiscal loosening and struggles in industry set to continue, we think growth will remain subdued."

Across the Atlantic, fresh economic data pointed to resilience in key sectors of the US.

The Chicago Federal Reserve's national activity index climbed to 0.15 in December, its highest level in seven months, indicating a slight pickup in economic momentum.

Meanwhile, new home sales rose by 3.6% to a seasonally adjusted annual rate of 698,000, exceeding market forecasts and marking the strongest monthly increase since September.

Investors were now turning their attention to the Federal Reserve's upcoming policy meeting, set to conclude on Wednesday.

Market participants were widely expecting the central bank to hold interest rates steady.

Miners decline on China weakness, British American Tobacco sparks

On London's equity markets, mining stocks declined sharply on the weak economic data from China.

Anglo American fell 6.4%, followed by Glencore, which dropped 3.7%, and Antofagasta, down 3.31%.

Elsewhere, Dr Martens shares slipped 1.59%, despite the boot maker reaffirming its full-year guidance and reporting an increase in revenue.

The company pointed to strong growth in its ecommerce division.

WH Smith ended the session slightly lower, down 0.09%, after giving up earlier gains.

The retailer confirmed it was considering strategic options for its high street stores, including a potential sale, as it continued its transformation into a travel-focussed business.

It emphasised that its travel retail division now contributed the majority of revenue and profit.

Technology-focused investment trusts were among the biggest fallers, with Polar Capital Technology Trust tumbling 7.32% and Allianz Technology Trust down 5.17%.

The declines followed news that Chinese AI firm DeepSeek had launched a low-cost AI assistant, raising concerns over increased competition for Western chipmakers and tech-related investments.

On the upside, British American Tobacco climbed 4.72% after receiving an upgrade to 'buy' from UBS, which cited an improved outlook for the company's earnings and cash flow.

The bank said it expected BAT's Velo nicotine pouches to accelerate sales growth in 'new categories' to 16% in the 2026 financial year, enabling the group to deliver its 2026 outlook.

"Also, there could be flexibility in BAT's 25.5% stake in ITC, for larger buybacks/ debt reduction," UBS said, which could lead to a re-rating.

As a result, it described BAT's estimated 2026 'stub' price-to-earnings of 6.6x as low.

Diversified Energy Company rose 2.59% after announcing the acquisition of Maverick Natural Resources for $1.28bn.

The deal was expected to strengthen its position in major US energy basins, including the Permian and Western Anadarko regions, enhancing its production capabilities and geographic reach.

EasyJet gained 1.21% following a better-than-expected third-quarter earnings report from Ryanair.

Despite ongoing challenges with aircraft deliveries from Boeing, Ryanair's positive results provided a boost to the broader sector.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 8,503.71 0.02% FTSE 250 (MCX) 20,369.50 -0.72% techMARK (TASX) 4,714.27 0.04%

FTSE 100 - Risers

British American Tobacco (BATS) 3,150.00p 4.72% Convatec Group (CTEC) 248.40p 3.76% GSK (GSK) 1,402.00p 3.35% Airtel Africa (AAF) 129.30p 2.62% Unilever (ULVR) 4,643.00p 2.18% Croda International (CRDA) 3,307.00p 2.07% Hikma Pharmaceuticals (HIK) 2,172.00p 1.97% Rentokil Initial (RTO) 386.90p 1.87% Reckitt Benckiser Group (RKT) 5,166.00p 1.85% Schroders (SDR) 339.60p 1.68%

FTSE 100 - Fallers

Anglo American (AAL) 2,382.50p -6.03% Scottish Mortgage Inv Trust (SMT) 1,004.50p -5.15% Glencore (GLEN) 361.50p -3.70% Antofagasta (ANTO) 1,696.50p -3.31% JD Sports Fashion (JD.) 81.38p -3.12% CRH (CDI) (CRH) 7,918.00p -2.87% Rolls-Royce Holdings (RR.) 589.80p -2.61% Ashtead Group (AHT) 5,264.00p -2.55% Halma (HLMA) 2,839.00p -2.51% Intermediate Capital Group (ICG) 2,264.00p -2.16%

FTSE 250 - Risers

Raspberry PI Holdings (RPI) 702.50p 5.72% W.A.G Payment Solutions (WPS) 75.80p 4.41% Ithaca Energy (ITH) 127.20p 2.75% Abrdn (ABDN) 150.50p 2.63% Supermarket Income Reit (SUPR) 67.20p 2.60% Diversified Energy Company (DEC) 1,306.00p 2.59% Vistry Group (VTY) 598.50p 2.21% SThree (STEM) 285.00p 2.15% Johnson Matthey (JMAT) 1,404.00p 2.03% Greggs (GRG) 2,152.00p 1.99%

FTSE 250 - Fallers

Polar Capital Technology Trust (PCT) 356.50p -6.80% Trustpilot Group (TRST) 323.50p -6.37% Allianz Technology Trust (ATT) 422.00p -5.17% Harbour Energy (HBR) 241.50p -4.96% Ninety One (N91) 146.40p -4.81% Oxford Instruments (OXIG) 2,060.00p -4.63% Wood Group (John) (WG.) 67.10p -4.42% Hochschild Mining (HOC) 172.20p -4.23% Bridgepoint Group (Reg S) (BPT) 347.80p -3.98% Bloomsbury Publishing (BMY) 646.00p -3.87%