17th Sep 2014 16:02
LONDON (Alliance News) - UK stocks closed marginally lower Wednesday as investors remained reluctant to increase equity holdings ahead of the Federal Reserve policy announcement later, as well as Thursday's vote on Scottish independence.
The overnight news that China's central bank injected the equivalent of USD81 billion dollars into the nation's five major state-run banks to bolster flagging economic growth sent the London market a little higher at the open. However, with major risk events still to come this week, the early strength was soon reversed and UK stocks ended a little lower.
The FTSE 100 closed down 0.2% at 6,780.90, the FTSE 250 closed 0.1% lower at 15,576.72, and the AIM All-Share index closed down 0.2% at 763.46.
Major European equity markets fared markedly better after some encouraging eurozone inflation data, with the French CAC 40 closing up 0.5%, and the German DAX 30 closing up 0.3%.
Eurozone consumer prices rose by 0.4% year-on-year in August, stable from July, but exceeding the expectation that price growth would fall to 0.3%. Excluding volatile items such as energy, core prices in the single currency block rose by 0.9% over the month, in line with expectations.
After the European market close, US stocks are a little higher, although trading remains subdued ahead of the 1900 BST announcement from the Federal Reserve. The DJIA and the S&P 500 are both 0.1% higher.
The minutes of the Bank of England's September Monetary Policy Committee meeting showed that rate setters voted 7-2 for the second consecutive month to keep the UK interest rate unchanged at 0.5%. In line with the previous meeting, Ian McCafferty and Martin Weale again sought to raise the key rate by 25 basis points. The policy members also agreed unanimously once again to maintain the Bank of England's stock of asset purchases at GBP375 billion.
While the two hawks argue that the BoE should be proactive in raising rates, given that monetary policy acts with a lag, the majority of the committee members still see slack wage growth in the UK as reason enough to keep rates on hold.
That wage growth showed slight improvement Wednesday, with official data showing average earnings including bonus payments increased 0.6% year-on-year in July, accelerating from 0.5% growth in June. Analysts have sad that the improvement could simply be a result of the timing of bonus payments, however, given that average earnings growth excluding bonuses remained stable at 0.7%.
UK unemployment continued to fall in the three months to July, with the headline rate now standing at 6.2%, down from 6.3% in June, and 6.4% in May, according to ONS data. The continued pick up in unemployment indicates slack in the economy being used up, analysts say, which should ultimately lead to an increase in wage growth, and, in turn, an interest rate rise.
The pound performed well on the back of the improving UK economic picture. Sterling rose to its highest level in almost two weeks against the dollar, peaking at USD1.6358. The pound also reached a near two week high against the euro, peaking at EUR1.2614.
The combination of a continued improvement in the UK economy and the BoE moving no closer to raising interest rates provided a boost to the housebuilders. FTSE 100 listed Barratt Developments and Persimmon were both amongst the best performing stocks in the leading index, closing up 3.1% and 1.5%, respectively.
The technology sector also performed well, led by FTSE 250-listed Imagination Technology. The chip maker forecast a heavier second half weighting than usual due to new product shipments, such as those from Apple Inc later in the year. The micro-chip maker said that in the period from May 1 to Tuesday, it had seen encouraging activity in licensing across all three main intellectual property product areas and its customer base. The stock closed up 5.6%, and its comments helped lift FTSE 100-listed peer ARM Holdings, which gained 2.2%.
Apple unveiled its latest iPhones last week, and the first reviews of the new devices have started to hit the press and are largely positive, providing a boost for UK technology suppliers.
Smiths Group shares fell 4.5% after it reported lower pretax profit for its last financial year, as its medical and detection businesses continued to be hit by lower government spending, particularly in the US, and the strength of sterling also continued to weigh on revenue earned overseas. The group posted a pretax profit of GBP302.0 million for the year to July 31, down from GBP395.7 million the year before, as revenue fell to GBP2.95 billion, from GBP3.11 billion.
FTSE 250-listed DS Smith gained 5.5% after the supplier of recycled packaging for consumer goods said it has made good progress since the start of its financial year on May 1, with like-for-like corrugated box volumes improving in all operating regions. It said growth was ahead year-on-year and also ahead of its medium-term targets.
Sportswear retailer JD Sports gained 4.2% after reporting a big increase in its pretax profit to GBP16.5 million for the six months to August 3, up from only GBP6.1 million a year earlier. Its growth was driven by a 27% increase in revenue to GBP721.5 million, from GBP567.4 million last year, after strong sportswear sales continued and it was given a boost by the build up to the football World Cup.
Inter-dealer broker ICAP gained 4.8% after UBS raised the stock to Neutral, from Sell. ICAP's shares have underperformed the FTSE All-Share by some 15% over the last 12-months, and UBS thinks the market is pricing the shares for a gloomy update from the company on September 30. Given that the bad news is priced in, the upgrade reflects the possibility of a positive surprise, the Swiss bank said.
Still to come Wednesday, all eyes will be on Fed Chair Janet Yellen when she delivers the latest policy decision from the Federal Open Market Committee at 1900 BST. The Fed is about to finish its two day meeting, which has been surrounded by speculation that the central bank might be about to make a significant hawkish adjustment to its forward guidance by removing the words "considerable time" from the statement that indicates how long it will be appropriate to maintain emergency interest rates for.
However, US consumer prices fell by 0.2% month-on-month in August, erasing the 0.1% rise seen in July, according to data released Wednesday. In theory, the data would make the Fed less likely to shift to a more hawkish stance and US stocks are holding on to slim gains heading into the announcement.
"A potential change in forward guidance was a major cause of the recent consolidation in US stock markets so if there is no change in policy language, it could trigger the next leg higher in the bull market," said Jasper Lawler, market analyst at CMC Markets.
The early direction of the London market on Thursday is likely to be determined by the outcome of the Federal Reserve announcement, while the focus of the day will undoubtedly be the Scottish referendum, although a final result will not be known until early Friday morning.
UK retail sales data for August is due for release Thursday morning, while highlights of the UK corporate calendar include full-year results from Kier Group and Just Retirement Group.
By Jon Darby; [email protected]; @jondarby100
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Imagination Technologies GroupSmith (DS)KierBarratt DevelopmentsSmiths GroupPersimmonJD SportsIAP.LARM.LJRG.L