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LONDON (Alliance News) - All the major UK equity indices closed lower Tuesday as investors braced for the results of the two-day Federal Reserve meeting, due after the market close Wednesday.
Reversing most of the gains from Mondays rally, the FTSE 100 fell 0.8% to close at 6,570.17, while the FTSE 250 close down 0.9% at 15,152.26 and the AIM All-Share closed down 0.5% at 785.64.
Equity markets had rallied on Monday, while the dollar, oil prices and gold all fell, on the news that former US Treasury Secretary Larry Summers had withdrawn from the race to be next Fed chairman, with Vice Chair Janet Yellen, a protagonist of a slower reduction of the asset purchase programme, now the lead contender.
However disappointing Chinese foreign direct investment figures overnight sent Asian markets lower Tuesday and lead to a lower start in London. Foreign direct investment grew just 0.62% in August from the previous year as China attracted USD8.38 billion investment in August, down from USD9.41 billion last month.
The much anticipated sale of the UK Government's holdings in bailed out banks began today, with the sale of 6% of Lloyds Banking Group. This round was sold to institutional investors but the Government still holds 32.7% of the bank and George Osborne has said he could open up subsequent stake sales to retail investors, including the general public. Lloyds shares closed down 3.1%.
Barclays, meanwhile, had revealed in its rights issue prospectus late Monday that it has been fined GBP50 million by the UK financial services regulator for not divulging that it had paid fees to Qatari investors for advising on a 2008 rights issue when the Qatari's then provided billions of pounds to the bank through the issue. It also revealed that its investment bank had been hit by slow fixed income trading during July and August, with adjusted income down GBP500 million down on the same months last year. Tuesday brought a further disclosure: Barclays is going to have to pay out after incorrectly charging interest to consumer loan customers. It hasn't said how much yet. Barclays shares closed down 2.1%.
Not to be left out, RBS also had a volatile day. The shares traded lower amid reports from BBC Business Editor Robert Peston that the board had rejected a bid for 315 branches it is selling from W&G Investments, the shell set up by former Tesco Finance Director Andrew Higginson specifically to buy them. W&G Investments later denied the report, saying it is still in talks with RBS regarding the sale and its bid has not been rejected. RBS shares closed down 1.6%.
Gold remained fairly stable Tuesday, while the price of oil continued to fall. A barrel of Brent crude is about 7% cheaper than a week ago when a military strike on Syria looked imminent. Brent now trades at USD108.25 per barrel.
UK annual inflation slowed for the second consecutive month in August, as the consumer price index fell to 2.7% from 2.8% in July, data published by the Office for National Statistics showed Tuesday. The rate came in line with economist expectations.
German investor confidence hit a three-and-half year high in September, according to the ZEW survey. The indicator of economic sentiment for Germany rose to 49.6, its highest since April 2010, from 42 in August. Economists had forecast a score of 45. The score is way above its historical average of 23.8 points.
The economic sentiment indicator for Eurozone also jumped in September, rising by 14.6 points to 58.6 points.
The positive German data has driven the euro to recoup some of its recent losses against the pound. The currency pair currently trades at GBP0.8395. The pound and the euro remain strong against the dollar, currently at USD1.5908 and USD1.3350.
House price data from China overnight will provide an early driver Wednesday, and then the minutes of the Bank of England's August meeting will be released at 0930 BST.
Since the BoE introduced forward guidance, almost every piece of economic data has indicated the UK is experiencing stronger-than-expected growth, causing markets to challenge Governor Mark Carney's predictions and price in an increase as soon as late 2014, against the central bank's predictions of late 2016.
The consensus forecast is for Carney to have whipped his colleagues into line, generating a 9-0 vote to keep rates at 0.5%.
Carney will hold his first Financial Policy Committee meeting Wednesday, at which he is under growing pressure to introduce rules to prevent a potential housing market bubble. A release from the FPC, the central bank's new chief financial regulatory oversight committee, will not be made until Wednesday September 25.
After European market close Wednesday, the biggest event of all is scheduled. At 1900 BST, decisions from the FOMC meeting in the US are announced.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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