Glaxosmithkline Share News (GSK)

LONDON (Alliance News) - Stocks drifted lower across the UK and Europe Wednesday following the release of sluggish Chinese economic data.

Despite some positive UK and European economic news, as well as some stand-out UK stock movers, equity indices are broadly lower as investors await earnings from big US technology names Google Inc. and Facebook Inc. after the US closing bell.

The FTSE 100 closed down 0.1% at 6,674.74. The FTSE 250 ended off 0.6% at 15,989.64, while the AIM All-Share closed up 0.4% at 826.05.

Chinese manufacturing activity slowed for the fourth consecutive month in April, according to the HSBC PMI released overnight. The reading came in at 48.3, slightly higher than the 48.0 recorded in March, but behind economist expectations for a print of 48.4. The reading initially slipped below the 50.0 growth-contraction threshold in January, and the fourth consecutive contraction set a negative tone for the open of European equity markets.

"While fears of a hard landing in China may be exaggerated, growth below 7% for the year may not be out of the question which would represent a slow year by China’s own standards. This could also act as a drag on global growth which is why we’re seeing it weigh on sentiment globally," said Alpari analyst Craig Erlam.

Concerns over the Chinese slowdown were discussed by the Bank of England policy makers this month, according to the minutes of the latest Monetary Policy Committee meeting released Wednesday. "A slowdown in China might have a larger impact on the United Kingdom than would be implied by its 4% share of UK exports, through a combination of trade, financial and confidence channels," the minutes read.

All nine members of the MPC voted to keep the UK interest rate unchanged at its historic low of 0.5%, as well as voting unanimously to maintain the bank's stock of GBP375 billion purchased assets.

The pound dipped against the dollar on the release of the minutes and continued to drift lower throughout the session, reaching the low of its recent tight range of USD1.6758.

With unemployment in the UK now at 6.9%, below the BoE's original threshold to look at raising interest rates, the key question for the members of the MPC is how much "slack" remains in the labour market. Although these minutes are from the meeting before the drop in unemployment below the threshold was released, the issue was discussed at some length, with a range of views amongst the members. The rise in self-employment in the UK over recent months was noted as a possible reason for there to be more slack remaining than official unemployment figures suggest, meaning some self employed people may be underemployed.

UK public sector net borrowing, excluding financial interventions, shrank to GBP6.7 billion in March from GBP11.4 billion a year earlier, according to data from the Office for National Statistics Wednesday. The drop exceed economist expectations of just a small drop to GBP11.0 billion.

"Government borrowing is high, but it is falling as the economic upturn boosts taxes and cuts the jobless numbers, while austerity keeps spending growth weak," said Berenberg chief UK economist Rob Wood. "With the economy growing rapidly now and wage growth beginning to perk up there is every chance that government borrowing will fall faster than the Chancellor is planning on," the economist said.

With the UK economy firing on all cylinders, the market is likely to increasingly look for the first vote in favour of a rate hike at the BoE. "If this trend continues, which seems likely, then the May meeting could well see some policymakers looking to dissent from the consensus view and start pushing for measures to tighten policy," said CMC Markets chief market analyst Michael Hewson.

Alpari analyst Craig Erlam suggested that the low inflation environment may lead potential dissenters to the BoE to hold off any rate hike calls until the third quarter at the earliest. "Until then we may see some sterling weakness in response to a lack of calls for a rate hike," Erlam said.

Berenberg economist Wood currently expects the BoE to hike rates by 0.25% in the first quarter of 2015, followed by three more hikes in 2015 and four in 2016.

Some positive European economic news Wednesday gave a small boost to the euro against the dollar, but did little to boost sentiment in equities. The single currency reached a high for the week against the dollar of USD1.3855. The combined move of the pound and the euro brought the cross rate between the two down about 0.5% to a low for the week of GBP1.2124.

The latest Markit PMI numbers showed both manufacturing and service sector activity growing faster than expected in Germany and the eurozone as a whole, with the eurozone composite PMI rising to 54.0 in April from 53.1 in March, recording its highest level since May 2011.

"The eurozone has started the second quarter on a solid footing. A welcome quickening in the pace of growth of business activity in April means the region is expanding at the fastest rate for almost three years," said Markit chief economist Chris Williamson.

In further positive economic news from the eurozone, Portugal reportedly successfully completed a ten-year government bond auction, selling EUR750 million in debt at a yield of 3.5752%, with demand for the auction exceeding supply by 3.5 times. The first government auction in the country for three years comes on the back of a similar successful return to the bond markets by Greece earlier this month.

Despite this, major European equity markets closed lower, with the French CAC 40 ending down 0.7% and the German DAX 30 ending down 0.5%.

Within UK equity movers, the big pharmaceutical names that were the subject of merger and acquisition activity and speculation on Tuesday continued to gain Wednesday, despite the absence of any further M&A news. The FTSE 350 Pharmaceutical sector gained 0.9%, buoyed by AstraZeneca, GlaxoSmithKline, and Shire, which closed up 1.9%, 0.4%, and 1.0%, respectively.

Associated British Foods was the stand-out blue chip gainer, closing at the top of the FTSE 100, with a startling 8.5% gain. The group reported an increase in profit for the first half of the year, driven primarily by sales at its low-cost fashion retail chain Primark, which more than offset a substantial hit to its sugar business. It posted a pretax profit of GBP434 million in the 24 weeks ended March 1, up from GBP411 million a year earlier, and raised its interim dividend by 4% to 9.70 pence per share.

A number of stocks going ex-dividend Wednesday had a significant impact on the losers table. Antofagasta closed as the heaviest FTSE 100 faller, down 5.6% after going ex an 86p dividend, with Centrica and Old Mutual also amongst the heaviest fallers, down 4.3% and 3.9% respectively after going ex-div.

In the FTSE 250, Drax Group ended firmly at the bottom of the table, down more than 12% after going ex dividend and also saying it has commenced legal proceedings against the UK government after it overturned a decision advising that two generating units at Drax Power Station - the "second" and "third" unit conversions - were eligible for investment contracts under a new contracts-for-difference scheme meant to encourage low-carbon electricity generation.

Tullett Prebon lost 6.0% after going ex-dividend, along with Balfour Beatty, which closed down 4.3% after going ex-div.

Quindell helped the AIM index outperform Wednesday. The stocks gained more than 12%%, regaining some of the 50% sell-off it suffered on Tuesday on the publication of a damming report that called its profits into question. Quindell, the second largest company on AIM by market capitalisation, said Tuesday it is taking legal council over the report from Gotham City Research.

Looking ahead, Apple Inc and Facebook Inc are among the companies due to release their quarterly results after the close of US trading Wednesday. Facebook is forecast to report first-quarter earnings of USD0.24 per share on revenue of USD2.36 billion, says Jasper Lawler, market analyst at CMC Markets. Apple, meanwhile, is expected to show second-quarter earnings of USD10.18 per share, says Lawler.

Ahead of those results, equity markets in the US are lower, with the DJIA and the S&P 500 both down about 0.1%, and the Nasdaq Composite down 0.5%.

While the morning sentiment Thursday may be partially set by the big-name US results still to come Wednesday, there are also a number of UK names reporting Thursday. AstraZeneca will be back in the spotlight after being the focus of Tuesday's merger talk, as the pharmaceutical company is due to release its first quarter results. First quarter numbers also are due from consumer goods company Unilever, along with mining groups African Barrick Gold and Anglo American.

There is no top-tier data from the UK in Thursday's economic calendar. The German IFO business climate and expectation surveys are out at 0800 GMT, while European Central Bank President Mario Draghi is speaking from a conference in Amsterdam at 1000 GMT.

US durable goods orders are likely to be the main economic focus Thursday. Released at 1230 GMT, economists expect orders growth to have slowed slightly in March to 2.0%, from the strong growth of 2.2% recorded in February. Weekly initial jobless claims numbers are also due at 1230 GMT, followed by the Kansas Fed manufacturing activity index at 1500 GMT.

By Jon Darby; jondarby@alliancenews.com; @jondarby100

Copyright 2014 Alliance News Limited. All Rights Reserved.