31st Oct 2013 10:52
LONDON (Alliance News) - UK stocks look set to break a five-day rally Thursday, with all major indices trading lower after the US Federal Reserve kept its monetary stimulus program unchanged last night, but adopted a more hawkish tone than expected.
By mid-morning Thursday the FTSE 100 is down 0.4% at 6,752.71, the FTSE 250 is down 0.6% at 15,493.91, and the AIM All-Share is off 0.1% at 808.42.
The consolidation in the London market follows a lower close in the US and Asian markets overnight and is mirrored in European markets, with the German DAX currently down 0.2%.
It came as no surprise that the Federal Open Market Committee kept the quantitative-easing tap fully open after recently weak US economic indicators and the federal government shutdown, but a less-dovish-than-expected tone has prompted the move lower in global equity markets. The FOMC statement sounded more positive about the US economy than expected, suggesting that tapering may come sooner than many expected just prior to the statement.
"There was also no mention of the government shutdown, with the tone evenly balanced between dovish and hawkish, in a way that in no way acknowledged that the shutdown had even occurred, and this appears to have caught the market off guard, given the recent and likely continued deterioration in the latest economic data", comments Michael Hewson, Chief Market Analyst at CMC Markets.
Following the Fed meeting, market attention will shift back to data releases, which have been indicating weak global inflation pressure. Numbers from earlier in the week showed the US core consumer price index dropped to 1.7% from 1.8% while, in the eurozone's biggest economy, German CPI came in at negative 0.2% for the month. October CPI in the eurozone came in at 0.7%, slowing from 1.1% in September. Falling global inflation will be used as a reason by some to delay the withdrawal of monetary easing programs, notes Societe Generale's Kit Juckes.
Unemployment numbers also just released from the eurozone show the jobless rate across the whole single currency area rose to 12.2% in September, with the August figure also being revised up to 12.2% from 12.0%. The numbers will come as a particular disappointment after the struggling Spanish economy recorded a modest improvement in employment numbers last week.
The single currency has taken a dip on release of the unemployment and CPI numbers. The euro is trading about 0.5% lower against the dollar Thursday, currently making lows at USD1.3665. The pound is also marginally lower against the dollar, which had been gaining ground after the Fed statement. Currently the pound buys USD1.6025.
Within individual UK shares, chemicals are the heaviest weight dragging on the market Thursday. Croda International is leading the sector and the whole FTSE 100 lower. The specialty chemicals producer is down 7.3% after announcing profits that Deutsche Bank says were more than 5.5% behind expectations. The disappointment seems to be reading across to the whole sector, with Chemicals down nearly 2%.
Telecommunications are the biggest gainers, with the FTSE 350 sector up 1.2%, led higher by BT Group. BT reaffirmed its outlook and raised its interim dividend after it posted roughly flat pretax profit and revenue in the half year ended September 30. BT proposed an interim dividend of 3.4p, up 13% from 3.0p in the previous year. The stock leads the FTSE 100 gainers, up 1.5%.
In UK macroeconomic news, UK house price growth accelerated in October, as the resilience of the economy, together with policy measures, propped up buyer demand that outstripped the supply, a report showed Thursday. House prices advanced 1% month-on-month in October, taking the average price of a home to GBP173,678, the Nationwide Building Society said. The monthly growth rate rose from last month's 0.9%, when it was forecast to slow to 0.7%.
The latest UK house price data will be watched by Bank of England Governor Mark Carney ahead of next week's meeting of the policy-setting MPC.
US initial jobless claims are still to come Thursday, due at 1330 GMT, and are followed by the Chicago purchasing managers index at 1345GMT.
By Jon Darby; [email protected]; @jondarby100
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