16th Jan 2015 17:10
LONDON (Alliance News) - UK Main Market indices closed higher Friday, as markets stabilised after Thursday's turmoil in the wake of the Swiss National Bank's surprise decision to remove the ceiling for the Swiss franc against the euro and to cut interest rates.
Attention instead turned to next week's European Central Bank meeting, with market participants expecting the eurozone's central bank to launch full-blown quantitative easing in a bid to spark life into its ailing economy. Expectations that the ECB will announce a big sovereign bond buying programme increased as it was confirmed that the single currency area experienced deflation in December.
The FTSE 100 closed the day up 0.8% at 6,550.27, and the FTSE 250 closed the day up 0.1% at 15,922.51. The AIM All-Share index, meanwhile, closed down 0.2% at 696.11. The blue-chip index ended the week up 0.8%, despite dropping 2.4% on Wednesday when mining stocks were hit hard by a fall in copper prices.
European indices also closed higher, with the CAC 40 in Paris closed up 1.3%, and the DAX 30 in Frankfurt 1.4%. When the European markets closed, the DJIA was up 0.2%, the S&P 500 up 0.4%, and the Nasdaq Composite up 0.5%.
The SNB Thursday unexpectedly decided to abandon its exchange rate ceiling of CHF1.2 per euro, and cut its key interest rate to negative 0.75, from negative 0.25, to try and counteract the strengthening of its currency. The move caused a subsequent sharp rise in the value of the Swiss franc amid drying up liquidity, catching out market participants across the world. At the close of London equity markets on Friday, the euro traded the Swiss franc at CHF0.9832. It also continued to sink against other major currencies, falling to another 11-year low against the dollar at USD1.1458.
Alpari, the foreign exchange online trading website that sponsors West Ham United Football Club, Friday said its UK business has been forced into insolvency by the turmoil in the foreign exchange markets. Alpari said the "exceptional volatility and extreme lack of liquidity" caused by Swiss central bank's move resulted in the majority of its clients sustaining losses which exceeded their account equity.
"Where a client cannot cover this loss, it is passed on to us. This has forced Alpari (UK) Limited to confirm today, 16/01/15, that it has entered into insolvency," Alpari UK said
In the US, FXCM said it may be in breach of some regulatory capital requirements, after its clients experienced significant losses due to the unprecedented volatility in the euro-swiss franc pair, generating negative equity balances owed to FXCM of approximately USD225 million.
Eurozone inflation turned negative in December, as initially estimated, for the first time in more than five years in December, final data from Eurostat showed on Friday. The Harmonized Index of Consumer Prices fell 0.2% year-on-year in December, reversing the 0.3% rise in November. This was the biggest fall seen since September 2009, when prices decreased 0.3%. Consumer prices declined for the first time since October 2009, when prices fell 0.1%.
German December CPI rose 0.2% on the year and was flat on the month, both unrevised. December HICP rose 0.1% on both the month and the year, also unrevised.
Confirmation the eurozone is experiencing deflation fuelled expectations the ECB will announce a big bond buying plan next week.
"The breadth of a potential ECB stimulus plan has still been kept under-wraps, and it is the Central Bank’s quietness on the topic that may prove to be the markets’ undoing," said Connor Campbell, a financial analyst at Spreadex. "If Draghi doesn’t satisfy investors with the extent of his measures, the market effects of the stimulus plan may not be as boisterous as expected, especially with the wild card Greek election only a few days after."
ECB Executive Board member Benoit Coeure told the Irish Times Friday that quantitative easing should be big to be efficient. In an another interview with the Liberation daily, Coeure said the bank will take in to account the US and British experiences to determine the amount of bonds to buy in order to restore confidence in the inflation target.
"We don't need to be in deflation to worry about low inflation, low inflation is bad enough," Coeure said in the interview with the Irish Times.
Consumer prices also fell in the US by a seasonally adjusted 0.4% in the month of December, as the falling oil price continued to send the cost of petrol plummeting, the US Bureau of Labour Statistics said, fueling expectations the US Federal Reserve may further delay hiking interest rates.
Oil related stocks were amongst the best performers in the FTSE 100 after oil prices came off their recent lows. At the London close Brent oil traded at USD49.11 a barrel, while West Texas Intermediate traded at USD47.45 a barrel.
Separately, BP's ongoing efforts to cap the amount that it will pay out for the 2010 Deepwater Horizon disaster got a boost Friday, after the US District Court for the Eastern District of Louisiana ruled that BP will pay a minimum Clean Water Act penalty of USD3.5 billion and a maximum of USD13.7 billion, several billion dollars less than feared.
BP was one of the best performing blue-chip stocks on the day, closing up 2.2%, behind best-performer Glencore which ended up 5.0%. Other oil producers were also amongst the biggest FTSE 100 performers, with BG Group up 3.9% and Royal Dutch Shell 'B' up 1.8%.
JD Sports Fashion, up 6.7%, was one of the best performers in the FTSE 250. The sports clothing and equipment retailer upgraded its guidance for the full year on the back of a jump in sales over the Christmas period. The company said like-for-like sales rose 12% in the five weeks to January 3 against strong comparative figures in the year-earlier period. As a result, cumulative like-for-like sales growth in the 48 weeks to January 3 is now at 12%, JD Sports said.
Spectris, up 5.6%, was also a strong midcap performer. The instrumentation and controls company said it expects its adjusted operating profit to be around GBP198 million for 2014, in line with previous guidance, as sales rose 5% in its fourth quarter on both a reported and constant currency basis. Spectris said that excluding a boost from acquisitions and foreign currency exchange movements which had a negative effect of 5%, reported sales for the full year were down 2% compared with 2013.
Countrywide, down 5.5%, was the worst performer in the FTSE 250. Barclays downgraded the estate agent to Equal Weight from Overweight ahead of the company's trading update on Thursday, saying it will take a hit from a fall in UK residential transaction volumes.
The economic calendar Monday is quiet with Japanese industrial production figures at 0430 GMT, and consumer confidence at 0500 GMT. Eurozone current account and construction output will be at 0900 GMT and 1000 GMT respectively.
The corporate calendar is fairly light also. Chocolate maker Thorntons will be issuing a second quarter trading statement, and pub operator Greene King will issue a trading statement. Steel and mining business Evraz will report its full year results, while software company WANdisco will release a fourth quarter booking update.
By Neil Thakrar; [email protected]
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