(Alliance News) - Stocks in London ended sharply lower on Wednesday as investors shunned riskier assets ahead of the US Federal Reserve's interest rate decision later.
The Federal Open Market Committee will conclude its two-day policy meeting on Wednesday and announce its decision at 1900 GMT. The central bank is widely expected to keep rates unchanged.
Later Wednesday, investors will closely follow Fed Chair Jerome Powell's press conference at 1930 GMT for clues on the outlook for US monetary policy.
However, there seems little chance of new Fed stimulus because US President Joe Biden has already proposed a massive USD1.9 trillion rescue package to boost the nation's virus-ravaged economy.
The FTSE 100 index ended down 86.64 points, or 1.3%, at 6,567.37. The FTSE 250 index closed down 170.01 points, or 0.8%, at 20,278.35. The AIM All-Share index finished down 21.72 points, or 1.8%, at 1,176.69.
The Cboe UK 100 ended down 1.4% at 653.41, the Cboe UK 250 closed down 0.4% at 17,703.61, and the Cboe Small Companies ended down 0.1% at 12,191.76.
In Paris the CAC 40 ended 1.2% lower, while the DAX 30 in Frankfurt fell 1.8%.
Stocks in New York were firmly in the red at the London equities close as investors digested mixed earnings, amid concerns over lofty equity valuations. There will also be earnings after the New York market close from Apple, Facebook and Tesla.
The Dow Jones Industrial Average was 1.0% lower, the S&P 500 index down 1.1% and the Nasdaq Composite down 0.8%.
IG Group's Chris Beauchamp said: "Losses are gathering pace across markets this afternoon, with investors apparently shaken from their torpor after weeks of a quiet rally that has seen stock markets propelled to record highs. Bubble fears are everywhere, it appears, but for now the most speculative action appears to be confined to a small subset of the market.
"Some pre-Fed nerves are likely at play here as well, but with the committee determined to help steer the US economy back on to a solid footing any talk of tapering is very premature. For the moment however, stock markets have run out of room to move higher as the good news flow of recent months dries up."
Further, Briefing.com analyst Patrick O'Hare said the equity market declines reflect investor skittishness following outsized gains in recent days by American video game retailer GameStop and cinema chain AMC Entertainment, which created a "short squeeze". This is when prices rise as 'short-sellers', who bet on a drop in stock price but are then confronted with a surprise increase, are forced to buy shares to stem their losses.
Those kind of increases are "the type of mania longtime investment professionals know is often associated with a market that is overheated and in need of a rest/correction," O'Hare said.
Grapevine, Texas-based GameStop has found itself at the centre of a storm between hedge funds and retail investors. Its shares have more than doubled since Tuesday, while AMC shares are three times higher.
GameStop's meteoric rise was also fuelled by Tesla's Elon Musk who tweeted a link to the WallStreetBets sub-Reddit thread alongside the word "Gamestonk!!"
The developments on Wall Street were also feeding through to stocks in London. According to Shorttracker.co.uk, the top five most shorted stocks were Premier Oil, Cineworld Group, Pearson, Petrofac and J Sainsbury.
According to its website, the Short Interest Tracker shows details of all short positions in UK listed companies that have been disclosed under the UK FCA's Short Selling Regulations.
In the FTSE 100, education publisher Pearson ended the best performer, up 14%, while grocer Sainsbury's closed up 0.6%. In the FTSE 250, Petrofac and Cineworld ended among the best performers, up 11% and 9.9% respectively.
CMC Markets analyst David Madden said: "Pearson shares are in high demand today even though there have been no news articles relating to the stock. Over in the US, Gamestop shares have seen a surge in volatility recently as there has been a raging battle between the short sellers and retailer traders.
"A large portion of Gamestop's shares have been shorted, so that made the upward move much more pronounced. For a London-listed company, there is a relatively high level of short interest in Pearson, so it is possible that traders are snapping up its shares in a bid to pressure the short sellers."
Fresnillo ended the worst large-cap performer, down 13% after the gold miner said its gold and silver production declined in 2020. Silver production suffered at its Saucito mine and gold output was down at Herradura and Noche Buena, Fresnillo explained.
For 2021, Fresnillo is guiding for attributable silver production in the 53.5 million to 59.5 million ounce range including silverstream. The lowest end of the forecast would be only a 0.8% improvement from 2020.
The stock was also downgraded to Underperform from Sector Perform by RBC.
Meanwhile, Dow component Boeing was down 2.8% after the aerospace giant reported a significant loss in the fourth quarter as its commercial plane deliveries cratered. It also noted its 777 plane will be delivered in 2023.
In the final three months of 2020, the Chicago-headquartered firm recorded a net loss of USD8.44 billion, widened significantly from a USD1.01 billion loss the year before.
Diluted loss per share widened to USD14.65 from USD1.79. Revenue in the fourth quarter slipped to USD15.30 billion from USD17.91 billion.
The drop in revenue was attributed to lower commercial deliveries and services volume primarily due to Covid-19 as well as 787 production issues, but this was partially offset by a lower 737 MAX customer considerations charge in the quarter compared to the same period last year.
In addition, the UK Civil Aviation Authority on Wednesday granted the Boeing's 737 MAX a return to service, almost two years after the US plane was grounded following crashes.
The dollar was higher across the board ahead of the Fed's rate decision. The pound was quoted at USD1.3698 at the London equities close, down from USD1.3737 at the close Tuesday.
The euro stood at USD1.2100 at the European equities close, down from USD1.2162 late Tuesday. Against the yen, the dollar was trading at JPY104.07, up from JPY103.65 late Tuesday.
Brent oil was quoted at USD56.27 a barrel at the London close Wednesday, up from USD55.87 at the close Tuesday.
Gold was quoted at USD1,848.50 an ounce at the London equities close, lower against USD1,854.00 late Tuesday.
The economic events calendar on Thursday has Germany inflation readings at 1300 GMT and US GDP and jobless claims at 1330 GMT.
The UK corporate calendar on Thursday has interim results from distiller Diageo and gambling company Rank Group. There are also trading updates from wealth manager St James's Place, budget airline easyJet and tonic water maker Fevertree Drinks.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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