5th Oct 2016 16:07
LONDON (Alliance News) - London stock prices ended lower on Wednesday, with some investors taking profit from the strong gains seen so far this week, while the pound hit a new 31-year low amid continuing concerns of a 'hard Brexit'.
Tesco, the UK's largest supermarket chain, ended as the best FTSE 100 performer, trading at highs not seen in over a year, after the grocer's interim results were well received by the market.
The FTSE 100 index fell 0.6%, or 41.09 points, to end at 7,033.25. The blue-chip index remains up 2.0% so far this week. The FTSE 250 ended 0.8% lower, or 141.55 points, at 18,200.52 points, and the AIM All-Share fell 0.2%, or 1.73 points, to close at 827.26.
The UK BATS 100 index fell 1.2% to 11,915.53, the BATS 250 ended 1.5% lower at 16,625.03, and the BATS Small Companies index dropped 0.6% to 11,327.23.
The pound continued to have a Brexit blues, following the heavy declines seen on Tuesday. At the London equities close, sterling stood at USD1,2734, slightly above the new 31-year low against the dollar touched earlier on Wednesday. The UK currency went as low as USD1.2686. At the close Tuesday, the pound stood at USD1.2740.
Spreadex analyst Connor Campbell commented: "Market-wise the main takeaway from [Prime Minister Theresa] May's speech in Birmingham was her criticism of the Bank of England's monetary policy, stating that 'we have to acknowledge some of the bad side effects' of perpetually low rates, and that 'change has got to come'."
In her keynote address to the Tory Party conference in Birmingham, May described the Brexit vote as "revolution".
"It was a vote not just to change Britain's relationship with the European Union, but to call for a change in the way our country works - and the people for whom it works - forever," May said.
May insisted that it was right for the government to use its powers for the public good by intervening to rein in "dysfunctional" markets and support key industries.
A firm performance of the UK services Markit/Chartered Institute of Procurement & Supply Purchasing Managers' Index, released Wednesday, gave investors little reason to believe that the BoE will ease monetary policy further in the near term.
The PMI slipped to 52.6 in September, slightly below the 52.9 reading seen in August, but above consensus expectation of a 52.0 score, and still comfortably in expansion territory.
"The survey results suggest that the economy has regained modest growth momentum since the EU referendum, with further service sector expansion accompanied by a return to growth in construction and an especially strong revival of manufacturing," said Chris Williamson, Chief Business Economist at Markit.
The BoE's Monetary Policy Committee meeting is scheduled for October 13.
Rumours of stimuli tapering by the European Central Bank was partly to blame for the selling mood among investors.
Just after the London stock market close on Tuesday, Bloomberg reported that the ECB is reaching a consensus to start gradually winding down bond purchases before the conclusion of quantitative easing.
Bloomberg said winding down may be conducted in steps of EUR10.00 billion a month, but said officials did not exclude that the program could still be extended at the full pace of EUR80.00 billion per month. The ECB said later Tuesday the report was erroneous.
"I think it's worth noting that even if the ECB is considering the path of tapering, that doesn't mean it's going to happen any time soon," noted Oanda senior market analyst Craig Erlam. "Whatever the case is, [President] Mario Draghi and his colleagues will likely be pushed for answers in the coming weeks and in the absence of a suitable response, today's moves will likely continue."
The euro rallied on Tuesday on the back of the Bloomberg story and retained the gains on Wednesday, quoted at USD1.1196 at the London equities close compared to USD1.1153 on Tuesday.
Also released on Wednesday was the eurozone services PMI, which slipped to 52.2 in September from 52.8 in August but was above expectations of a 52.0 score. The private sector expanded at the weakest pace in twenty months in September, as growth eased in Germany, Italy and Spain, Markit said.
Eurozone retail sales dropped 0.1% month-on-month in August, following a 0.3% rise in July. Economists expected retail sales to fall 0.3%. On a yearly basis, retail sales grew 0.6% in August after a 1.8% rise in July. Consensus forecast was for a 1.5% increase.
The CAC 40 index in Paris and the DAX 30 in Frankfurt both fell 0.3%.
In New York, the Dow Industrials was up 0.6%, the S&P 500 index was 0.4% higher and the Nasdaq Composite was up 0.5%. Investors were encouraged by solid US macroeconomic data, even though this strengthens the odds for a US interest rate hike by the Federal Reserve before the end of the year.
The US services PMI rose to 52.3 in September compared to the score of 51.4 seen in August, Markit data showed. Meanwhile, the ISM non-manufacturing PMI came in at 57.1 in September, following a 51.4 reading seen in August. This was much higher than economist expectations for a 53.0 score.
The Fed still has two monetary policy meetings before the end of 2016, on November 1-2 and December 13-14.
Brent oil received yet another boost on Wednesday, marking its sixth consecutive session of gains. The North Sea benchmark was quoted at USD51.86 a barrel at the close, having reached a high of USD52.07 a barrel earlier in the day, its highest level since early June.
The rally was on the back of a decline in US crude oil stockpiles. The US Energy Information Administration said US crude oil inventories fell by 2.9 million barrels in the week ended September 30, with economists expecting an increase of 2.6 million.
The gold price was quoted at USD1,266.40 an ounce, compared to USD1,282.15 an ounce on Tuesday.
On the London Stock Exchange, Tesco ended as the best blue-chip performer, up 8.4%. The grocer's attempts to rebuild its business helped sales to grow in the first half of its financial year and it announced further cost-cutting measures to help boost margins and future profitability.
Tesco said it made a pretax profit of GBP71.0 million in the first half of its 2017 financial year, covering the 26 weeks to August 27, down 28% from the GBP99.0 million made a year prior. It said this was due to it booking a series of costs related to its restructuring, including redundancies and head-office relocation costs.
Tesco's efforts to boost sales appear to be heading in the right direction, however, as total revenue in the first half increased to GBP27.34 billion from GBP26.97 billion a year earlier, as group sales rose 3.3% year-on-year to GBP24.4 billion, excluding VAT, fuel and discontinued businesses.
Shares in fellow FTSE 100-listed grocers gained as well, with Wm Morrison Supermarkets and Marks & Spencer Group up 1.8% and 3.6%, respectively.
International Consolidated Airlines Group rose 1.0%. The British Airways-owner said its group traffic measured by revenue passenger kilometres increased by 4.8% in September compared to the same month in the year prior, while capacity measured by available seat kilometres was up 5.6%. However, load factor was down by 0.6 percentage points to 84.1% from 84.7%.
Shares in peer easyJet ended up 1.6%. easyJet releases a trading update and September traffic statistics on Thursday.
The largest London-listed water firms ended among the worst blue-chip performers after both United Utilities and Severn Trent were downgraded to Underperform from Sector Perform by RCB Capital Markets, whilst FTSE 250-listed Pennon retained its Outperform rating and was cited as RBC's preferred stock in the space.
United Utilities fell 3.7%, and Severn Trent dropped 2.8%, while Pennon ended 3.3% lower.
Elsewhere in the FTSE 250, Aldermore Group ended among the best mid-cap performers, up 3.2%. Consensus estimates for the company are far too low, Investec said, which believes the rally in the buy-to-let lender's shares still has legs. Analyst Ian Gordon said consensus forecasts on Aldermore "border on the absurd" and are "materially wrong on volumes, margins and impairments".
Hastings Group Holdings ended down 5.5% at 222.40 pence. Barclays Bank said a group of investors in motor insurer Hastings are to sell a 7.0% stake in the company via a share placing. The group of investors has agreed to sell a total of 46.2 million shares in Hastings at 216.00 pence per share, making the transaction worth around GBP99.8 million.
In the UK corporate calendar on Thursday, DFS Furniture publishes full-year results, while Dunelm Group and BTG release trading statements.
In the economic calendar, Germany's factory orders are at 0700 BST. In the afternoon, the ECB releases the accounts of its monetary policy meeting at 1230 BST. At the same time there are US challenger job cuts data, while US initial and continuing jobless claims are at 1330 BST.
By Daniel Ruiz; [email protected]
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