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LONDON (Alliance News) - UK stocks closed mixed Tuesday, with small-caps outperforming their larger peers, as investors stayed cautious and continued to look for signs of when the US Federal Reserve will start slowing its asset purchase program.
Departing Federal Reserve Chairman Ben Bernanke gives a speech Wednesday and the central bank's policy-setting committee will also release the minutes of its last meeting.
Ahead of these events, "investors seem to care less about the fundamentals of the markets and the companies that they invest in, and more about the direction of policy of the central banks, and in particular the Federal Reserve," said Michael Hewson, chief market analyst at CMC Markets.
Top Fed officials Charles Plosser and William Dudley Monday pointed to improvement in the US economy, increasing investor anxiety ahead of Bernanke speech.
"Plosser, who will be a voting member of the Fed committee in 2014, made his stance very clear, proposing a defined end to the asset purchase programme and warning that a continuation of the current bond buying game undermines the Fed's credibility," said Toby Morris, senior sales trader at CMC Markets.
The tapering of the Fed's USD85 billion-a-month stimulus programme is deemed negative for equities because the flow of cheap money has been lifting the economy and companies.
Separately, speaking at the Reuters Global Investment Outlook Summit, US billionaire investor Carl Icahn said he is "very cautious" on the stock market and that a "big drop" is likely as companies are fueled more by low borrowing costs than management's efforts to boost results.
The FTSE 100 closed down 0.4% at 6,698.01, while the FTSE 250 closed down 0.2% at 15,265.6. Similar negative sentiment was shared in European indices; with the French CAC closing down 1.1% and the German DAX closing down 0.4%.
The small-cap AIM All-Share index, however, closed up 0.1% at 810.77, proving to be less sensitive to the monetary policy debate, buoyed by a series of strong reports from its constituents.
At the close of the UK equities market, the S&P 500, the DJIA, and the Nasdaq were all trading close to flat, having experienced a late selloff Monday.
The Organization for Economic Co-operation and Development downgraded its global growth projections Tuesday, citing worsening outlook for some emerging economies. In the latest semi-annual Economic Outlook, the organization underscored a range of downside risks to the recovery and cautioned that the path is set to be turbulent.
The world economy will grow 2.7% this year, the OECD said, down from the 3.1% projected in May. Growth in 2014 is expected to pick up to 3.6%, which was a downward revision from 4.0%. The OECD expects growth to accelerate to 3.9% in 2015.
There was good news for the UK, however, where the projection for growth in 2014 was revised up to 2.4% from 1.5%, the largest upgrade to any country in the OECD. The projection for this year was revised up to 1.4%, from 0.8%.
German investor confidence hit a four-year high in November, a key survey released Tuesday showed, adding to hopes about the outlook for Europe's biggest economy. The closely watched indicator gauging the mood among analysts and institutional investors climbed to a more-than-forecast 54.6 points in November, from 52.8 last month, the Mannheim-based ZEW institute said, ahead of expectations of a rise to 54.0.
"Economic expectations for Germany have been hovering at a high level for months," ZEW President Clemens Fuest said. "The slightly improved economic outlook for the Eurozone might have contributed to this development."
However, analysts were less upbeat and pointed out that the ZEW index was not the best indicator to track the economic activity in the biggest Eurozone economy. They also drew attention to the sustained decline in the current conditions index. The current conditions index for Germany dropped for a second successive month, down to 28.7 from 29.7, in contrast to expectations of an improvement to 31.
In a busy day of corporate reporting, easyJet, closing up 6.6% at 1,339.40 pence, was the biggest gainer in the FTSE 100. The blue-chip airline reported that pretax profit for the year to September 30 rose by 51% to GBP478 million, up from GBP317 million reported last year, and proposed a 56% increase in its total dividend to 33.5 pence as well as a special dividend of 44.1 pence.
Blue-chip TUI Travel, closing up 0.5% at 388.931p, and FTSE 250-listed Thomas Cook Group, closing up 4.6% at 147.008p were also big winners. The travel agencies sold their interests in UK air-traffic controller NATS Holdings for GBP38 million each.
Afren, closing up 9% at 162.3052p, was another leading riser on the FTSE 250. Afren and its AIM-listed partner Lekoil reported that drilling results at the OPL310 site offshore Nigeria are nearly four times higher than previous expectations. Lekoil closed up 21% at 60.05p.
GlaxoSmithKline, closing up 1% at 1,628.90p, was amongst the leading FTSE 100 gainers after it said it will sell about a third of its 19% stake in Aspen Pharmacare Holdings Ltd. as it cashes in on some of Aspen's value growth in recent years. "GSK has a long and successful partnership with Aspen - and our investment in the company has grown in value significantly over time. Having assessed this investment we have now decided to realise some of this value without altering the basis of the partnership," Glaxo Chief Strategy Officer David Redfern said in a statement. Aspen shares are up 70.5% in the last 52 weeks alone, having risen for several years. Glaxo closed up 1% at 1,629.00p.
There was more bad news for G4S after the UK government rejected an offer to refund it GBP24.1 million for overcharging on a contract to tag criminals, after the outsourcing company said it own internal review by a law firm had found there was overcharging on the contract but its employees didn't break any laws.
The National Audit Office, which has just produced a report for parliament setting out events around the contract, said the Ministry had not currently agreed to any refund offers. G4S shares closed up 0.9% Tuesday.
In a much lighter corporate calendar Wednesday, FTSE 250-listed HICL Infrastructure Company and Utilico Emerging Markets, amongst others, release interim results.
In Wednesday's data calendar, outgoing Federal Reserve Chairman Ben Bernanke speaks overnight ahead of the much-anticipated release of the FOMC minutes at 1900 GMT. The Bank of England is set to release its minutes from its last rate-setting meeting at 0930 GMT. In the US, mortgage application information is expected at 100 GMT, before CPI and RPI figures are released at 1330 GMT.
By James Kemp; jameskemp@alliancenews.com; @jamespkemp
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