13th Jun 2014 16:35
LONDON (Alliance News) - UK stock indices closed significantly lower Friday, while the price of oil reached a nine-month high, as investors reacted to the increasing crisis in Iraq, as well as a warning of a potential early UK interest rate rise from the Governor of the Bank of England.
Iraq's most senior Shia cleric Ali al-Sistani issued a call to arms Friday, urging all citizens "able to carry arms and fight terrorists" to volunteer and join the security forces to repel Sunni militants who are advancing on the capital city Baghdad after seizing smaller towns in the north of the country.
Concern over the situation sent the FTSE 100 to its lowest close in six-weeks, down 1.0% at 6,777.85. The FTSE 250 suffered its worst one day loss in a month, closing down 1.9% at 15,814.81, and the AIM All-Share also lost ground, closing down 0.9% at 787.77.
However, the housebuilders and real estate investment trusts were among the biggest fallers on the London market Friday, after BOE Governor Mark Carney made a hawkish turnaround and indicated that UK interest rates may rise sooner than the central bank previously guided.
Major European equity markets fared a little better Friday, but also closed lower. The French CAC 40 closed down 0.2% and the German DAX closed down 0.2%. Stocks across Europe were lifted off their earlier lows by a better start in the US. After the European market close, the DJIA and the S&P 500 were trading about 0.2% higher, taking back some of the heavy falls posted on Thursday.
Speaking at the annual Mansion House dinner on Thursday night, Carney said that the first UK interest rate rise could happen sooner than markets currently expect. "There is already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced," the BoE chief said.
The immediate market reaction was to send the pound up to a near five-year high against the dollar, peaking at USD1.6992. Against the euro, sterling also made further gains, peaking at EUR1.2533, the highest level since mid-November 2012.
The prospect of an earlier-than-expected rate rise weighed heavy on real estate investment trusts, with the FTSE 350 REIT sector closing down 3.6% Friday. Big Yellow Group was the worst performer of the sector, closing down 4.8%. British Land closed down 4.3%, and Land Securities closed down 3.8%.
Speaking at the same event, Chancellor of the Exchequer George Osborne said that the BoE will be given formal powers to rein-in mortgage lending, due to growing concerns about house price inflation. "If London prices were to continue growing at these rates, that would be too fast for comfort," Osborne said. "And the rate of price rises is beginning to spread beyond London."
"The central bank is gearing up to take action," said economist Wood. Berenberg expects the bank to further tighten mortgage lending criteria this month, and to cut back the Help to Buy scheme in September.
Persimmon was the worst performing stock on the FTSE 100 Friday, closing down 7.0%, with fellow blue-chip housebuilder Barratt Developments down 6.3%. In the FTSE 250, Taylor Wimpey closed down 6.3%, Bovis Homes closed down 4.9%, and Bellway closed down 4.9%.
Brent oil has risen sharply since the situation in Iraq stated to rapidly deteriorate, reaching a nine-month high of USD114.04 per barrel on Friday, although at the time of the European market close, it has slipped back to near-flat on the day, at USD112.45.
The oil producers led the gainers on the London market for most of the day on the back of the oil price spike, although they have also slipped back by the time of the market close. BG Group closed up 0.1%, Premier Oil closed up 0.2%, and Royal Dutch Shell ended the day fractionally lower.
"Tensions in the oil market have diminished significantly this afternoon. Either that, or traders with long positions have been busily booking profits ahead of the weekend," said IG market analyst Chris Beauchamp.
Diamond miner Petra Diamonds led the gainers on the FTSE 250, closing up 7.7% after saying that it has recovered another exceptional 122.52 carat blue diamond at the Cullinan mine in South Africa. The news comes after the company announced in January that it had recovered a 29.62 carat blue diamond from the same site. It sold the diamond for USD25.6 million in February.
At the other end of the index, Bwin.Party was the biggest faller, closing down 7.4%, and online gaming peer 888 Holdings closed down 6.0%. Bwin's dominance in the online gaming sector may be under threat after Canadian Firm Amaya Gaming announced a USD4.9 billion deal to buy Rational Group, the owner of PokerStars and Full Tilt Poker.
"If the deal goes through Bwin will no longer be the world’s biggest publicly traded online gaming company, with Amaya expanding its footprint in Europe," said CMC Markets chief market analyst Michael Hewson. "This new group is likely to be a serious competitor to both Bwin and 888 in their key markets in Europe."
The UK housing market is likely to remain in focus for the coming week, starting with the latest Rightmove house price index which is due to be released ahead of the market open on Monday. On Tuesday the BOE's Financial Policy Committee holds its quarterly meeting, from which any decisions will be published in the financial stability report on June 26. Then on Wednesday the minutes from the latest BOE Monetary Policy Committee meeting are published, from which investors are increasingly expecting a more balanced debate about an interest rate rise, especially given Carney's most recent hawkish comments.
Monday's data calendar looking light. The Bank of Japan releases its monthly economic survey at 0600 BST, Eurozone consumer price inflation data are released at 1000 BST, and in the US the June New York Empire State manufacturing index is released at 1330 BST, with industrial production and capacity utilisation information released shortly after at 1415 BST.
In the UK corporate calendar Monday, AIM All-Share-listed Majestic Wine and RM2 International release full-year results.
By Jon Darby; [email protected]; @jondarby100
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