Barclays Share News (BARC)

LONDON (Alliance News) - UK stocks closed down for the fourth day in a row Thursday, with the FTSE 100 closing at its lowest level since late April, amid another raft of disappointing macroeconomic data releases from around the world and growing concerns about the financial situation in Europe.

London's major equity indices have closed down every day this week as underwhelming global data releases weigh heavily on investor sentiment.

In data released Thursday, French consumer prices showed no growth at all in June, a disappointment compared to the market expectation for 0.1% growth. Meanwhile, Italian industrial output fell by 1.2% in May, missing forecasts for 0.2% growth, and Chinese trade data released overnight was also underwhelming.

In the UK, data revealed that the UK's visible trade deficit expanded to GBP9.20 billion in May from GBP8.81 billion in April, disappointing economists that had been looking for a small reduction in the deficit to GBP8.75 billion.

"With unease about high stock market valuations amidst poor economic performance in Europe, stocks were always susceptible to some downside until earnings growth can justify current price levels," said Jasper Lawler, a market analyst at CMC Markets.

The FTSE 100 closed down 0.7% at 6,672.37 Thursday, while the FTSE 250 closed down 0.7% at 15,439.87, and the AIM All-Share index closed down 0.9% at 771.31.

Declines were even bigger in Europe, where the CAC 40 in Paris closed down 1.3% and the DAX 30 in Frankfurt closed down 1.5%.

As well as the disappointing data, growing concerns within the banking sector also weighed on UK and European equity indices Thursday, after Portugal's largest listed bank, Banco Espirito Santo, suspended its shares due to problems over a bond payment.

"With Portugal looking to be in trouble once again, prudent analysis has been thrown out of the window in preference to a knee-jerk reaction," said Chris Beauchamp, a market analyst at IG.

"Portuguese bond yields aren’t soaring (yet), and the contagion hasn't spread to Spain or Italy (yet), but the combination of the news from Lisbon and more data that confirms the weakness of the eurozone has provided the excuse to finally kick start the summer volatility trade into life," Beauchamp added.

The European banks are under particular pressure in the current environment, caught between a rock and a hard place with a central bank that is so desperate for them to lend that it has introduced negative interest rates, while also having to hoard capital to weather stress testing.

"With tougher capital requirements, it means banks need to keep more money in reserve and can’t lend it out and make returns," explained CMC's Lawler. "This problem is exacerbated in Europe where weak economies are not generating demand for banks loans in the first place."

Despite assurances that Espirito Santo is protected, the latest news from Portugal has heightened concerns about the strength of bank balance sheets within the eurozone, weighing on UK and European banks and financial companies. Barclays has closed down 1.7% Thursday, at its lowest level since October 2012, while Royal Bank of Scotland Group closed down 0.4% and HSBC Holdings closed down 1.3%.

Elsewhere, London Stock Exchange Group, closing down 3.1%, ended the day as one of the heaviest fallers in the FTSE 100. Shares in the group fell sharply after the Qatar Investment Authority, the Qatari sovereign wealth fund, said that it has sold about a third of its stake in the London Stock Exchange, leaving it with a stake of around 10.3% in the exchange operator.

The Qatari fund said the deal was part of its "routine" portfolio management, and it does not expect to sell any more LSE shares in the immediate future. The share sale was done through a block sale managed by Citigroup and Merrill Lynch. It didn't say exactly how many shares were sold, but the fund held a 15.08% stake before the block sale.

The sale by Qatar Investment Authority comes ahead of the LSE's USD1.60 billion rights issue in September, money it will use to help fund its USD2.70 billion acquisition of Russell Investments, the operator of benchmark equity indices widely used by US fund managers.

At the other end of the spectrum, Burberry Group closed up 2%, making it one of the biggest risers in the blue-chip index. The luxury fashion retailer's shares jumped after it posted a good increase in retail revenue in the first quarter of its financial year.

Retail sales increased to GBP370 million in the three months to end-June, up from GBP339 million in the same period the prior year. On an underlying basis, sales grew 17%, but on a reported basis only 9%, hit by the strength of the sterling. Comparable sales growth in the period was 12%.

In the FTSE 250, Ashmore Group, closing up 5.6%, was a stand out winner. The specialist emerging markets asset manager reported 7% growth in assets under management during its fiscal fourth quarter, the first growth since its fiscal first quarter, driven by USD1.6 billion of net inflows and a positive investment performance of USD3.3 billion.

It said assets under management are estimated to have risen to USD75.0 billion in the three months to end-June, from USD70.1 billion at the end of March. It had reported 1.4% quarterly growth in assets under management in its fiscal first quarter, but then assets under management declined 4.1% in the second quarter and 6.9% in the third quarter.

Housebuilding and construction company Galliford Try was another big gainer in the mid-cap index, closing up 4%. The company said it had acquired Miller Construction from Miller Group Holdings Ltd for GBP16.6 million, which it expects to be earnings enhancing in the year ending June 30, 2015.

Galliford said the deal will accelerate growth in group construction revenue towards GBP1.25 billion and increases the 2018 target to around GBP1.5 billion. The acquired order book of GBP1.4 billion doubles the group's order book to GBP2.8 billion. Galliford Try said it expects to incur GBP4 million in on-off restructuring costs, mainly during the year ending June 2015 as a result of the deal.

Grafton Group closed up 0.5%. The building merchants said group revenue for the six months to end-June increased 11% to GBP1.02 billion from GBP912 million a year earlier, reflecting improved demand in the group's markets and better weather conditions.

The DIY group said overall trading conditions were favourable in the first-half as the recovery in the UK and Irish economies became more firmly established and gradually gained momentum. Trading in the UK merchanting business, which accounts for three-quarters of group revenues, was influenced by better weather conditions with "solid" volume growth in the residential repair, maintenance and improvement market, the company said.

Hays, on the other hand, closed down 7.0%, making it the biggest loser in the mid-cap index. The recruiter said net fee income was flat in its fiscal fourth quarter, as the strength of sterling against the euro and Australian dollar wiped out strong growth in the UK during the period, although it still expects to report strong operating profit growth for the year as a whole.

In the three months to end-June, the company said net fee income was up 11% in the UK, where operations contribute about 35% of its total net income, driven by 17% growth in fees from permanent placements. This was slower than the 14% growth Hays had reported in the UK in its fiscal third quarter, but stronger than the 9% growth posted in the first-half of the financial year.

Hays also said net fees grew 7% in continental Europe in the quarter at constant exchange rates and excluding acquisitions, but the strength of sterling against the euro meant that organic growth was just 1% at actual rates. The big drag continued to be Asia Pacific, where there was no growth at constant currency rates, and a 13% decline in net fee income taking into account sterling's rise against the Australian dollar.

Precious metals miners Fresnillo, Randgold Resources, and African Barrick Gold ended the day among the biggest gainers in their respective indices Thursday, on the back of a sharp rise in the price of gold and silver. FTSE 100-contituents Fresnillo and Randgold Resources ended the day up 1.7% and 2.8%, respectively, while FTSE 250-listed African Barrick closed up 2.2%.

Following a number of days of increased demand, the price of gold jumped to a near four-month high Thursday.

"It looks like the price of gold has been driven, above all, by safe haven buying as other risk assets such as stocks and crude oil have dropped sharply... extending their recent weakness," said Fawad Razaqzada, a technical analyst at Forex.com. "From a technical point of view, the spike in the price of gold was probably fuelled by the fact that a large number of stop loss orders, sitting above the recent two-week consolidative range, were tripped which forced many bearish speculators to abandon their positions," the technical analyst said.

At the close of the UK equity market, gold trades at USD1,338.00 per ounce, its highest level since late March. Silver is also at a multi-month high at USD21.404 per ounce.

"Also boosting the appetite for safe-haven assets has probably been the escalation of the conflicts between Israel and Palestine," added Razaqzada.

In the latest developments, UN Secretary General Ban Ki-moon warned the Security Council that an Israeli ground offensive on the Gaza Strip is close at hand unless rocket launches into southern Israel by Palestinian militants are stopped. "Today, we face the risk of an all-out escalation in Israel and Gaza with the threat of a ground offensive still palpable and preventable only if Hamas stops rocket firing," Ban said.

More than 550 rockets have been fired on Israel while more than 500 Israeli airstrikes have killed 88 Palestinians, mostly civilians, Ban said. Another 339 people have been injured, 150 homes destroyed and 900 people displaced, he said.

In the forex market, the euro softened against its major rivals Thursday as data from the eurozone continued to disappoint, while the pound edged lower against dollar in the wake of the disappointing UK trade data.

At the UK equity market close, the euro trades at USD1.3598, CHF1.2141, and JPY137.705. Sterling trades at USD1.7122, EUR1.2590, CHF1.5289, and JPY173.399.

The Bank of England kept the UK base rate of interest on hold at 0.5%, and also maintained its stock of asset purchases at GBP375 billion. While the decision came as no surprise to the markets, there will be a heightened focus on the release of the meeting minutes on July 23 due to the recent hawkish shift in the tone of BoE officials, as well as the fact that there are new members on the panel this month that voted Thursday for the first time.

"The voting unanimity at the BoE in recent months may be hiding bigger disagreements behind the scenes," said Robert Wood, Chief UK economist at Berenberg and former BoE official. "The minutes of today’s meeting, due in two weeks, will be key for judging how the consensus is changing," he said.

In the data calendar Friday, German consumer price inflation information is released ahead of the UK and European equity market open at 0700 BST, with French current account data due at 0745 BST.

The US monthly budget statement is due at 1900 BST. Federal Reserve Bank of Atlanta President Dennis Lockhart gives a speech at 1945 BST.

In the corporate calendar, FTSE 100-listed Experian is scheduled to provide a trading statement.


By James Kemp; jameskemp@alliancenews.com; @jamespkemp

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