17th Mar 2016 17:03
LONDON (Alliance News) - London-listed stocks closed a touch higher Thursday, as gains made by resource stocks, driven by a commodity price rally, offset a slump in banking stocks, which fell on the prospects of negative interest rates for yet another currency, this time the Norwegian krone.
The FTSE 100 closed up 0.4%, or 25.63 points, at 6,201.12. The mid-cap FTSE 250 index ended up 0.6%, or 96.21 points, at 16,849.01, while the AIM All-Share slipped 0.7%, or 5.01 points, to 705.25.
European stock indices underperformed as London has a heavier weighting of resource stocks. The French CAC 40 closed down 0.5% and the German DAX 30 ended down 0.9%.
On Wall Street at the London close, the Dow Jones Industrial Average was up 0.7%, the S&P 500 was up 0.6% and the Nasdaq Composite was down 0.2%.
Central banks were largely responsible for the moves in stocks, commodities and currencies Thursday. Banking stocks in London were amongst the biggest fallers in the blue-chip index after Norway's central bank slashed its key interest rate to a new record low, citing the weaker economic outlook, and said the rate may be cut further this year. The bank also said that the policy rate could turn negative if the economy is exposed to new major shocks.
The Executive Board of the Norges Bank reduced the key policy rate by 25 basis points to 0.50%, in-line with economists' expectations.
"Growth prospects for the Norwegian economy have weakened somewhat and inflation is expected to moderate further out," Governor Oystein Olsen said.
"The current outlook for the Norwegian economy suggests that the key policy rate may be reduced further in the course of the year," the Norwegian central bank chief added.
Even as they encourage banks to lend, negative interest rates squeeze lending margins. But negative rates are becoming more common, adopted already by the European Central Bank, the Bank of Japan and the Swiss National Bank. In the Nordic region, Sweden and Denmark also have adopted negative rates.
On the London Stock Exchange, Barclays closed down 2.1%, HSBC Holdings down 1.8% and Royal Bank of Scotland Group down 1.5%. The FTSE 350 Banks sector index ended 1.0% lower.
However, gains by miners outweighed the losses of the banks, helping to edge the FTSE 100 higher. Fresnillo, up 10%, Anglo American, up 9.8%, Glencore, up 9.5%, and Antofagasta, up 8.6%, were the best of the bunch among large caps, as commodity prices benefited from a fall in the dollar.
Gold jumped to USD1,263.47 an ounce by the European equities market close, much higher than the USD1,228.57 seen on Wednesday.
Oil prices were boosted as well, with Brent quoted at USD41.52 a barrel at the London close versus USD40.16 at the same time on Wednesday.
The greenback slid against other currencies after the US Federal Reserve's guidance for future interest rates came in below the market's expectations.
On Wednesday, the Fed left interest rates unchanged in a range from 0.25% to 0.50% as widely expected, and the projections made by members showed policymakers expect two rate hikes by the end of this year compared to the four predicted back in December.
The dollar declined against other major currencies due to the dovish forecast. At the London stock market close on Thursday, the euro was quoted at USD1.1325, much higher than the USD1.1082 at the corresponding time on Wednesday.
The pound pushed higher as well, quoted at USD1.4493 at the close Thursday, and reaching a one-month high of USD1.4503. The pound was at USD1.4104 on Wednesday.
Sterling also found some support after the Bank of England unanimously decided to keep interest rates unchanged, while observing that "it is more likely than not that" the key rate will rise in the next few years.
The Monetary Policy Committee, headed by Governor Mark Carney, voted 9-0 to hold the interest rate at the record low level of 0.50%, the central bank said in a statement. The decision marked the seventh anniversary of the key rate at the current 0.50%.
The MPC is of the view "that it is more likely than not that Bank Rate will need to increase over the forecast period to ensure inflation returns to the target in a sustainable fashion," the minutes showed.
Connor Campbell, financial analyst at Spreadex, noted there was nothing to suggest in the statement that the MPC are closer to hiking the UK interest rate, yet the pound was boosted.
"A combination of a) how low the currency has fallen since the start of the year, b) relief from investors that there weren't any hints towards a rate cut, and, most importantly, c) just how poorly the dollar reacted to the Fed's statement on Wednesday evening likely explains the pound's post-BoE performance," Campbell said.
In UK corporate news, OneSavings Bank ended as the best performer in the FTSE 250, up 19%. The specialist lender said pretax profit shot higher in 2015 as lending grew and its cost-income ratio improved further.
OneSavings said pretax profit for the year to the end of December grew to GBP105.3 million from GBP63.7 million a year earlier. This was helped by costs associated with its listing in London in June 2014 not repeating.
The company will pay a final dividend of 6.7 pence per share, taking its total payout for the year to 8.7p, in line with its target dividend policy.
Investec analyst Ian Gordon noted that, despite the consistency of OneSaving Bank's returns, the stock was down 40% in the four months before the results, displacing Aldermore Group as the cheapest in the sector.
Soft drinks company AG Barr ended as the worst midcap performer, down 5.5%. The stock was still reacting to UK Chancellor of the Exchequer George Osborne's announcement on Wednesday of a surprise sugar levy on soft drinks in two years' time, which will follow a two-tier tax band. Peer Britvic ended down 1.8% on Thursday.
EnQuest shares rose 31% after it said it has sufficient headroom to keep the company funded until its major Kraken development in the UK North Sea comes online in 2017 and said it will cut expenditure and reduce operating costs in the meanwhile.
The company, which produces most of its oil and gas in the UK North Sea with additional production coming from assets in Malaysia, will seek to trim costs in 2016 following a difficult 2015 which saw a substantial rise in production offset by the dramatic falls in oil prices.
EnQuest said its pretax loss amounted to USD1.34 billion in 2015, widening from the USD578.7 million loss reported in 2014, with exceptional items, including impairments, totalling USD1.33 billion.
The economic calendar for Friday is quite thin, with German producer price index at 0700 GMT, eurozone labour cost at 1000 GMT and the Bank of England's quarterly bulletin at 1200 GMT.
In the afternoon the focus will be on US central bankers. William Dudley, the president of the New York Federal Reserve, will make a speech at 1300 GMT, Boston Fed President Eric Rosengren speaks at 1500 GMT and St Louis Fed President James Bullard at 1800 GMT.
In terms of data there is the Reuters/Michigan US Consumer Sentiment Index at 1400 GMT, and the Baker Hughes US oil rig count is at 1700 GMT.
The highlights in the UK corporate calendar, are trading statements from housebuilder Berkeley Group and Anglo-South African financial services group Investec.
There are full-year results from plastic and paperboard packaging manufacturer Robinson, advertising agency M&C Saatchi, ventilation products company Volution Group, and Scotland-based fund manager Baillie Gifford Shin Nippon.
By Neil Thakrar; [email protected]; @NeilThakrar1
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