28th Apr 2016 15:55
LONDON (Alliance News) - An underwhelming first quarter US gross domestic product print helped UK stocks erase some of their earlier losses Thursday, as weak economic growth made it less likely that the US Federal Reserve will raise its interest rate.
The US Bureau of Economic Analysis said the first reading of GDP showed an increase of 0.5% year-on-year in the first quarter compared to the 1.4% increase in the fourth quarter of 2016. It was the slowest growth rate since the first quarter of 2015. Economists had expected the pace of growth to slow to 0.7%.
The modest increase in first quarter GDP reflected positive contributions from consumer spending, residential fixed investment, and state and local government spending. However, the growth was partly offset by negative contributions from non-residential fixed investment, private inventory investment, exports, and federal government spending.
At the London stock market close, the dollar traded the pound at USD1.4586 versus USD1.4544 at the same time on Wednesday. The euro was quoted at USD1.1318 Thursday, a touch higher than USD1.1308 seen at the close Wednesday.
The price of gold was above the Wednesday closing price, at USD1,264.30 an ounce versus USD1,247.60. Oil also made advances from Wednesday, with Brent trading at USD47.60 a barrel compared with USD46.12.
Connor Campbell, financial analyst at Spreadex, said the GDP figure was "truly woeful", and will mean the hawks in the Federal Open Market Committee would struggle to push for an interest rate increase in the face of "such dismal economic growth".
Late Wednesday, the FOMC voted 9-1 to keep the Federal Funds rate target at a range of 0.25% to 0.5%, but left the door open for a June interest rate hike, without making any guarantees.
The FOMC removed a reference to the risks posed by global economic and financial developments, but acknowledged weakness in the domestic economy.
"Economic activity appears to have slowed," the statement read. "Growth in household spending has moderated, although households' real income has risen at a solid rate and consumer sentiment remains high."
The FTSE 100 closed up 2.49 points, at 6,322.40. The FTSE 250 fell 0.1%, or 17.26 points, to 17,066.45 and the AIM All-Share ended up 0.2%, or 1.33 points, to 730.41.
UK stocks traded most of the day firmly in the red following the Bank of Japan's decision to leave its monetary policy unchanged early Thursday, confounding expectations of further economic stimulus.
Governor Haruhiko Kuroda and his board members decided by a 7-2 majority vote to keep the -0.1% interest rate on current accounts that financial institutions maintain at the bank. The bank had introduced negative interest rate in January in order to achieve its 2% inflation target.
The board also decided by an 8-1 majority vote to leave unchanged its target of raising the monetary base at an annual pace of about JPY80 trillion.
Before the decision, the market widely expected the Japanese central bank to ease monetary policy to weaken the yen, which had recently seen a substantial appreciation.
However, following the decision to maintain the status quo, the yen shot higher against the dollar. The dollar started the day at JPY111.44, but following the BoJ's decision fell to a low of JPY107.91. By the London close, the dollar traded at JPY108.62.
European stocks also recovered from heavier losses earlier. The CAC 40 in Paris ended flat, having traded down 1.7% at its lowest point. The DAX 30 in Frankfurt ended up 0.2%, having also traded 1.7% lower.
On Wall Street at the London close, the Dow Jones Industrial Average was down 0.1%, while the S&P 500 was up 0.1%, and the Nasdaq Composite was up 0.5%. The Nasdaq was being buoyed by shares in Facebook which traded up 9.4% after it reported earnings ahead of analysts expectations after the New York closing bell on Wednesday.
Reporting after the end of the US session on Thursday is e-commerce giant Amazon and social network company LinkedIn.
In London, Royal Bank of Scotland shares fell 2.9% after it said there is a significant risk of missing a deadline by which it must sell the UK retail branch network known as Williams & Glyn, raising the prospect of higher costs and further delays to returning capital to shareholders.
On Thursday afternoon, the state-backed bank said the overall financial hit from the process will probably be "significantly greater" than previously estimated.
RBS has until the end of 2017 to sell Williams & Glyn, a network of 300 branches currently branded as NatWest and RBS, with 240,000 commercial customers and 1.6 million retail banking customers. The sale is a condition set by the European Commission as part of RBS's GBP45.5 billion UK taxpayer-funded bailout in the financial crisis of 2008-09.
The end-2017 deadline is already an extension of an original deadline of end-2013.
"Due to the complexities of Williams & Glyn's customer and product mix, the programme to create a cloned banking platform continues to be very challenging and the timetable to achieve separation is uncertain. RBS is exploring alternative means to achieve separation and divestment," the bank said.
RBS will be reporting first quarter results on Friday.
Meanwhile, peer Lloyds Banking Group said its first-quarter pretax profit fell by almost half, hit by market volatility and the cost of redeeming expensive debt with the aim of boosting interest margins.
Pretax profit fell to GBP654 million in the three months ended March 31, Lloyds said in a statement, from GBP1.21 billion the corresponding quarter a year earlier.
Underlying profit, which excludes costs related to redeeming the so-called enhanced capital notes and market volatility, fell by 5.7% to GBP2.05 billion.
Redeeming the enhanced capital notes cost the bank GBP790 million in the quarter, while market volatility and asset sales cost GBP203 million. The stock ended down 1.7%.
Anglo American closed as the best performer in the FTSE 100, up 8.1%. The miner struck a deal to sell its niobium and phosphates businesses to China Molybdenum Co for a total cash consideration of USD1.50 billion as it continues to progress its restructuring and debt reduction plans.
Anglo is downsizing its business and offloading its non-core business units, and the niobium and phosphates businesses were one of the first to be put up for sale as part of the company's restructuring programme, alongside coal, iron ore and nickel assets.
The significant downsizing will eventually lead to an Anglo American focused solely on its stake in diamond giant De Beers, its copper segment, and its platinum arm, which is conducted through Anglo American Platinum.
Victrex shares fell 6.9% after the polymer products company entered into a consent decree with the US Federal Trade Commission concerning an inquiry into the sale and marketing of implantable grade PEEK polymer in the US by the group's subsidiaries, Invibio Inc and Invibio Ltd.
The consent decree will apply to all of Invibio's existing and future customer contracts, Victrex said, and means Invibio is unable to enter agreements or engage in practices that require its customers to purchase PEEK, a colourless thermoplastic polymer, exclusively at or beyond the device level from Invibio. Victrex noted there are exceptions for certain circumstances, including where Invibio is working with its customers on custom components or in joint developments.
Tullow Oil was the biggest gainer in the FTSE 250, up 12%, after striking a deal with its lenders, revealing its flagship Jubilee field offshore Ghana will resume production in a matter of days, and by making further cuts to its expenditure plans.
Tullow said its lenders have completed the routine redetermination process of the company's reserve-based lending facility and have agreed to extend the maturity of the facility for 12 months, giving debt-laden Tullow some further breathing space during the current commodity rout.
Tullow has also continued to cut costs, reducing its capital expenditure guidance for the full year down to USD1.00 billion from USD1.10 billion, and said further savings are expected during the year.
The company's Jubilee field also looks set to get back on track imminently following the problems that were unveiled earlier in the year.
In the economic calendar for Friday, the main focus will be on European and US inflation numbers. The preliminary eurozone consumer price index is at 1000 BST, at the same time as eurozone unemployment, while US personal consumption expenditure is at 1330 BST.
Elsewhere in the economic calendar are German retail sales at 0700 BST and UK net lending to individuals and mortgage approvals both at 0930 BST. The Chicago Purchasing Managers Index is at 1445 BST and the Reuters/Michigan Consumer Sentiment Index is at 1500 BST.
Joining RBS in headlining the UK corporate calendar are pharmaceutical giant AstraZeneca and British Airways owner International Consolidated Airlines Group reporting first quarter results. Irish drugmaker Shire reports first quarter results at 1200 BST.
There are also trading statements from wireless components manufacturer Laird and actuators manufacturer Rotork.
By Neil Thakrar; [email protected]; @NeilThakrar1
Copyright 2016 Alliance News Limited. All Rights Reserved.
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