1st Oct 2014 16:02
LONDON (Alliance News) - Stocks closed significantly lower across the UK and Europe Wednesday, with the FTSE 100 ending at its lowest closing level for six months, amid a round of disappointing Manufacturing PMI data and some signs of slowing growth in the US economy.
Ahead of the European Central Bank meeting on Thursday, investors are concerned that president Mario Draghi has little left in his arsenal to fight the trend of slowing growth across the Eurozone, given that analysts say a full quantitative easing programme remains unlikely for now.
"The data points to a need for central bank action but the reaction in markets seems to indicate that there are a lot of worried people out there, worried because of the fear that the ECB will do little beyond fine words," said IG Chief Market Strategist Brenda Kelly.
The FTSE 100 closed down 1.0% at 6,557.52, the FTSE 250 closed down 1.1% at 15,210.89, and the AIM All-Share closed down 0.8% at 743.83.
In Europe, the French CAC 40 closed down 1.2%, and the German DAX closed down 1.0%, while US stocks were also lower when European equity markets closed, with the DJIA down 0.9%, the S&P 500 down 0.6%, and the Nasdaq Composite down 0.8%.
Manufacturing activity across the UK, the eurozone, and the US slowed in September, according to the latest Markit PMI data, with Europe's traditional manufacturing powerhouse Germany actually slipping into contraction for the first time since March 2013.
The German reading slipped to 49.9 in September from 51.4 in August, with a weakening economic environment and falling domestic demand blamed for the first fall in new orders in over a year. The PMI for the eurozone as a whole fell to 50.3 in September from 50.7 in August.
The disappointing readings pile more pressure on ECB president Mario Draghi ahead of the central bank's latest policy announcement on Thursday. Draghi has promised to unveil the details of the recently announced asset backed security purchase programme at the press conference at 1330 BST, and investors will be keen to hear about the size of the programme.
"Press reports have suggested that ABS purchases could top EUR500 billion, and anything less than that could be deemed a disappointment at this point," said Forex.com Research Director Kathleen Brooks.
UK manufacturing growth also slowed in September, with a PMI reading of 51.6 from 52.5 in August, slightly missing expectations for a print of 52.5. The economic troubles in Europe, the UK's biggest trading partner, are having an impact, with UK companies reporting weaker increases in production, new business and new export orders, Markit said.
"US growth will help to offset some of the pain for UK firms, but there is only so much it can do given that a little under half of UK exports are destined for the EU," said Rob Wood, chief UK economists at Berenberg.
The US Markit PMI remained significantly stronger at 57.5 in September, although that was also a little lower than the 58.5 that has been expected and down from the 57.9 print in August.
US ISM manufacturing PMI was also down to 56.6 in September, from 59.0 in August, while US construction spending in August slipped by 0.8%, missing expectations for 0.5% growth.
The US continues to be the leading economy, however, and on the first day of the month that the Federal Reserve is due to end its bond buying programme, the US dollar made broad gains. When the European equity markets closed, the pound was trading at USD1.6195, and the euro at USD1.2596.
The UK supermarkets suffered significant losses once again, as the bad news for the sector keeps on coming.
Tesco said it is now under investigation by the UK Financial Conduct Authority following last week's admission that it found a GBP250 million black hole in its first half profit estimates.
J Sainsbury cut its like-for-like sales forecast for the second half of the year, after it said trading in the second quarter slumped. The supermarket also admitted that the sector is going through a big change as consumer shopping habits have shifted and price deflation has set in. Chief Executive Mike Coupe told journalists Wednesday the UK grocery market is facing its most challenging times in his 30 years in the industry. "Customers now have more choice than they have ever had before, and they are shopping around now more than ever before," he said.
Sainsbury's closed down 5.9%, Wm Morrison Supermarkets closed down 5.0%, and Tesco closed down 3.1%.
Royal Mail was the best of the few FTSE 100 gainers Wednesday, rising 1.9% after being upgraded to Neutral by UBS. UBS said the postal services industry faces a lot of challenges, and particularly Royal Mail with its highly unionised work force, but those challenges are already reflected in the share price.
FTSE 250-listed Countrywide gained 3.7% after saying it has decided to accelerate its capital returns policy and will start a share repurchase programme for up to GBP20 million. The estate agent said it continues to target a dividend of between 35% and 45% of 2014 reported group profits after tax but before any amortisation.
UBM shares closed down 5.9% after the publishing company said it will use a new USD100 million bridge facility and a GBP563 million rights issue to fund the acquisition of events and marketing business VSS-AHC Consolidated Holdings Corp, also known as Advanstar Communications, for a total of USD972 million.
China remains closed for it's national day Thursday, creating potential for more skirmishes between pro-democracy campaigners and police in Hong Kong and beyond. Amid growing support for the protests among dissidents and rights activists in mainland China, there were reports from Amnesty International Wednesday of 20 people being detained by officials.
The main event Thursday will be the ECB meeting. The policy decision is at 1245 BST, and Mario Draghi's subsequent press conference is at 1330 BST. US jobless claims data at 1330 BST will be a warm up to Friday's non-farm payroll report.
TUI Travel is due to release a trading statement Thursday, along with an interim management statements from Carillion and Domino's Pizza, and interim results from Ted Baker.
By Jon Darby; [email protected]; @jondarby100
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