LONDON (Alliance News) - London's main stock indices ended sharply lower amid a broad global equities sell-off, as concerns that the technology sector had become overvalued were compounded by a fresh crisis in the Middle East that sent oil and gold prices sharply higher.
The equities sell-off started in the US overnight, and continued into Asia, Europe and into Thursday's new session on Wall Street. The technology sector is the worst hit, amid concerns about slowing processor sales and after a strong run in the shares over recent months. Equity markets also took fright as Saudi Arabia launched US-backed airstrikes Thursday against rebels in Yemen, with the rebel leader responding by promising a broader conflict in the Middle East.
The FTSE 100 ended down 1.4% at 6,895.33, a third consecutive decline, leaving it well below 7,000 points and the record intraday high of 7,065.08 it achieved on Tuesday. The FTSE 250 had risen for 10 consecutive sessions including Tuesday, but closed lower Wednesday and lost a further 1.4% on Thursday, closing at 17,260.56. The AIM All-Share index closed down 0.1% at 716.91.
European stocks were also down, with the CAC 40 in Paris down 0.3% and the DAX 30 in Frankfurt down 0.2%, after paring heavier losses right at the close.
When the European equity markets closed, the DJIA and the S&P 500 were down 0.1% and the Nasdaq Composite was down 0.3%, building on the 1.6%, 1.5% and 2.4% respective declines made on Wednesday when the Nasdaq index suffered its biggest one-day decline in almost a year.
Sentiment about US tech stocks wasn't helped when flash memory card maker SanDisk Corp cut its first quarter and whole of 2015 revenue outlook pre-market Thursday on the back of lower than expected sales as well as lower prices for some products.
The decline in US tech stocks filtered across to London, with the FTSE 350 Technology Hardware & Equipment sector index falling 3.7%. Amongst its constituents, ARM Holdings was the worst performer, down 4.2%. FTSE 250-listed Laird and Pace were down 2.5% and 3.3%, respectively.
"FTSE 100 resident ARM, which supplies the components that make Apple's devices work, has been trading at highs recently but there are concerns that the markets for smartphones and tablets are becoming saturated leading to many consumers opting for cheaper devices with the same guts as fashionable market leaders, just without the badge. Crucially, these pay lower royalties to parts suppliers like ARM," said Augustin Eden, research analyst at Accendo Markets.
Commodities prices rose as Saudi Arabia launched airstrikes targeting Houthi rebels in Yemen with the support of Gulf region allies and the US. Saudi ambassador in the US, Adel al-Jubeir said the military action was aimed to defend the "legitimate government" of President Abd rabbu Mansour Hadi, who has taken refuge in the southern port city of Aden.
The operations began shortly after the US government said, "In response to the deteriorating security situation, Saudi Arabia, Gulf Cooperation Council (GCC) members, and others will undertake military action to defend Saudi Arabia's border and to protect Yemen's legitimate government."
The Iran-backed rebels are reportedly besieging Aden, but forces loyal to the President say that they recaptured the city airport on Thursday after heavy fighting with Houthi fighters. Houthi rebel leader Mohammed al-Bukhaiti described the Saudi operation as an aggression against Yemen and warned that it could trigger a wide war in the region.
Gold rose 0.8% on the day to USD1,204.89, its highest level since the beginning of the month, while Brent oil hit an intraday high of USD59.72 a barrel and was still trading up 4.8% at USD59.10 a barrel when the London equity markets closed. West Texas Intermediate touched USD52.45 a barrel and was up 4.5% at USD51.06 when the European equity markets closed.
Despite this, only gold miner Randgold Resources, oil major BP, energy-focused engineer Weir Group, and Hikma Pharmaceuticals, buoyed as JP Morgan raised its price target on the stock to 2,500 pence, manged to close higher in the entire resource stock-heavy FTSE 100.
The US dollar strengthened against other major currencies following a US Labor Department report that showed a bigger than expected pullback in initial jobless claims in the week ended March 21st. The report said initial jobless claims fell to 282,000, a decrease of 9,000 from the previous week's unrevised level of 291,000. Economists had expected jobless claims to edge down to 290,000.
The greenback got further support after data released by Markit showed the sharpest rise in US service sector business activity for six months in March. Its Flash US Services Purchase Managers' Index came in at 58.6, above a previous reading of 57.1. The composite reading came in at 58.5, above economists' expectations for a 57.0 reading.
“While weak economic data for the first quarter will keep Fed rate hikes at bay in coming months, ruling out a June hike, the upturn in second quarter GDP signalled by the recent PMI data ups the odds of interest rates starting to rise at the September FOMC meeting," said Chris Williamson, chief economist at Markit.
After reaching an intraday high at USD1.4984, the pound weakened against the dollar, trading at USD1.4847 when the London equity markets closed. The euro traded in the same direction, touching an intraday high at USD1.1052, before dropping to USD1.0932.
London Stock Exchange Group was the worst-performing stock in the FTSE 100, down 5.6%, after Borse Dubai, its largest shareholder, sold its entire 17.4% stake in a block sale managed by BofA Merrill Lynch, Barclays Bank and Nomura International.
Borse Dubai, which is majority owned by Dubai's state holding company, has made a tidy return on its investment. It bought the stake back in 2007 when shares were trading at below 2,000.00 pence, then watched the exchange's shares drop below 1,000.00 pence during 2008 when the financial crisis set in, but there has been a steady recovery over the past two years and the stock hit an all-time record of 2,595.00 pence on Wednesday.
Also in the blue-chip index, Schroders ended down 4.1%, Prudential down 3.3%, Smiths Group down 2.7% and British Land Co down 2.4%, after they all went ex-dividend, meaning new buyers no longer qualify for the latest dividend payouts.
In the FTSE 250, Bodycote, down 5.1%, Ladbrokes, down 5.1%, and Essentra, down 3.6% were amongst the biggest fallers in the mid-cap index after they also went ex-dividend.
Supergroup was the best-performing stock in the FTSE 250, closing up 6.2%. The fashion retailer maintained its profit guidance for the year as it outlined the outcome of its strategic review, including the acquisition of its North American distribution licence and plans to start paying dividends in its 2016 financial year. SuperGroup said it expects its profit for the 2015 financial year to be in the GBP60 million to GBP65 million range, in line with its previous guidance.
In the corporate calendar Friday, Judges Scientific releases full year results, while Imperial Innovations Group publishes half year results. Carnival releases its first quarter results at about 1400 GMT, while Homeserve and RM will issue a trading update ahead of the London open.
In the economic calendar, UK Natiowide Housing Prices are at 0700 GMT, while the Bank of England's Governor Mark Carney will speak at the Bundesbank in Frankfurt at 0845 GMT. In the US, GDP is at 1230 GMT. Meanwhile, Fed's Chair Janet Yellen will speak at the Federal Reserve Bank of San Francisco at 1945 GMT.
By Daniel Ruiz; danielruiz@alliancenews.com
Copyright 2015 Alliance News Limited. All Rights Reserved.
15 Jan 2015 09:49
