17th Jul 2014 16:34
LONDON (Alliance News) - Reports of a Malaysian Airlines passenger jet being shot down on the border of Ukraine and Russia send UK and European stocks sharply lower at the close Thursday.
Investor sentiment already had been hurt earlier Thursday, after the US turned up the pressure on Russia with a fresh round of sanctions.
A Malaysia Airlines Boeing 777 with more than 280 passengers on board crashed in eastern Ukraine, Russian and Ukrainian news agencies reported just prior to the UK market close. The airline said on its Twitter account that it lost contact with flight MH17 from Amsterdam to Kuala Lumpur. "The last known position was over Ukrainian airspace," it said. The fate of the passengers remained unclear.
Both Russian and Ukrainian sources confirmed that the plane went down between the city of Donetsk and the Russian border, an area that has seen heavy fighting between pro-Russian separatists and Ukrainian government forces.
Malaysia's defence minister said there was no confirmation the jetliner was shot down.
The FTSE 100 closed down 0.7% at 6,738.32, the FTSE 250 down 0.3% at 15,554.01, and the AIM All-Share down 0.8% at 769.61.
Other European markets were even more affected by the news of the airliner. The French CAC 40 closed down 1.2%, and the German DAX 30 down 1.1%.
A number of Russia's largest banks and oil companies were targeted by the new list of US sanctions, designed to hit Russian President Vladimir Putin and his government, and the EU is expected to follow up with some extra sanctions of its own by the end of the month.
Putin has stepped up his rhetoric in response to the new measures and was quoted earlier Thursday as saying the sanctions would take US-Russia relations to a "dead end".
Given that the FTSE 100 had its strongest rally in more that four-months on Wednesday, market analysts said it was no surprise to see a little profit-taking Thursday, though the losses had remained relatively limited until news of the plane crash, despite the new sanctions.
In fact, it has been the US second-quarter earnings season that has been driving global markets recently, and up until the latest news broke, the Dow Jones Industrial Average was trading at an all-time high. After the UK market close, the DJIA was down 0.4%, while the S&P 500 was down 0.6% and the Nasdaq Composite was down 0.8%.
While the FTSE 100 spent the the whole day trading in the red, stocks had been supported by some heavyweight merger and acquisition activity in the media sector as well as more expectation-beating US earnings.
ITV was the stand out blue-chip gainer, ending the day up 5.1% amid speculation that it about to become the latest FTSE-100 takeover target, after fellow broadcaster British Sky Broadcasting said it sold its 6.4% interest in ITV to John Malone's Liberty Global PLC. The sale was made at 185 pence per share, a small premium to ITV's closing price Wednesday of 182.95 pence. The stock closed Thursday at 194.00p, up 5.6% on the day.
BSkyB said it intends to use the GBP481 million in proceeds for general corporate purposes, and Liberty said it has no plans to make an offer for ITV.
Investors are speculating otherwise, however, not least because of the heightened merger and acquisition activity in the sector. US-listed Time Warner is trading another 3% higher Thursday, after gaining 17% on Wednesday, following confirmation that it rejected a takeover offer from Rupert Murdoch's 21st Century Fox.
Just as investors are expecting Murdoch to return with another offer for Time Warner, ITV made a considerable gain Thursday as investors assume that Liberty does indeed have takeover interest in ITV, nearly a decade after Virgin Media, which Liberty now owns, made a bid for it.
"We do not expect an immediate bid by Liberty for ITV," said Liberum Capital analyst Ian Whittaker. "However, it is hard to read this move as anything other than an indication of its longer-term intentions."
The tobacco sector was boosted Thursday after Imperial Tobacco received the backing of Merrill Lynch, which upgraded the stock to Buy from Hold, sending the stock up 1.5%. The tobacco sector has been volatile in recent days, also due to increased merger and acquisition activity. On Tuesday, Imperial Tobacco agreed to buy a portfolio of assets from US tobacco giants Reynolds American Inc and Lorillard Inc as the two companies offload assets in an attempt to pass their merger through regulators. Some investors have questioned Imperial's strategy, which involves buying e-cigarette brand Blu. British American Tobacco closed up 0.7%.
Sports Direct International closed down 2.2%, despite releasing strong full-year results showing a 24% rise in year-on-year revenue and a 16% rise in year-on-year profit. While those numbers were broadly in-line with expectations, analysts have highlighted that, at GBP212 million, year end net debt was significantly higher than expected. Liberum Capital had forecast a debt level of GBP41.4 million.
Eurozone inflation data was the main economic focus Thursday, but passed without much fanfare as the final numbers remained unchanged from the initial estimate. In June, consumer prices rose by 0.5% year-on-year, while core prices, which exclude volatile items such as food and energy, rose by 0.8%.
US corporate numbers have continued to be relatively impressive, with Morgan Stanley being the latest of the big banks to exceed expectations. Morgan Stanley earned USD0.94 per share in the second quarter, beating expectations of USD0.55 per share.
"In general so far, earnings have been coming in nicely above expectations and, coupled with the sentiment from the Federal Reserve, US markets are still looking comfortable at current levels," said IG market analyst Will Hedden earlier in the session.
There are more corporate earnings to come Thursday, with the biggest stock by weighting on the DJIA, IBM Corp, as well as technology giant Google Inc, reporting after the New York closing bell.
As well as the earnings, any further details about the reported plane crash in Ukraine will clearly be in focus later in the US session and into Asian trading Friday.
Looking to the UK open on Friday, Shire investors will be poised for any news on Friday, given that Friday is the last day that potential US buyer AbbVie can make a firm offer or walk away from any deal for six months, under UK takeover rules.
Otherwise the UK corporate calendar looks very light Friday, with just updates from small-caps Development Securities and Record PLC scheduled. There's also very little in the economic calendar, with the main interest coming form the US Reuters/Michigan consumer sentiment index, released ahead of the Wall Street opening bell.
By Jon Darby; [email protected]; @jondarby100
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