Hikma Pharmaceuticals Share News (HIK)

LONDON (Alliance News) - UK stocks closed lower Thursday following a volatile day of trading as investors reacted to a surprise rate cut by the European Central Bank rate cut and data from both the UK and US.

London's major indices opened flat to slightly lower Thursday as traders showed caution ahead of a series of much-anticipated data releases and central bank announcements.

With the Bank of England maintaining its record-low 0.50% interest rate and the size of its quantitative easing at GBP375 billion, in line with expectations, the first major release of the day did little to stir the markets.

The ECB's surprise 25-basis-point rate cut, however, sparked an stockmarket rally, as investors reveled in the prospect of even cheaper lending. UK and European stocks jumped on the news that the central bank was trimming its benchmark refinancing rate to a record low of 0.25% amid a slackening in inflation and sluggish economic growth in the eurozone.

"The combination both of October's unexpectedly large fall in inflation, the strength of the euro exchange rate, and growing concerns over liquidity conditions in the banking sector appears to have persuaded most members that some sort of reaction was necessary," said Jonathan Loynes, chief economist with the Capital Economics research group.

In the press conference in the immediate aftermath of the cut, ECB President Mario Draghi warned that, while "we may experience a prolonged period of low inflation," there was no threat of deflation in the currency bloc, rejecting any comparison with Japan, which has suffered from 15 years of deflation. Draghi declined to give a clear indication if or when the Central Bank will use quantitative easing, or asset purchases, as other central banks have, as a tool to spur demand, but did indicate that a further rate cut, presumably to zero, remains an available tool.

The equities rally was short-lived, however, as concerns about the outlook for the US Federal Reserve's USD85 billion-per-month stimulus programme helped to limit the upside for the markets. A Commerce Department report showed stronger-than-expected US third-quarter GDP growth, rasing the market concerns.

Spreadex's David White commented that "global markets whipsawed today in light of an unexpected rate cut by the ECB and then against a firm Q3 GDP figure from the States.

What began as a reason to bid equities was soon overtaken by a stronger one to sell," White said.

The report revealed that US gross domestic product rose by 2.8% in the third-quarter, compared to economist estimates for an increase of 2.0%. GDP growth accelerated from the 2.5% increase recorded in the second quarter, reflecting a deceleration in imports and acceleration in private inventory investment and in state and local government spending.

"Signs that the US economy slowed through the end of the third-quarter of 2013 have been washed away in one fell swoop, with the GDP report easily crushing expectations. In fact, only two economists of 87 polled suggested that the economy would grow by plus 2.8% or more," said Christopher Vecchio, currency analyst at DailyFX.

Added Paul Ashworth, Chief US Economist at Capital Economics, said, "overall, the pick-up in GDP growth will presumably add to the speculation that the Fed might yet begin tapering its asset purchases in December, even though the ECB is loosening monetary policy in the euro-zone."

"Frankly, it's hard to know exactly what precise improvement Fed officials are looking for after all the flip-flopping," Ashworth added. "October's payrolls figures, due out tomorrow, will provide a little more insight."

A separate report from the US Labor Department showed that initial jobless claims fell for the fourth straight week, coming in roughly in line with economist estimates. Initial jobless claims fell to 336,000 in the week ended November 2, a decrease of 9,000 from the previous week's revised figure of 345,000. Economists had expected claims to dip to 335,000 from the 340,000 originally reported for the previous week.

The FTSE 100 eventually closed down for a third consecutive day, falling 0.7% to close at 6,697.22. The FTSE 250 closed off 0.1% at 15,389.52, while the AIM All-Share index ended down 0.2% at 813.71.

Negative sentiment was shared in the US. At the London close, the DJIA was down 0.4% at 15,682.21, the S&P was down 0.7% at 1,757.87, and the Nasdaq was down 1.3% at 3,879.85.

Twitter was soaring. Shares in the social-media darling were trading above USD50.00 on their first day of trading, an increase of more than 90% from its offer price. The soaring debut on the New York Stock Exchange came just hours after Twitter said it was pricing its initial public offering at USD26.00 dollars a share, the third time it raised its IPO price since filing to go public.

In the UK, general retailers was among the biggest gaining FTSE 350 sector indices, up 0.5%, after Halfords, up 13% at 471.9968 pence, closed the day as the biggest gainer on the FTSE 250. The company reported higher sales and profits for the first half of its financial year, as the UK's growing passion for cycling and a revamp of its profits drove growth. The company said the good summer weather had driven up sales of cycles, while its recent revamp meant it had the stock and better products to meet the demand. Halfords reported a pretax profit of GBP44.6 million in the six months to September 27, up from GBP42.4 million a year earlier, and well ahead of a consensus forecast of GBP38.3 million. Revenues rose to GBP490.6 million, from GBP455.6 million.

Grainger, closing up 4.6% at 206.10p, was another big winner in the FTSE 250. The company revealed that it had swung to a profit for the full-year, as it positioned itself to take advantage of the UK housing recovery. Grainger said the UK government's efforts to help Britons buy homes through mortgaging financing schemes, as well as to boost development of the rental sector through the Build-to-Rent fund, were helping to strengthen the market. The company posted pretax profit of GBP64.3 million for the period ended September 30, compared with a GBP1.7 million loss a year earlier. The profit rise came as a result of efforts to reduce its debt, it said, which declined to GBP959 million from GBP1.19 billion a year earlier.

FTSE 250-listed Inmarsat closed down 4.9% at 678.8998p. It was the biggest loser on the mid-cap index. The satellite operator posted declining revenues in the third quarter. It said that several of its businesses were hurt by reduced military activity in Afghanistan, and that the launch of its Global Xpress satellite was delayed. The company posted total revenues of USD306.9 million, down from USD325.9 million in the previous year. Inmarsat also warned that in 2014, operating cost investments in the military radio spectrum band, L-Band, will coincide with a difficult outlook for its US government business. These factors are expected to combine to apply pressure on operating profits during 2014.

In the FTSE 100, Randgold Resources closed up 7.1% at 4,931.2p as the biggest gainer. The gold exploration and mining company revealed that its third-quarter sales and production had increased. While pretax profit fell 3.8% to USD126.6 million for the three months ended September 30, from USD131.6 million in the third-quarter 2012, it more than doubled its second-quarter figure of USD60.7 million.

After the market close, Royal Bank of Scotland said it had agreed to pay USD153.7 million to settle a US Securities and Exchange Commission probe into a USD2.2 billion residential mortgage-backed security the bank issued in 2007. The bank had already set aside a provision to cover the settlement. It had neither admitted nor denied the SEC allegations that its prospectus statement on the offering was misleading. RBS shares had closed down 0.9% at 324.95 pence prior to announcement.

In the forex market, the euro was hit hard Thursday. After slumping in the immediate aftermath of the ECB's rate cut decision, the strong US GDP figures sent the currency even lower. At the close of the UK equity trading, the euro was quoted at USD1.3390, having slipped to USD1.3294, its lowest point since September 16, in earlier trading.

The euro also was trading at GBP0.8333, having fallen to 0.8297, a low since mid-January, earlier in the day.

In the data calendar Friday, the Chinese trade balance is released overnight at 0200 GMT, ahead of German and French trade balances at 0700 GMT and 0745 GMT, respectively. UK goods and total trade balance numbers are scheduled for 0930 GMT.

In the US, October the much-anticipated nonfarm payrolls and unemployment rate figures are due to be released at 1330 GMT. US personal income, consumption, and spending data is expected at 1330 GMT.

Blue-chip Rolls-Royce is joined by FTSE 250-listed Hikma Pharmaceuticals, Bovis Homes and Tullett Prebon, amongst others, in releasing interim management statements Friday. Rentokil Initial provides a trading statement.

By James Kemp; jameskemp@alliancenews.com; @jamespkemp

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