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(Corrects that BHP Billiton and Rio Tinto were downgraded by Liberum, not Deutsche Bank.)
LONDON (Alliance News) - UK shares opened lower Thursday, in the wake of the US Federal Reserve's decision to keep interest rates unchanged on Wednesday while signalling that a "lift-off" is still possible at the next meeting in December.
Barclays and Royal Dutch Shell were among the worst blue-chip performers in London after reporting weak third-quarter updates.
The FTSE 100 index opened down 0.8% at 6,386.00 points, the FTSE 250 was down 0.3% at 17,093.95, and the AIM All-Share was down 0.3% at 739.80. In Europe, the French CAC 40 index opened flat, while the DAX 30 in Frankfurt was up 0.4%.
Barclays opened down 3.3% after reported lower third-quarter adjusted pretax profit as total income net of insurance claims fell back in the quarter.
The bank said net profit amounted to GBP417 million in the three months to September 30, compared with GBP379 million the corresponding quarter the prior year. A third interim dividend of one pence will be paid on December 11.
Third-quarter adjusted pretax profit, a closely watched measure which strips out the effects of own credit, provisions for fines and compensation due to customers as well as other gains and losses, fell to GBP1.43 billion from GBP1.59 billion a year before. The adjusted figure missed company-compiled consensus forecasts of GBP1.64 billion.
Royal Dutch Shell 'A' shares were down 2.0%, after the oil giant said it swung to a loss in the third quarter after booking substantial losses on exceptional items and experienced a fall in revenue. Shell reported a USD6.10 billion current cost of supply loss in the third quarter of 2015, swinging from a USD5.30 billion profit a year earlier. That loss was caused by exceptional items totalling USD7.90 billion.
Excluding those items, current cost of supply earnings came in at USD1.80 billion, still significantly down from the USD5.80 billion reported a year ago. As expected, Shell's downstream results improved whilst upstream earnings were severely hampered by lower oil prices.
In downstream, earnings benefited from steps taken by Shell to improve its financial performance and from higher realised refining margins. Upstream earnings were negatively impacted by lower oil and gas prices, partly offset by lower costs, increased production volumes and improved operational performance.
Miners BHP Billiton and Rio Tinto opened down 3.4% and 2.7%, respectively, after being downgraded to Sell from Hold by Liberum.
Meanwhile, gold miners Randgold Resources and Fresnillo opened down 4.1% and 3.1%, respectively, after ending among the biggest gainers Wednesday following a rise in the yellow metal price. However, gold has fallen back overnight to USD1,159.51 an ounce, after being at USD1,178.78 an ounce at the London close Wednesday.
Smith & Nephew was the worst blue-chip performer, down 5.4%. The company said it has agreed to acquire Blue Belt Holdings for USD275 million, as it maintained its outlook for 2015, and reported a slight rise in revenue for the first nine months of 2015.
The medical equipment business said it has agreed to acquire Blue Belt, which works in orthopaedic robotics-assisted surgery, funded through its existing debt facilities. The deal is expected to close around the year end, and Smith & Nephew expects revenue growth from the business to be over 50% in the medium-term.
Smith & Nephew for itself reported consolidated revenue of USD3.38 billion for the nine months to end-September, up from USD3.37 billion a year before.
In the green, Aviva was the best performer in the FTSE 100, up 2.5%. It said the acquisition of Friends Life, the rival life insurer it bought for about GBP5.6 billion, is "everything we expected it to be", as it continues to work towards its cost savings target through the integration process.
BT Group was another gainer, up 0.7%, after it said it is on track to deliver its outlook for its full financial year and increased its interim dividend, as it reported a rise in pretax profit for its first half. BT cited a strong performance from its fibre broadband, as well as good demand from its new BT Sport Europe channel, which helped drive up BT TV customers in the second quarter.
On Wednesday, BT's GBP12.5 billion acquisition of mobile operator EE was provisionally cleared by the UK Competition and Markets Authority without requiring any remedies to gain approval.
The Federal Reserve kept US interest rates at 0-0.25% on Wednesday amid internal debate about whether to tighten monetary policy, according to the central bank's policy statement. The vote to maintain interest rates at zero was 9-1, with only Richmond Fed President Jeffrey Lacker arguing for a rate hike.
However, Federal Open Market Committee members said that an increase in interest rates is still on the cards for their "next meeting" in December.
"In determining whether it will be appropriate to raise the target range at [the FOMC's] next meeting, the Committee will assess progress - both realized and expected - toward its objectives of maximum employment and 2% inflation," the Fed said in a statement. "This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments."
Analysts highlighted that the Fed removed a line from its previous statement expressing concerns that "recent global economic and financial developments may restrain economic activity somewhat."
CMC Markets chief market analyst Michael Hewson wasn't surprised by the decision, but he says the tone of the statement certainly was surprising, "particularly in light of the recent dovish comments from senior members of the Federal Reserve Board, and the recent slowdown seen in the most recent economic data."
"The hawkish tone of the statement suggests that the FOMC is ignoring the recent evidence of a possible slowdown with respect to the US economy, and we will get an early test of that later today with the first iteration of US third-quarter gross domestic product, which is expected to show a sharp slowdown to 1.6%, from the expansion of 3.9% seen in the second quarter," adds Hewson.
Alongside the US gross domestic product data, initial jobless claims also are due at 1230 GMT. Pending home sales are expected at 1400 GMT, while EIA natural gas storage data are due at 1430 GMT.
Following the decision, the pound declined sharply against the dollar. Before the London open, sterling was at USD1.5264, after being at USD1.5340 prior to the Fed announcement.
Wall Street ended higher following the Fed decision, with the DJIA up 1.1%, the S&P 500 up 1.2% and the Nasdaq Composite finished up 1.3%.
In Asia on Thursday, the Japanese Nikkei 225 index closed up 0.2%. In China, the Shanghai Composite index ended up 0.4% but the Hang Seng in Hong Kong closed down 0.6%.
Also in the economic calendar, UK mortgage approvals and consumer credit data are expected at 0930 GMT. Eurozone economic sentiment indicator is due at 1000 GMT, while Germany's consumer price index is due at 1300 GMT.
By Daniel Ruiz; danielruiz@alliancenews.com
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