29th Jan 2016 17:10
LONDON (Alliance News) - The Bank of Japan's surprise interest rate cut gave global equity markets a boost Friday, while some late volatility in oil prices saw a bumpy close for London.
The FTSE 100 ended the day 2.6% higher at 6,083.79, closing above the 6,000 mark for the first time since January 6. It meant the blue-chip index finished the week 3.1% higher, but was unable to offset the heavy China and oil-led declines at the beginning of month. In January, the FTSE 100 index shed 2.5%.
The mid-cap FTSE 250 index closed the day up 1.8% at 16,487.72 points but closed the month down 5.4%. The AIM All-Share ended the day up 0.9% at 693.70, but down 6.1% in January as a whole.
In Europe, the CAC 40 in Paris closed up 2.2%, the DAX 30 in Frankfurt ended up 1.6%. However, both indices ended heavily lower in January, down 4.8% and 8.8% respectively. On Wall Street at the London close, the DJIA traded up 1.3%, the S&P 500 was up 1.2% and the Nasdaq Composite was up 1.1%.
The gains in Europe and the US followed similar moves in Asia, where the Japanese Nikkei 225 index closed up 2.8%, the Hang Seng added 2.5% and the Shanghai Composite rose 3.1%.
Before the London market open, the Japanese central bank said its policy board voted 5-4 to apply a -0.1% interest rate on current accounts that financial institutions maintain at the bank. The board said it will cut the rate further into negative territory, if judged necessary.
The negative rate will affect only a portion of current accounts as the Bank of Japan adopts a "three-tier-system". The outstanding current account balance of each financial institutions will be divided into three tiers to which a positive, zero and negative interest rate will be applied.
The central bank also downgraded its fiscal 2016 inflation forecast to 0.8% from the 1.4% estimated in October. It expects inflation to reach 1.8% in the year ending March 2018, a touch lower than its 2.0% target.
The Bank of Japan, led by Governor Haruhiko Kuroda, maintained its target of raising the monetary base at an annual pace of about JPY80 trillion.
The move to cut Japanese interest rates took the market by surprise, with many participants expecting the bank to expand its asset purchase plan instead, as Kuroda recently indicated that he was not seriously considering a rate cut.
Whilst markets lapped up the new stimulus, Michael Hewson, chief market analyst at CMC Markets, said it could trigger reactions from other global central banks.
"While [the interest rate cut] is likely to help undermine the recent appreciation in the Japanese yen, it is highly likely that these actions could prompt similar easier monetary policy from Chinese authorities as they look to offset the deflationary forces at work in their own economy, and is also likely to make that much more difficult for the US Federal Reserve to tighten further in the coming months, and that's before we even talk about further measures from the ECB, which are expected in March," Hewson said.
"This would suggest that the overall net effect of these measures on the domestic economies of each country, or region is likely to be minimal at best and while we've seen a pop in asset prices there is worry that the direction of travel here is prompting concerns about diminishing returns, in the absence of broader structural reforms," Hewson added.
The Bank of Japan's easing measures sent stocks higher and meant investors largely ignored the miss in the first reading of US gross domestic product. The Commerce Department said real GDP increased at an annual rate of 0.7% in the fourth quarter compared to the 2.0% growth reported for the third quarter. Economists had expected GDP to rise by about 0.8%.
A slowdown in the pace of consumer spending growth contributed to the miss, as spending climbed by 2.2% in the fourth quarter after jumping by 3.0% in the third quarter. However, the downside was limited by a smaller decrease in private inventory investment, an acceleration in federal government spending, and a deceleration in imports, which are a subtraction in the calculation of GDP.
Despite the miss, the dollar rose against other major currencies. At the London stock market close, the pound traded the dollar at USD1.4171 compared to USD1.4378 on Thursday. The euro was quoted at USD1.0820 versus USD1.0951 on Thursday.
The euro rose earlier in the day after flash data from Eurosat showed harmonized consumer prices rose 0.4% year-on-year in January, faster than the 0.2% increase seen in December. This was the fourth consecutive increase in consumer prices and matched economists' expectations.
Core inflation, excluding energy, food, alcohol and tobacco, increased slightly to 1% in January from 0.9% in December. Economists had forecast prices to rise again by 0.9%.
Crude oil prices shot higher before cooling in the final few hours of UK equity trade Friday. Brent oil spiked at USD36.09 a barrel, before falling back to USD35.24 a barrel at the London close. This was still higher than the USD34.13 a barrel price seen at the close on Thursday.
Gold prices were at USD1,116.20 an ounce at the close Friday a touch higher than the price Thursday on USD1,115.39.
In the FTSE 100, Sky closed up 2.5% as the broadcaster reappointed James Murdoch, son of Rupert Murdoch, as chairman, succeeding Nicholas Ferguson.
Murdoch was previously chief executive of Sky between 2003 and 2007 and chairman between 2007 and 2012. Martin Gilbert, chief executive officer of Aberdeen Asset Management, has been appointed deputy chairman. Andrew Sukawaty to replace Gilbert as Sky's senior independent director.
The reappointment of Murdoch, four years after leaving the role amid the News Corp phone hacking scandal, left analysts somewhat puzzled. Jefferies said the move "is obviously an intriguing development".
For the half year to end-December, Sky posted a pretax profit of GBP414 million, down from GBP1.21 billion a year before, mostly as a result of exceptional profits from the sale of the company's stake in ITV in the year comparative period not repeating. Sky reported revenue growth for its first half and strong customer growth in its second quarter.
The takeover talks between J Sainsbury and Home Retail Group are understood to have stalled due to a disagreement over price, the Financial Times reported.
Citing people close to the matter, the FT said the two companies have remained entrenched in their positions, with a wide gap between their respective valuations of the Home Retail business.
Sainsbury's made a bid for Home Retail, which owns Argos and Homebase, in November, which the pair said was rejected. Under UK takeover rules, it has until Tuesday to make a firm offer for the group or walk away from the talks.
Since then, Home Retail has agreed to sell the Homebase business to Australian conglomerate Wesfarmers Ltd. Sainsbury's interest was in the Argos business, however.
Home Retail closed as one of the worst performers in the FTSE 250, down 2.4%, while Sainsbury's ended up 3.6%.
Interdealer broker Tullett Prebon closed as one of the best mid-cap performers up 6.4%. Volatile oil prices have continued to benefit the company, which made a well-timed acquisition of oil broker PVM Oil Associates Ltd in 2014, as has an improvement in some of its traditional products.
Revenue for November and December combined shot up by 14% to GBP125.0 million the same two months of 2015, Tullett said on Friday. The boost from PVM, which deals in crude oil and petroleum products, was clear. Without it, revenue was just 4% higher at constant exchange rates.
Tullett's revenue for 2015 was 13% higher than the GBP704.0 million reported for 2014, but down 2% at constant exchange rates when excluding PVM.
The PVM business has been boosted by the "significant changes in the oil price experienced since the start of the second half of 2014", Tullett said.
In the economic calendar for Monday, there are official Chinese manufacturing and non-manufacturing purchasing managers' index readings at 0100 GMT, while the Caixin manufacturing PMI for China is at 0145GMT. Still before the London open, is Nikkei's manufacturing PMI for Japan at 0200 GMT.
There are then a number of Markit manufacturing PMI readings, with France at 0850 GMT, Germany at 0855 GMT, the eurozone as a whole at 0900 GMT, the UK at 0930 GMT and the US at 1445 GMT.
Also at 0930 GMT are UK consumer credit and mortgage approvals numbers. At 1330 GMT is US personal consumption expenditure, before ISM manufacturing PMI and construction spending both at 1500 GMT. European Central Bank President Mario Draghi will be speaking in European Parliament at 1600 GMT.
In the UK corporate calendar for Monday, telecoms giant BT Group reports third quarter results. Commercial flooring company James Halstead publishes a trading statement, while education IT and resources company RM reports full-year results.
By Neil Thakrar; [email protected]; @NeilThakrar1
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