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LONDON (Alliance News) - UK stock indices have given up early strength to trade lower Thursday as the optimism provided by some strong corporate earnings ahead of the open has faded into wider concerns over the health of the global economy, after the Federal Reserve ended its stimulus program on Wednesday.
The FTSE 100 opened higher, but this was short lived and by mid-morning Thursday the UK's leading index is heavily in the red, down 0.7% at 6,406.23. The FTSE 250 is down 0.2% at 15,196.86, and the AIM ALL-Share is down 0.2% at 713.81.
Major European markets also have reversed early gains, with German DAX now down 0.5%, and the French CAC 40 down 0.8%.
There has been a notable pick up in market volatility recently, and following a surprisingly hawkish statement from the US Federal Reserve on Wednesday, that volatility looks set to continue. Analysts have said its unsurprising to see the markets off balance after the Fed wound down its monthly bond buying program to zero on Wednesday, given that removes a stimulus which has been supporting the prices of risk assets for years.
"This means that markets are going to be a little like a small child on a bicycle who has just had their stabilisers taken off," says CMC Markets chief market analyst Michael Hewson. "Let?s see what happens when they look to navigate around a bump in the road."
Equities have already taken a small tumble after German unemployment data released Thursday opened the first potential pot hole. Unemployment actually improved by 22,000 in October, which is better than that 5,000 deterioration that had been expected. The headline unemployment rate remained unchanged at 6.7%.
Amid the environment of very weak growth across the Eurozone, there have been calls from some for the European Central Bank to pick up where the Federal Reserve has left off and introduce a bond buying program of its own. This is not the preferred course of action of the German government, and analysts have said that the more German data improves, the less likely it is to approve any extraordinary stimulus.
UK stock indices had initially opened higher, supported by stronger-than-expected third quarter earnings from some big names including Barclays, St James's Place, Royal Dutch Shell, and BT Group.
St James's Place is the best performing stock on the FTSE 100, up 2.0% after the wealth manager reported year-on-year growth in new business sales, net flows, and funds under management of 18%, 18%, and 17% respectively. Analysts have been broadly positive about the results and the group's resilience to recent market volatility. Moreover, the outlook provided by management for the fourth quarter was bullish.
Barclays shares have slipped into the red, down 0.2%, after initially rising on third quarter numbers ahead of expectations, as it also announced massive extra provisions for past misdeeds, including GBP170 million for payment protection insurance claims, and GBP500 million for the investigation into its foreign exchange scandal.
Analysts also said a key short term focus for Barclays, as well as the other UK banks, will be an expected rule change by UK regulators Friday. The Prudential Regulation Authority is widely expected to announce a requirement for banks to operate within a 4% to 5% leverage ratio. Barclays currently operates with a ratio of 3.5%.
At the other end of the blue chip index, BT Group leads the fallers, down 3.3% despite raising its dividend by 15% and reporting earnings ahead of expectations. Accendo Markets trader Aymen Azizi says traders are unwinding positions in BT Group as although it exceeded forecasts, it "failed to mask the aggressive competition in the sector".
FTSE 250-listed National Express leads the mid-cap gainers. The transport operator is up 3.2% after saying its third-quarter pretax profit was up nearly 15% on the year, driven by revenue growth, performance improvements and cost cutting, and said it is on track to meet its profit and cash expectations for the year as a whole.
Al Noor Hospitals Group is up 2.3% after saying its third quarter revenue rose more than 20% in September to USD101.2 million from USD84 million a year earlier.
Oil exploration company Afren is heavily lower, down 7.6% after reporting flat net profit for the first nine months of the year and saying it is implementing the recommendations in a recent review of its business practices as it tries to put a recent payments scandal behind it. Earlier this month, the oil producer and explorer fired Chief Executive Osman Shahenshah and Chief Operating Officer Shahid Ullah for gross misconduct based on evidence found by a review that unearthed irregular payments.
The price of gold fell to its lowest level in three weeks overnight, as the dollar strengthened in the wake of the Fed decision. The yellow metal bottomed at USD1,201.10 per ounce, and currently trades at USD1,206.33 per ounce.
That fall has weighed on the London-listed mining sector, with Randgold Resources the worst performing FTSE 100 stock, down 2.8%, Anglo American down 2.8%, Hochschild Mining down 5.4%, and African Barrick Gold down 3.7%.
There is some key economic data still to come Thursday, with investors keen to find out whether the US central banks optimism over the health of the economy will be reflected in third quarter GDP data, with the flash reading due at 1230 GMT.
Growth is expected to have slowed slightly over the last three months to 1.4%, which would be down from the 2.1% growth recorded in the second quarter. On an annualised basis, growth is expected to have slowed to 3.0% in the third quarter from 4.6% in the second quarter.
US jobless claims and personal consumption data will be released at the same time, then Fed Chair Janet Yellen speaks at 1300 GMT on the subject of 'Diversity in the Economics Profession' from Washington.
Arguably of more importance given the speculation over the future of European Central Bank policy, German inflation data at 1300 GMT will be a key focus. Economists are expecting that consumer prices went into reverse in October, with a monthly fall of 0.1% in German CPI expected. Annually, prices are seen as accelerating very slightly, with a year-on-year print of 0.9% expected, which would be up from 0.8% in September.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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