London close: FTSE falls as defence firms, oil majors slump on Ukraine peace hopes

(Sharecast News) - London stocks fell on Tuesday, with oil giants and defence firms pacing the decline amid hopes of a Ukraine peace deal, as the latest UK and US jobs data underpinned rate cut expectations.

The FTSE 100 ended down 0.7% at 9,684.79.

Long-awaited non-farm payrolls data released earlier showed the US economy lost 105,000 jobs in October, while 64,000 were added in November. The latter was slightly higher than consensus expectations for a 50,000 increase.

Meanwhile, the headline unemployment rate rose to a four-year high of 4.6% last month from 4.4% in September.

In the UK, figures from the Office for National Statistics showed the unemployment rate ticked higher in October, in line with expectations.

The estimated UK unemployment rate rose 0.4 percentage points to 5.1%. The inactivity rate dipped 0.1 percentage points to 21%. Wages also continued to grow. Including bonuses, total earnings rose 4.7%, while regular earnings - which exclude bonuses - rose 4.6%.

Both were above consensus, for growth of 4.4% and 4.5%, but down on September's upwardly-revised growth of 4.9% and 4.7% respectively.

The biggest hike in wages was seen in the public sector, where average regular earnings growth was 7.6%, compared to 3.9% in the private sector.

Liz McKeown, director of economic statistics at the ONS, said: "The overall picture continues to be a weakening labour market.

"The number of employees on payroll has fallen again, reflecting subdued hiring activity, while firms told us there were fewer jobs in the latest period."

Elsewhere, a survey showed the UK economy regained momentum in December, boosted by a rebound in manufacturing.

The latest flash UK PMI composite output index from S&P Global came in at 52.1, up from November's 51.2 and ahead of consensus for 51.6. A reading above the neutral 50.0 benchmark suggests growth, while one below it indicates contraction.

The composite is a weighted index of the manufacturing and services PMI, both of which performed better than expected.

The manufacturing output index sparked 1.5 points to 51.8 in December, a 15-month high, while the manufacturing PMI was one point stronger at 51.2, comfortably ahead of forecasts for 50.4.

The UK services PMI business activity index, meanwhile, came in at 52.1, up from 51.3. Overall, the rise in new business was the strongest for 14 months.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "It's a big relief that business confidence has not slumped in a repeat of last year's post-Budget gloom.

"Instead, companies have ended the year on a slightly more optimistic note amid signs of improving demand, now that some of the uncertainty created by the Budget has cleared."

However, he cautioned: "The overall pace of output and demand growth remains lacklustre, and the expansion is still very dependent on technology and financial services actively, with many other parts of the economy struggling to grow or in decline.

"Job losses are also again worryingly widespread, and it remains to be seen whether the uptick in orders during December will persuade more companies to start hiring again."

Dan Coatsworth, head of markets at AJ Bell, said: "A sell-off in the oil market served to pull down the FTSE 100, exacerbated by profit taking in defence contractors.

"Driving the declines was speculation that the Russia-Ukraine war could be near to a resolution. While that would be positive after nearly four years of fighting, it has negative consequences for the oil and defence sectors.

"Brent Crude and West Texas Intermediate oil prices both fell as investors and traders digested the prospect of what might happen to global supplies if sanctions are lifted against Russian assets. Russia has historically been a major source of oil globally, and a peace deal with Ukraine could potentially see more supplies fed into the oil network, acting as a drag on prices. Shares in BP and Shell were in the red as a lower oil price depresses their earnings."

Coatsworth noted that defence stocks began a significant rally when Russia invaded Ukraine in 2022 and said investors might view a peace deal "as the catalyst to lock in their gains on the sector".

As far as the payrolls data is concerned, he said the unemployment rate at a four-year high "could keep the Fed's monetary policy committee awake at night and strengthens the argument for further interest rate cuts in the new year".

In equity markets, defence firms Babcock, BAE Systems and Rolls-Royce all fell amid Ukraine peace hopes, while oil giants BP and Shell gushed lower as oil prices fell for the same reason.

Engine maker Rolls-Royce was also in focus after it announced plans for a further �200m "interim" share buyback programme.

Centrica fell after its subsidiary Spirit Energy agreed to sell its remaining North Sea oil and gas assets to Serica Energy in a �57m deal.

On the upside, budget airline easyJet flew to the top of the FTSE 100, likely on Ukraine peace hopes.

IG Group surged as it extended its share buyback and said it was confident of achieving its medium-term revenue growth targets ahead of schedule.

Market Movers

FTSE 100 (UKX) 9,684.79 -0.68%

FTSE 250 (MCX) 22,049.16 0.00%

techMARK (TASX) 5,530.65 -0.90%

FTSE 100 - Risers

easyJet (EZJ) 512.80p 3.20%

JD Sports Fashion (JD.) 83.18p 2.64%

Fresnillo (FRES) 2,924.00p 2.38%

Convatec Group (CTEC) 234.80p 2.09%

St James's Place (STJ) 1,353.00p 1.81%

3i Group (III) 3,210.00p 1.74%

Associated British Foods (ABF) 2,118.00p 1.39%

Legal & General Group (LGEN) 252.70p 1.36%

Marks & Spencer Group (MKS) 329.10p 1.32%

Diageo (DGE) 1,682.50p 1.20%

FTSE 100 - Fallers

Babcock International Group (BAB) 1,214.00p -3.57%

BP (BP.) 422.50p -3.42%

Informa (INF) 862.60p -3.03%

Metlen Energy & Metals (MTLN) 40.30p -2.77%

Shell (SHEL) 2,626.50p -2.67%

Glencore (GLEN) 373.30p -1.97%

Auto Trader Group (AUTO) 609.40p -1.87%

Melrose Industries (MRO) 550.00p -1.86%

BAE Systems (BA.) 1,664.50p -1.71%

Spirax Group (SPX) 6,650.00p -1.63%

FTSE 250 - Risers

IG Group Holdings (IGG) 1,265.00p 8.49%

B&M European Value Retail S.A. (DI) (BME) 169.60p 3.60%

Greggs (GRG) 1,720.00p 3.49%

Endeavour Mining (EDV) 3,708.00p 2.94%

Johnson Matthey (JMAT) 2,098.00p 2.34%

SSP Group (SSPG) 189.80p 2.26%

PayPoint (PAY) 469.00p 2.18%

Edinburgh Worldwide Inv Trust (EWI) 214.50p 2.14%

Oxford Nanopore Technologies (ONT) 125.60p 2.11%

Tate & Lyle (TATE) 374.20p 1.91%

FTSE 250 - Fallers

Ceres Power Holdings (CWR) 234.20p -12.02%

Polar Capital Technology Trust (PCT) 450.50p -2.38%

Morgan Sindall Group (MGNS) 4,630.00p -2.32%

Allianz Technology Trust (ATT) 514.00p -2.28%

Pacific Horizon Inv Trust (PHI) 734.00p -2.26%

Playtech (PTEC) 281.00p -2.26%

Mony Group (MONY) 184.00p -2.18%

Schroder Asian Total Return Investment Company (ATR) 546.00p -2.15%

Energean (ENOG) 863.00p -2.10%

Chemring Group (CHG) 472.50p -1.97%