15th May 2014 16:17
LONDON (Alliance News) - Global stock indices lost ground Thursday amid a raft of disappointing eurozone economic data and concern over some disappointing company updates, with the FTSE 250 mid-cap index suffering its heaviest loss in more than six months, losing more than 350 points, as investors showed concern over the merger between two of its constituents, Carphone Warehouse Group and Dixons Retail.
The FTSE 100 closed down 0.6% at 6,840.89, the FTSE 250 closed down 2.2% at 15,616.54, and the AIM All-Share closed down 0.8% at 801.43.
Major Euopean equity markets also lost significant ground, with the French CAC 40 dropping 1.3%, and the DAX 30 closing down 1.0%.
After the European close, US stocks also continue significantly lower, with the DJIA, the S&P 500, and the Nasdaq Composite all down more than 1.0%.
The focus of the morning session was the European economy, and data releases once again highlighted the problem of Eurozone constituent economies operating at different speeds, while average price growth across the region remains subdued.
"Global markets took to the downside after a mix of economic data sent nerves through the markets," said Spreadex trader Lee Mumford.
Consumer prices in the Eurozone grew at 0.2% in the month of April, in line with expectations. On an annual basis prices increased by 0.7%, also in line with expectations, while on a core basis, they rose by 1.0% over the year, slightly more than the 0.7% expectation.
After European Central Bank President Mario Draghi said last week that the Governing Council was "comfortable with acting next time," but wanted to wait for the bank's updated economic projections first, the ECB Thursday published the results of its survey of professionals.
The 2015 forecast was cut to 1.3% from 1.4%, while the important medium-term 2016 outlook was cut to 1.5% from 1.7%. The staff forecasts, which Draghi has highlighted as the ones key to policy making, are likely to be in line with these, says Brown Brothers Harrimen Global Head of Currency Strategy Marc Chandler.
While inflation remains a concern, so too does economic growth, which at 0.2% across the Eurozone in the first quarter was only half of the 0.4% that economists had expected. While German GDP came in slightly faster than expected at 0.8%, the French economy appears to have completely stalled, with a flat GDP reading, disappointing expectations of 0.2%. GDP in Portugal turned negative and in Italy it stayed negative for the second consecutive month.
"That’s pretty much in line with what we’ve become accustomed to, a two tier eurozone with Germany the engine behind any growth," said Alpari market analyst Craig Erlam.
Stocks across the UK and Europe took a further lurch downwards when the US markets opened lower, in part due to the disappointing results of the worlds biggest retailer, Wal-Mart Stors Inc, that said its first-quarter profit dropped from the year before and missed analysts expectations, partially due to the particularly harsh winter weather in the US. Wal-Mart, which has a bigger market capitalisation that any UK stock, continues to trade down about 2.0%.
US economic data was a little more positive than that in the Eurozone Thursday. US CPI came in at 0.3% in April, in line with expectations, while initial jobless claims, at 297,000, rose slightly less than the 320,000 expected.
The NY Empire State manufacturing index jumped to 19.01 in May from 5.0 in April, while the Philadelphia Fed manufacturing survey also rose, to 15.4 in April from 14.0 in March.
Within UK equity movers, the main story of the day was provided by the merger between general electronics retailer Dixons, and mobile phone retailer Carphone Warehouse, who will combine in a GBP3.6 billion deal, that will be an equal partnership, and create the UK's biggest retailer of mobile phones and electronic goods. Investors sent the shares of both companies tumbling as the move is broadly seen as a defensive one.
"The M&A monster reappeared today in the form of the creatively named Dixons Carphone," said CMC Markets market analyst Jasper Lawler.
Dixons closed down 10.2%, while Carphone Warehouse lost 8.1%. While analysts and investors alike are concerned about a squeeze on market share for both parties; as it's a merger of equals, neither set of shareholders get a premium for being bought out as they would in an acquisition, says CMC's Lawler.
Thomas Cook also weighed heavy on the mid-cap index Thursday, closing down 12.6%. Investors reacted negatively to the group's interim results despite the holiday operator narrowing its pretax loss in the first-half of the year to GBP366 million, compared with a loss of GBP394 million the prior year.
Thomas Cook continues to see a negative impact on holiday bookings due to civil unrest in Egypt. Management noted that a quarter of a million fewer people travelled to the previously popular destination over the period. Summer trading in the UK, where bookings and yields are down, "gives cause for concern," says Investec analyst James Hollis. Market analysts also say that the stock came under some pressure due to the recent combination of a weaker pound and higher oil prices. The price of oil in sterling terms has risen by about 3.5% in little over a week.
London Stock Exchange Group was one of the few stand out gainers Thursday, rising 3.8% after saying that it has identified some additional cost savings as part of integrating LCH.Clearnet. The stock exchange said that the synergies from the acquisition of LCH.Clearnet are likely to lead to cost savings of EUR60 million by the end of 2015, up from the previous estimate of EUR23 million, and moreover analysts believe this figure may grow further yet.
The UK supermarkets had a good day after Asda reported a good set of results, along with its parent Wal-Mart. Morrison closed up 4.5%, while Sainsbury gained 1.6%, and Tesco gained 1.2%.
Still to come Thursday, Federal Reserve Chair Janet Yellen delivers "Small Businesses and the Economy" after the US market close at 2300 GMT.
Friday's economic calendar is a lot lighter, with no top tier releases scheduled and nothing at all from the UK. Japanese industrial production numbers are released overnight and expected to show a small rise of 0.3% over the month of March, reversing some of the 2.3% drop recorded in February.
Eurozone trade balance numbers are due at 0900 GMT and are expected to show a rise in the surplus to EUR15.5 billion in March from EUR13.6 billion in February.
From the US, building permits and housing starts data are due at 1230 GMT, followed by the Reuters/Michigan consumer sentiment index at 1355 GMT.
In the UK corporate calendar Friday, real estate investment group Grainger release interim results, while housebuilder Bovis Homes Group puts out an interim management statement. Interim statements are also due from Keller Group, Inchcape, Brammer, Intertek Group, and John Menzies.
By Jon Darby; [email protected]; @jondarby100
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
TescoLSE.LKellerBovis HomesThomas CookInchcapeMRW.LGrainger plcSainsbury'sMNZS.LBRAM.LDXNS.LCPW.L