23rd Jan 2014 17:35
LONDON (Alliance News) - London's main stock indices closed sharply lower Thursday as global equity markets were hit by weak Chinese and US economic data. The weak US data also sent the dollar lower, meaning the pound hit a 32-month high against the currency.
UK stock indices had opened tentatively higher, even though Asian markets had closed lower aftera preliminary reading of China's manufacturing activity showed contraction, adding to concerns about a slowdown in the world's second largest economy.
The Chinese Manufacturing PMI fell to a six-month low of 49.6, down from 50.5 in December and well below expectations for a marginal rise to 50.6.
European markets then made further gains during morning trade after the eurozone Markit Composite PMI for January came in stronger than expected at 53.2, up from 52.1 in December and beating economists' expectations of 52.4. Both the Manufacturing and the Services PMIs beat expectations. The figure suggests the fastest growth in the currency block since June 2011, with growth picking up further in Germany and the rate of decline slowing in France.
However, the rally in Europe was short-lived as the PMI reading for the US slowed to 53.7 in January, from 55.0 in December. Economists had expected the reading to remain unchanged.
Weekly US initial jobless claims, meanwhile, came in at 326,000, a slight increase from the previous week's 325,000.
The data contrasted with a series of strong economic data from the world's biggest economy in recent weeks.
The FTSE 100 closed down 0.8% at 6,773.28, the FTSE 250 closed down 1.0% at 15,980.13 and the AIM All-Share ended down 1.3% at 870.49. Major European markets also plunged, with the CAC40 closing down 1.0% and the DAX down 0.9%.
In the US, the DJIA was down 1.0% when European markets shut, with the S&P500 down 0.9% and the Nasdaq Composite down 0.9%.
The divergence between the positive economic data in Europe and negative readings in the US sent the dollar plunging. The euro gained more than 1.3 cents, or 1%, against the dollar Thursday, recording a multi-day high of USD1.3685.
The pound continued to add to the gains made in the wake of Wednesday's surprisingly large drop in UK unemployment to 7.1%. Sterling gained almost another cent against the dollar Thursday, recording a 32-month high of USD1.6636.
Bank of England Governor Mark Carney told the BBC at the World Economic Forum in Davos that there is no immediate need to raise interest rates, despite the drop in the unemployment rate to within a whisker of the 7.0% rate the central bank has set to start considering possible rate hikes.
The BOE had not been expecting unemployment to fall to 7% for another two years."If our forecast is going to be wrong it's better to be wrong in that direction," Carney told the BBC in an interview to be broadcast on the Newsnight programme later.
Precious metals also surged Thursday, with gold up more than 2.0% after the equity market close at USD1,262.00 per ounce, a level not seen since December 10, and silver up more than 1.5% at USD20.08 per ounce.
"A rare combination of plunging stocks and the dollar today has seen precious metals rally sharply following a dullish start to the week," said Forex.com commodity analyst Fawad Razaqzada.
That meant mining stocks outperformed, with Fresnillo closing as the biggest blue chip gainer, up 3.4%. Anglo American closed up 1.0%, while African Barrick Gold closed at the biggest FTSE 250 gainer, up 11.5%.
Anglo American shrugged off the start of a strike by a mining workers union in South Africa that is going to hit the company's platinum unit. Lonmin and Impala Platinum are also being affected by the latest strike over pay and conditions.
The South African government will mediate a meeting between union and company officials Friday, according to Bloomberg, with the president of the Association of Mineworkers and Construction Union warning the companies to expect "marathon negotiations.
Pearson was the biggest blue chip faller Thursday, dropping 8.2% after issuing a profit warning. The publisher said trading had been weaker than it expected, particularly in North America, its main market.
Easyjet also proved a drag on the FTSE 100, closing down 4.1% after saying it will report a slightly wider first-half loss because it won't get the benefits of last year's early Easter.
Royal Mail shares closed 2.0% lower ahead of Friday's post-Christmas trading update, although the company should report further strong growth in its parcels business over Christmas if the strong growth in online sales by the retailers is used as an indicator.
Close Brothers, Workspace Group and Henry Boot will join Royal Mail in giving trading updates Friday.
After a busy day in the economic calendar Thursday, things look a little quieter Friday. UK BBA mortgage approvals is the only release of note, at 0930 GMT.
By Jon Darby; [email protected]; @jondarby100
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