17th Oct 2013 16:48
LONDON (Alliance News) - UK stocks closed marginally higher amid heavier corporate news Thursday, but the dollar fell and gold soared after China criticised the US fiscal deal and investors generally remained wary fearing a repeat of the political wrangling in the New Year.
Congress late Wednesday rushed through a last-minute agreement to temporarily lift the debt ceiling, avoid default and reopen the government, voting to revisit in several months the issues that have tied it in knots. The agreement will fund the government through January 15 and suspend the debt limit until February 7.
"Investors are likely to remain wary of the temporary solution", Michael Hewson, senior market analyst at CMC Markets said. Despite averting a default in the short-term, "we have to go through this entire circus again in the New Year."
The market reaction to events was to sell the dollar. The pound rose back above USD1.6150 for the first time in ten days, while the euro recorded its highest level against the dollar since early February. Gold, meanwhile, gained close to 3% and was trading at about USD1,318.40 an ounce at the close of the London equity markets, as the Chinese weighed into the deal.
China's rating agency Dagong cut its ratings for US local and foreign currency credit from 'A' to 'A-', and maintained a negative outlook, saying the country is still approaching the verge of default crisis, despite the last-minute deal that ended the 16-day government shutdown.
The political wrangling over raising the US debt ceiling suggests that US treasury bonds may no longer be safe investments and holders should consider making alternative plans, Chinese state media said on Thursday. "The saga in Washington is teaching America's creditors a lesson," the official state news agency Xinhua said in a commentary after Wednesday's last-minute deal in the US Congress.
The commentary said the US should "drop this dangerous game of political brinkmanship to win back confidence if it wants to maintain its role as the world leader." A second Xinhua commentary said China should consider moving "faster and more resolutely" to internationalize its currency and "move gradually away from the dangers posing by a troubling US fiscal mechanism."
Ratings agency Standard & Poor's estimates the cost of the government shutdown to be about USD24 billion, or 0.6% of fourth quarter gross domestic product, and analysts now fear the federal Reserve may wait even longer to start reducing its economic stimulus program, possibly into next year.
The Fed's rate setting committee holds its first meeting in 2014 in late January, just days ahead of the new debt ceiling deadline of February 7. "While the Treasury will have some tools to enable it to stretch out this deadline beyond this date, the prospect of another uncomfortable debate in government raises the prospect that the Fed could potentially defer tapering until its March policy meeting," Rabobank Senior Strategist Jane Foley said.
In the mean time, the US sovereign rating remains on ratings agency Fitch's negative watch for a potential downgrade. "There has been a negative effect on the economy and the problem has just been moved to January, said a currency trader who thinks the potential for a downgrade is high.
Despite the impact on currencies, bonds and gold, stocks were little moved by the debt deal. The FTSE 100 closed up 0.1% at 6,576.16, the FTSE 250 closed up 0.1% at 15,231.91 and the AIM All-Share ended up 0.3% at 793.23.
US stocks, which rallied in the wake of the deal Wednesday, were trading mixed when London closed Thursday, with the DJIA down 0.3% and the S&P500 and the Nasdaq Composite both up about 0.3%.
UK investors refocused on company fundamentals after a busy day of corporate updates.
British Sky Broadcasting was by far the biggest blue chip gainer, closing up 5.9% after hitting a near 12-year high. It reported another strong set of subscriber gains that suggests it is faring well in its battle with BT Group.
The broadcaster reported a decline in third-quarter operating profit because it upped its marketing of Premier League games in the face of competition from BT, but revenues were up as it added 110,000 net new broadband customers in the quarter, 800,000 new paid-for subscription products and 219,000 net additions to its Sky Go Extra mobile TV service, ending the period with 11.2 million retail customers.
BT doesn't report until October 31, but Sky's results suggest it has shrugged off the challenge of its rival's new sports channels and is fast catching up with BT's broadband customer numbers, according to analysts. "In the first quarter of increased competition from BT, Sky has reported 111,000 broadband additions, not just ahead of our 75,000 forecast but also ahead of the 102,000 last year," Numis said in a note to clients.
Beverages companies SABMiller and Diageo both reported higher sales growth over the three months to September 30, despite lagging sales from Western Europe, sending shares higher.
Diageo, the world's largest producer of spirits and major producer of beer and wine, said that organic net sales growth in the first quarter continued to be driven by growth in Latin America, the strength of the US spirits business, and a mix of price increases and cost-cutting. Diageo closed up 0.8%.
SABMiller, the world's second largest brewer by revenues, said that challenging conditions in North America and Europe continued to drag on sales in the first half of the year, despite a modest improvement in the second quarter, although it was more than offset by stronger sales growth in other regions. SABMiller closed up 3.9%.
On the FTSE 250 Polymetal International surged to close up 6.7% after saying its gold equivalent production increased 30% to 413,000 ounces in the three months ended September 30 compared with 317,000 ounces the previous year. The Russian gold and precious metals producer said it is on track for full-year gold equivalent production target amid positive third-quarter production results.
The Rightmove UK house price index will be released overnight, as well as trade and industrial activity numbers from Japan. The German producer price index is also scheduled later Friday morning.
In the corporate calendar, third quarter operating results from Evraz are expected, along with management statements from Provident Financial and Anglo American, as well as a trading statement from Record.
By Jon Darby; [email protected]; @jondarby100
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