LONDON MARKETS: FTSE 100 Drops On Worries About Consumers, Skepticism Over Fed Outlook

By Carla Mozee, MarketWatch Features Dow Jones Newswires

Bank of England decision on deck

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U.K. stocks fell Thursday, as sluggish signs from consumers here and abroad raised questions about the Federal Reserve's policy outlook and what's next for Bank of England policy at a time of rising inflation and political uncertainty in Britain.

The FTSE 100 fell 0.7% to 7,423.67. The financial sector turned higher but all others remained lower, led by basic materials and consumer services stocks.

Much of the sour mood across Europe stems from worries about slowing consumer demand both in the region and in the U.S. In Britain, retail sales released Thursday dropped by more than expected in May. In the U.S., there's been an increase in weekly gasoline supply just as the summer driving season gets underway.

Central bank watch: Investors will watch what the Bank of England may say about the state of the British economy when it releases its latest policy decision at 12 p.m. London time. On Thursday evening, Bank of England Governor Mark Carney and Treasury chief Philip Hammond are set to offer their views on the U.K. economy at a speech at Mansion House.

On Wednesday, sluggish U.S. retail sales and a decline in consumer-price inflation were released before the Fed met market expectations by raising interest rates by 25 basis points.

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"[M]arkets were surprised by the hawkishness in the policy statement and Chair Janet Yellen's press conference. Even though projections for inflation were lowered to 1.6% from 1.9% in 2017, the dot plot didn't change," said Hussein Sayed, chief market strategist at FXTM, in a note.

"It seems the Fed is no longer as data dependent as before and wants to carry on with the [policy] normalization process despite weakness seen in some economic releases. Yesterday's CPI and retail sales were both disappointing but didn't seem to worry Yellen," he said.

Read:Here's what the market thinks the Fed has got wrong (http://www.marketwatch.com/story/heres-what-the-market-thinks-the-fed-has-got-wrong-2017-06-13)

Retailers shaken: U.K. retail sales in May fell 1.2% month-over-month, the Office for National Statistics said, below expectations for a 0.8% fall.

Ahead of that, DFS Furniture PLC (DFS.LN) shares tumbled 20% on the FTSE All-Share index. The sofa seller said uncertainty caused by the U.K.'s general election and other economic factors has resulted in a sharp drop in customer demand.

"DFS Furniture looked pretty damn tatty this Thursday, the stock plunging ... to trade below GBP2 for the first time since the aftermath of last year's Brexit referendum," wrote Spreadex financial analyst Connor Campbell.

"It is going to be interesting in the coming weeks to see how much of an effect the current political landscape and, of course, rapidly shrinking wages, has had on the U.K. retail sector's second quarter."

The data and warnings rattled some retail shares on the FTSE 100, as well as those of home builders. Apparel retailer Next PLC (NXT.LN) gave up 5.1%, DIY retailer Kingfisher (KGF.LN) lost 3.1% and home builder Barratt Developments PLC (BDEV.LN) moved 2.4% lower.

The pound was buying $1.2702, down from $1.2754 late Wednesday, after the retail sales report.

Elsewhere, oil producers BP PLC (BP.LN) (BP.LN) and Royal Dutch Shell PLC (RDSB.LN) (RDSB.LN) fell 0.7% and 0.9%, respectively, as oil prices languished around seven-month lows on oversupply and demand worries. (http://www.marketwatch.com/story/oil-prices-hover-near-7-month-as-alarm-bells-go-off-over-us-supply-2017-06-15)

Among miners, miners Anglo American PLC (AAL.LN) fell 5.3% and gold producer Fresnillo PLC (FRES.LN) lost 4.4%.

Election update: U.K. Prime Minister Theresa May and her Conservative Party have been in discussions with Northern Ireland's Democratic Unionist Party about working together in the House of Commons after the Conservatives lost their majority in parliament in last week's general election.

May said this week she's still planning to begin talks about Britain's exit from the European Union, or Brexit.

On Thursday evening, Bank of England Governor Mark Carney and Treasury chief Philip Hammond are set to offer their views on the British economy at a speech at Mansion House.

(END) Dow Jones Newswires

June 15, 2017 06:40 ET (10:40 GMT)