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LONDON (Alliance News) - UK stocks fell on Thursday, following the declines seen in US markets on Wednesday after new Federal Reserve Chair Janet Yellen announced a further cut to the US quantitative easing programme and also hinted at an interest rate rise sooner than previously expected.
With little in the economic calendar to shift sentiment Thursday morning, UK stocks opened lower, mirroring the falls made by US Markets. While some improved US data has lifted sentiment in the afternoon and lifted equity indices off their lows, UK stocks have ended the day lower.
The FTSE 100 has closed down 0.5% at 6,542.44, the FTSE 250 has closed down 0.7% at 16,217.35, and the AIM All-Share has closed down 1.0% at 860.10.
The Fed cut a further USD10 billion from its monthly asset purchases on Wednesday, bringing quantitative easing down to USD55 billion per month. While the cut was expected, equity markets fell and the dollar rose as traders pounced on Yellen's comment that the period of time between the end of tapering and the first rate hike could be as little as six months.
While the market gets used the communication style of the Fed's new Chair, upcoming appearances from other Fed officials may garner even more interest. "It is possible that her (Yellen's) remark was not meant to be as specific as the markets took it to be," said Rabobank senior strategist Jane Foley. "If this is the case Fed officials may attempt to push back against last night?s market reaction," Foley says.
Minneapolis Fed President Narayana Kocherlakota was the first to dissent against the new chair, voting not to move away from the specific numbers-based forward guidance that was dropped at the meeting. Kocherlakota speaks on monetary policy in Washington on Friday.
It hasn't taken too much to boost US markets however, with equities there on the rise Thursday after some better-than-expected data.
The US Philadelphia Fed Manufacturing Survey came in at 9.0 for February, reversing the decline of 6.3 recorded in January and beating economists expectations for a reading of 4.0.
Furthermore, US initial jobless claims grew by slightly less than expected, coming in at 320,000 for the week ended March 14, less that the 325,000 expected.
After the close of European equity markets, the DJIA is up 0.7%, the S&P 500 is up 0.6%, and the Nasdaq Composite is up 0.4%.
"Despite a negative morning, global bourses recovered from their lows with US futures trading in positive territory. Equities remained sluggish this morning as investors digested Janet Yellens comments last night, signalling interest rates could rise by the middle of next year. The turnaround comes after Philly Fed Manufacturing data showed a jump in general business conditions," said Spreadex traded Lee Mumford.
Tit-for-tat sanctions continue between the US, Europe and Russia, are keeping the Crimea situation in the headlines. President Obama has imposed further asset freezes and travel ban on a few more Russian officials, prompting Russia to retaliate by announcing its own sanctions on US officials, including House of Representatives speaker John Boehner and Republican Senator John McCain.
While those seem rather token, Obama also said he has signed new executive orders which gives the authority to post sanctions on key sectors of the Russian economy. The President said these would have serious effects on the Russian economy but cautioned that they could also be disruptive to the global economy.
With German Chancellor Angela Merkel reportedly shying away from further sanctions unless there is an escalation by Russia in the form of military aggression, the markets appear relatively sanguine about the situation as it stands.
The dollar has risen slightly against both the pound and the euro Thursday, reflecting the hawkish nature of Yellen's comments on Wednesday and the taper to US asset buying. Against the dollar, the pounds now trades at USD1.6515, while the euro trades at USD1.3785.
The tax changes announced in Wednesday's UK budget continued to drive stock moves Thursday. The annuity providers have been hardest hit for the second day, after chancellor George Osborne effectively destroyed the annuity market by allowing individuals more control of their pension pots. Barclays now expects the individual annuity market to decline by two-thirds from GBP12 billion to GBP4 billion per year within the next 18 months. "We believe the UK budget has the potential to lead to the demise of the UK individual annuity market," says Barclays analyst Alan Devlin.
Resolution Limited led the falls in the FTSE 100, closing down 5.0%. After falling more than 50% on Wednesday, Partnership Assurance again led the FTSE 250 lower, closing down a further 13% Thursday. The life insurance groups with a more diversified product offering have performed rather better Thursday, with Standard Life up 2.5%, Prudential up 0.7% and Legal & General up 0.9%.
The bookmakers also continued to come under pressure on the back of the increased levies on fixed-odds gaming terminals. William Hill put out a statement Thursday increasing its estimate of how much the tax rate increase would have cost it over the 2013 full-year to GBP22 million from GBP16 million. There appeared to be a mix up over exactly which gaming terminals will be affected by the increased tax rate, with the levy actually covering more than first thought.
With regulation currently a key driver in the gaming industry, analysts suggest sentiment in the sector is likely to remain negative this year, especially until an independent report on problem gambling is published in the autumn. There is a strong possibility of further regulation if the report shows evidence of the fixed odds machines being linked to problem gambling, says Barclays analyst Chris Stephens.
William Hill closed down 1.4% Thursday, while Ladbrokes closed down 3.1%.
Outside of the assessment of the budget, SSE topped the FTSE 100 gainers, closing up 3.4% after the Utility company received a two-notch upgrade to Overweight from Underweight from Morgan Stanley.
There are no scheduled UK corporate in the calendar Friday, and it's a quieter day in the economic calendar too, with UK public sector borrowing numbers proving some morning interest at 0930 GMT.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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