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LONDON (Alliance News) - The main UK and European equity markets have closed mixed Wednesday as Investors continue to exercise caution ahead of the release of minutes from the latest FOMC policy meeting.
Dovish comments from outgoing Federal Reserve Chairman Ben Bernanke overnight Tuesday were not enough to stop US stocks from closing lower, or prevent UK and European indices opening lower. Bernanke said the US central bank would maintain its easy monetary policy for as long as was needed, adding that when the taper does begin, "it will likely be because the economy has progressed sufficiently."
Bloomberg reported during the afternoon session that the ECB is considering a negative deposit rate. Citing two people with knowledge of the debate, Bloomberg said the ECB is considering a-smaller-than-normal cut to the rate it pays lenders who park excess cash at the bank to minus 0.1% from zero if officials decide to take it negative for the first time.
The euro dived lower against other major currencies on the prospect of a negative deposit rate, reaching a low of USD1.3453 and GBP1.2005.
In another sign of equity markets being supported by the cheap lending from central banks, major European markets, including the FTSE 100 jumped in to positive territory for the first time in the day on the prospect of negative ECB deposit rates.
Despite this shock and a healthy data calendar throughout the day, stocks have largely ignored market drivers and slid slightly lower ahead of the release of minutes from the latest FOMC meeting, due after the European market close at 1900GMT.
At the close of the UK market, the FTSE 100 has closed down 0.3% at 6,681.08 and the FTSE 250 has closed down 0.6% at 15,178.75. For the second day in a row, London's AIM All-Share has bucked the trend of hanging on central bank announcements to close higher on company fundamentals, up 0.1% at 811.25.
Major European markets have also closed mixed, the CAC40 in France down 0.1% and the DAX in Germany up 0.1%
With the UK economy shaping up far better than its European counterparts, the Bank of England policy makers unanimously decided to retain the record-low base interest rate of 0.50% and the asset purchase programme at GBP375 billion, the minutes of the meeting revealed. All committee members agreed that neither of the price stability knock-out conditions that would override the forward guidance provided in August had been breached.
A decent set of afternoon data from the US showed retail sales rose 0.4% in October, a marked improvement from the 0.1% drop in sales seen in September and better than the 0.1% expected by economists. Consumer prices dropped however, with CPI recording a drop of 0.1% in October, a slowdown from the 0.2% rise seen in September and slightly missing economists forecasts for a flat reading.
"There?s very clear evidence afoot that the US economy weathered the government shutdown storm in October. Even as Consumer Confidence plunged in October, consumption perked higher past expectations, suggesting that the economy may be stronger than otherwise assumed," says DailyFX Analyst Christopher Vecchio.
In an interview on Bloomberg TV in the afternoon, FOMC member James Bullard said that the prospect of a December taper remained on the table. With so much focus on the Federal Reserve and when it will begin to reign in asset purchases the comments, "merely served to muddy the waters further around Fed policy," said CMC Markets Chief Analyst Michael Hewson. "Contrast this with comments he made last week that the Fed was in no rush to taper and you have to wonder if FOMC members are simply toying with the markets," said Hewson.
Within UK equities Aberdeen Asset Management was the stand out blue-chip gainer, closing up 2.7%. Aberdeen's shares are up about 15% on last week's closing price having confirmed Monday that it will acquire Scottish Widows Investment Partnership from Lloyds Banking Group at a cost of up to GBP660 million. The latest boost to the share price Wednesday comes from a round of broker upgrades following analysis of the deal and the group's full-year results. The results were better than expected, with pretax profit 4% ahead of consensus expectations and, with the unexpected inclusion of Investment Solutions and Lloyds Wealth, the acquisition holds more value to Aberdeen than first thought, says Berenberg.
easyJet was also one of the biggest gainers for the second day running, closing up 1.6%. The budget airlines shares continued to fly after gaining 3.8% on Tuesday following the release of full-year results. With two recent profit warnings from Ryanair, there had been an expectation that easyJet's results would disappoint. However, not only were underlying results in line with forecasts but management announced a 44.1p special dividend.
Within London's alternative market, AIM-listed Servicepower Technologies was the biggest gainer, closing up 44% after the software company said the strong growth it posted in the first-half of the year had continued into the second-half, with revenues by mid-October up on the GBP11.1 million it had recorded over the same period in 2012. Management said they had secured new customers, while renewals with existing customers are high as they adopt more of the company's products and expand into new areas.
AIM-listed New World Oil & Gas closed up 23% after the company said it is continuing to work with Niel Petroleum SA to finalise its proposed subscription for over 75% of New World's shares. The company said it will make a further announcement when all matters have been resolved and it expects to be able to do so later this month. New World said the fresh equity capital will be used to acquire near-term production or producing oil and gas projects to complement its existing exploration portfolio, while a related debt facility from Niel will fund development work.
All eyes will be on the FOMC minutes this evening, although some suggest the market impact is debatable. "Given the comments by Yellen and Bernanke the minutes are somewhat stale and it would take a very precise discussion of policy plans to have a big market impact," says Citi's Global Head of G10 Strategy Steven Englander.
Overnight, the Chinese HSBC manufacturing PMI is scheduled for release and may provide an early driver even if the FOMC does not. Later in the morning there's a round of European Markit service PMI data, with the French PMI at 0758GMT, the German PMI at 0828GMT and the EU PMI at 0858GMT.
UK public sector borrowing data is due at 0930GMT, and there will be further Central Bank focus when ECB President Mario Draghi delivers a speech at 1005GMT.
In the afternoon, US initial jobless claims kick off the US calendar at 1330GMT.
In the corporate calendar, Interims are due from Investec, National Grid, Johnson Matthey and SABMiller amongst others. Full year results are due from Daily Mail and General Trust, while an interim management statement from Close Brothers is expected.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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