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LONDON (Alliance News) - Stocks across the UK and Europe closed lower Friday, with little to drive sentiment while investors have one eye on the US Federal Reserve's interest rate decision next Thursday.
The Federal Open Market Committee will be holding a crucial two day monetary policy meeting next week, in which many market commentators believe it will announce the first US rate hike since 2006. With that decision in mind, investors are expected to tread cautiously in the time remaining.
The FTSE 100 closed at 6,117.76, ending down 0.6% on the day but up 1.2% on the week. The FTSE 250 fell 0.3% on Friday to 16,968.40 and the AIM All-Share closed down 0.1% at 733.8.
In Europe, the CAC 40 in Paris closed down 1.0% and the DAX 30 in Frankfurt ended down 0.9%.
Wall Street was also lower at the London close, with the DJIA down 0.2%, the S&P 500 down 0.3% and the Nasdaq Composite down 0.4%.
Some poor US data also helped to drive stocks lower. Consumer sentiment in the US saw a substantial deterioration in early September, according to a preliminary report by the University of Michigan. The report said the consumer sentiment index tumbled to 85.7 in September from the final August reading of 91.9. Economists had expected the index to show a much more modest decrease to 91.0.
On the other hand, US producer prices surprised to the upside slightly, coming in flat in August. The Labor Department said its producer price index for final demand was unchanged month-on-month in August after rising by 0.2% in July. Economists had expected the index to edge down by 0.1%.
The flat reading on producer prices came even though energy prices tumbled by 3.3% in August following a 0.6% drop in July. The steep drop in energy prices contributed to a 0.6% decrease in the index for final demand goods, which represented the largest decline since April. The Labor Department said the decrease in the index for final demand goods was offset by a 0.4% increase in the index for final demand services.
In the UK, half of the participants surveyed by the Bank of England expect interest rates to rise over the next 12 months, marking the strongest share in four years. The Bank of England/GfK Inflation Attitudes survey found that 50% of respondents expected rates to climb over the next 12 months versus 38% in May. The balance was the biggest since the May 2011 survey's 55%.
On Thursday, the BoE policymakers kept the bank rate unchanged at a record-low 0.50% in a 8-1 vote and judged it premature to conclude that overseas events, especially those in China, had a huge adverse impact on the British economy.
The survey also showed the public's median inflation expectation over the coming years fell to 2.0% from 2.2% in May. The survey, which was undertaken between August 6 and 11, also found the public's long-term inflation expectation remained at 2.8% from the May survey.
On the UK stock front, Kingfisher was among the top performers in the FTSE 100 after UBS upgraded it to Buy from Neutral. The Swiss bank said the company's new management team is planning to simplify the business in terms of structure and the number of products it sells, which should generate significant savings and boost the group's profit out to 2018. Kingfisher closed up 1.4%.
Rio Tinto was also upgraded by UBS to Buy from Neutral, with analysts saying they consider Rio to offer the most attractive valuation of the UK diversified miners. The miner closed up 1.7%.
Associated British Foods ended down 2.2% despite reports of a successful launch for its first Primark store in the US. The discount retailer opened its store in Boston on Thursday, and The Times said large crowds were gathered outside ahead of the doors opening.
In the FTSE 250, office space provider Regus rose 2.6% after a report in the Daily Mail which suggested it may be the subject of bid interest from private equity suitors. The newspaper said it understood Mark Dixon, the company's chief executive, recently turned down a GBP3.0 billion offer from a private equity company, rumoured to be US group Blackstone.
But the paper said he has apparently indicated that the group would be open to a bid valuing the company closer to GBP4.0 billion, which would represent a 40% premium to Regus's current market cap of GBP2.81 billion. The stock is up 45% in 2015 to date.
Great Portland Estates said it has pre-let all the office space in its development at Rathbone Square in London to US social media giant Facebook. According to Great Portland Estates, Facebook has agreed to lease 227,324 square feet of office space, all of the consented office space at Rathbone Square.
Facebook will occupy the building on a 15-year term without break from practical completion to shell and core condition, scheduled for February 2017, and will pay an initial rent of GBP16.9 million after receiving 30 months rent free from completion of the offices and a capital contribution to fit out the building to a Category A condition.
In addition, Facebook has signed a conditional deal to lease a further 15,461 square feet subject only to Great Portland Estates obtaining planning consent from Westminster City Council. That would leave Facebook occupying 242,785 square feet of space. Great Portland shares closed down 0.3%.
The focus for markets on Monday will be provided by data from China on Sunday, with urban investment data, industrial production and retail sales all released at 0630 BST. Also before the London open on Monday, Japanese industrial production and tertiary industry index is released at 0530 BST, and then eurozone industrial production is at 1000 BST.
In the UK corporate calendar, there are full-year results from City of London Investment Group and Empiric Student Property Group. There are also interim results from Central Asia Metals, Plant Health Care and Christie Group.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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