LONDON (Alliance News) - UK stocks closed mixed Thursday as positive US growth data pared some of the early losses made on the back of the Federal Open Market Committee's decision to continue to taper its quantitative easing programme.
Unfazed by the recent sell-off in emerging markets, the US central bank announced a second USD10 billion reduction in its monthly bond purchases late on Wednesday, cutting it to USD65 billion-a-month.
The news saw UK equities trading in the red throughout the morning session.
The Fed reiterated its guidance that the pace of future cuts to stimulus is not guaranteed but will be dependent on the US domestic economy. There was no mention of the recent financial turmoil in emerging markets or suggestion that growth concerns outside of the US will be taken into consideration with regard to future cuts. There was also no change to the Federal Reserve's targets for inflation or its 6.5% unemployment rate.
Despite this, global stocks were lifted somewhat ahead of the Wall Street open Thursday, as the US Commerce Department's Bureau of Economic Analysis reported that US gross domestic product grew at an annualized rate of 3.2% in the fourth quarter of 2013.
"The figure was the highest in three years, laying the ground for further improvement in 2014," said Lee Mumford, financial sales trader at Spreadex.
The reading means that, despite a strong second-half, growth for the full-year slowed to 1.9%, from 2.8% in 2012, but in line with economists expectations.
Investors shrugged off some weaker-than-expected US jobless data to lift stocks out of the red. Initial jobless claims for the week ended January 24 came in at 348,000, up from 29,000 in the week before, and higher than economists' forecasts of a more modest rise to 330,000.
Eventually, London's major indexes closed mixed. The FTSE 100 closed down 0.1% at 6,538.45, the FTSE 250 closed up 0.1% at 15,701.8, and the AIM All-Share closed down 0.3% at 855.69.
In Asia, where the markets closed ahead of the US GDP data, stocks closed firmly lower Thursday. Whilst tapering concerns contributed, an increased contraction in Chinese manufacturing weighed heavily upon equities. HSBC and Markit Economics reported that manufacturing PMI dropped to 49.5 in January, sharply down from 50.5 in December, and even worse than the flash estimate from earlier this month that indicated a score of 49.6.
A score below 50 signals contraction in a sector, while a score above 50 means expansion.
The Hang Seng closed down 0.4%, the Shanghai Composite index closed down 0.8%, and the Nikkei closed down 2.5%.
European markets fared slightly better, however, closing marginally higher, buoyed in part by some better-than-expected German unemployment data. Some 28,000 fewer Germans were unemployed in January than December, according to the latest data, exceeding economist expectations of a 5,000 improvement. The headline rate of unemployment ticked down to 6.8%, from 6.9%.
Economic sentiment in the eurozone also improved, although by slightly less than expected. The indicator from the European Commission extended its upward trend for the ninth consecutive time to a 30-month high, coming in at 100.9 in January, up from 100.4 in December. Economists had expected a reading of 101.0.
The services sentiment gained notably by 1.9 to 2.3, while consumer confidence improved markedly in January, to negative 11.7, in line with flash estimates, from negative 13.5 in December.
Industry confidence, however, dropped unexpectedly by 0.5 points to negative 3.9 in January.
Nevertheless, the French CAC 40 closed up 0.6%, while the German DAX 30 closed up 0.4%.
At the individual UK stock level, drinks giant Diageo joined previous statements from Unilever and SABMiller in warning that it has starter to experience a slowdown in emerging markets.
Diageo closed as the biggest blue-chip faller, down 4.8%, after it said it was hit by a steeper-than-expected decline in emerging markets, including its small but struggling Chinese white spirits business, and in Africa, in particular in Nigeria's beer market, where hopes of some improvement in the market, didn't materialise.
Moreover, the company said total sales for the six months ended December 31 2013 slowed to GBP8.01 billion, compared with the GBP8.13 billion achieved in the previous year. The company did, however, report a small increase in profit, rising to GBP2.13 billion from GBP1.93 billion.
Serco Group, closing down 17%, was the FTSE 250's biggest loser. The support services company shares nose-dived after it warned that its 2014 profits will be considerably below current market expectations as recent unfavourable currency moves and a bigger-than-expected drop in volumes in its Australian immigration contract added to the ongoing costs of its corporate renewal in the wake of its UK government contract issues.
The company also revealed that it expects to book about GBP10 million in costs for its corporate renewal programme and costs of about GBP15 million to pay for external advisors, implementing the programme and initial training and systems set-up. It said it will also book a further restructuring charge of between GBP10 million and GBP15 million for cutting headcount and relate costs.
The news may have had a negative read-across to FTSE 100-listed rival G4S, which saw its shares close down 3.7%.
At the other end of the spectrum, British Sky Broadcasting Group, closing up 4.4%, was the leading gainer in the FTSE 100. The company raised its dividend and reaffirmed that it was on track for the full year, as it saw revenue rise in the half-year ended December 31. Although pretax profit for the period fell to GBP554 million, down from GBP610 million in the previous year, as it continued to be hit by a step-up in Premier League football broadcasting licensing costs, it was significantly ahead of Numis Securities' GBP530 million forecast. Revenues rose 6% to GBP3.76 billion.
Royal Dutch Shell was another gainer, closing up 1.1%, after it released its detailed full-year results in the wake of last week's profit warning. Sure enough, pretax profit was down 33% for the year and 52% for the fourth quarter alone. Its revenues were down 3.4% for the year and 7.5% for the fourth quarter.
Cranswick, closing up 4.5%, and Mitchells & Butlers, closing up 2.4%, were two of the biggest risers in the FTSE 250. The companies both reported strong trading performances over the Christmas period.
In the data calendar Friday, the UK Gfk consumer confidence index is released overnight. German retail sales information is released at 0700 GMT, ahead of French consumer spending and producer price data at 0745 GMT. Italian producer price figures are released at 1000 GMT, at the same time as European consumer price and unemployment data.
In the US, personal income, personal consumer, and personal spending numbers are all released at 1330 GMT. The Chicago purchasing managers index is released at 1455 GMT, while the Reuters/Michigan consumer sentiment is released at 1455 GMT.
In the corporate calendar, blue-chip BT Group is joined by FTSE 250-listed Vedanta Resources in releasing third quarter results. FTSE 250-constituents Rank Group provides its interim results, with KCOM releasing a trading statement and Bellway providing half-year results.
By James Kemp; jameskemp@alliancenews.com; @jamespkemp
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