31st Mar 2014 16:09
LONDON (Alliance News) - The UK stock indices have closed mixed Monday, while the dollar has softened a little across the board. While equity markets initially appeared to shrug off a number of dubious economic readings to focus more on the words and possible actions of major global central banks, the FTSE 100 has reversed an early lead to end the first-quarter of 2014 lower.
The FTSE 100 has closed down 0.3% at 6,598.37, while the FTSE 250 has outperformed its larger peer to close up 0.6% at 16,273.72, and the AIM All-Share has closed just fractionally higher at 850.94.
US Federal Reserve Chair Janet Yellen said Monday that the US economy will need "extraordinary support for some time to come." Speaking in Chicago about "What the Federal Reserve is doing to promote a stronger Job market," Yellen said that the recovery still feels like a recession to many Americans and suggested that the unemployment rate is overstating the strength of the labour market.
Back on March 19, at the press conference that followed her first FOMC meeting, Yellen spooked the markets by hinting that the Fed's first interest rate hike could be as soon as six months away, prompting investors to sell equities and buy the dollar. However, with the market still getting used to the new Fed Chair's communication style, Monday's comments were taken as more dovish, and equity markets moved higher.
However, while the dovish words initially appeared to support the gains being made in European equity markets, after a busy day of largely worse than expected economic data major European equity markets, along with the UK's FTSE 100, have closed lower, with the CAC 40 and the DAX 30 have both down 0.2%.
Eurozone consumer price inflation fell by faster than expected in March, to 0.5% year-on-year from 0.7% in February. Inflation in the region is now at the lowest level since October 2009, which puts pressure on ECB President Mario Draghi to take some form of action at this week's policy meeting on Thursday. Economists had expected CPI to fall to 0.6%.
Core inflation also fell to 0.8% from the 1.0% recorded in February. The data follows weak CPI readings from both Germany and Spain last week.
"Another sharp fall in inflation in March has put the ECB's inflation forecasts at risk and increased the chance of further monetary stimulus," said Berenberg senior economist Dr Christian Schulz. However, given that the economic recovery has strengthened and broadened this year, the economist does not think the data is concerning enough for the ECB to change its policy at Thursday's meeting.
The foreign exchange market doesn't seem to expect a change in policy either, as despite an initial dip in the euro against the dollar to a session low of USD1.3721, the single currency rallied back to a high of USD1.3809 and continues to trade near to the USD1.38 level at the close of the European equity markets.
In the UK, the expansion of both consumer credit and mortgage approvals in the UK slowed in February, according to the latest data from the Bank of England. Following three months of expansion, the number of UK mortgages approved last month fell to 70,309 from 76,753 in January. Economists had expected approvals to only marginally slow to 75,250.
The amount of money borrowed by individuals in the UK also slowed in February, to GBP0.552 billion from GBP0.624 billion in January. Economists has expected an expansion in lending to GBP0.7 billion.
"Rain stopped play in the housing market during February," said Berenberg chief UK economist Rob Wood. However, with interest rates very low, consumer confidence rising sharply and most housing indicators still rising high, it is "unlikely to herald the start of a prolonged slowdown," the economists said.
UK Chancellor of the Exchequer George Osborne Monday pledged to bring the UK economy to "full employment." While Osborne did not specifically define the terms or details of "full employment," he said "today I'm making a new commitment to fight for full employment in Britain - making jobs a central goal of our economic plan."
As commentators suggest that the chancellor is seeking to humanise the UK economic recover ahead of an election by linking it to jobs, it's perhaps a little ironic to note that the Bank of England has done the exact opposite, in moving away from unemployment targeting to a broader measure of "spare capacity."
Still to come Monday, Bank of England Governor Mark Carney will be speaking at the Financial Stability Board Plenary Meeting press briefing. Ahead of Carney's appearance at 1715 GMT, and despite the disappointing economic data, the pound is slightly higher against the dollar Monday, currently USD1.6670.
Within UK equities, Babcock International was the stand-out blue chip gainer Monday following the announcement that Cavendish Fluor Partnership, a joint venture with Cavendish Nuclear, which is a subsidiary of Babcock, has been selected as the preferred bidder for the Magnox contract, which covers the decommissioning of 12 UK nuclear sites.
Analysts suggest that the new contract could boost Babcock's consensus earnings per share estimates by mid-single digits. Moreover, the deal highlights that Babcock has enormous scope to further increase revenue from nuclear decommissioning contracts both in the UK and abroad, analyst suggest. Babcock shares closed up 4.3%.
Industrial Metals and Miners have been amongst the biggest winners as investors anticipate some form of monetary stimulus from China to boost its slowing economy. "The moves of the Chinese yield curve may reflect easing of monetary policy and as such better times for the likes of the emerging market equities as an asset class, the miners as a sector, and the likes of the Asian-focused banks," said Shore Capital equity strategist Gerard Lane.
The FTSE 350 Industrial Metals sector gained 7.1% Monday, with Evraz leading the gains, up 8.8%. African Barrick Gold gained gained 6.5%, Centamin gained 2.2%, and Lonmin gained 2.9%.
The Chinese economy will be in early focus Tuesday, as both the countries NBS manufacturing PMI and HSBC manufacturing PMI will be released overnight. Both of the readings have been on the slide in recent months, with the HSBC number below 50.0, in contraction territory, since January. The preliminary reading of the March HSBC PMI, released last week, showed a further contraction to 48.1, from 48.5 in February.
Combined with other softening Chinese metrics, and the commitment from the countries Premier Li Keqiang to target a 7.5% growth rate, the data has led to much market chatter about the potential introduction of a Chinese monetary easing programme to support growth as the US winds down its own stimulus. Any further deterioration the the Chinese numbers ahead of Tuesday's market open will no doubt re-ignite the debate.
European PMI's will be the market focus later in the morning, with the manufacturing numbers for Germany due from Markit at 0755 GMT, followed by the eurozone at 0800GMT.
The UK Markit manufacturing PMI number is due at 0830 GMT, and the same number from the US is due in the afternoon at 1258 GMT.
With the UK corporate earnings season officially closed, there are no results due Tuesday, but there are trading statements expected from Aberdeen Asset Management and ICAP PLC.
By Jon Darby; [email protected]; @jondarby100
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