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LONDON (Alliance News) - UK stocks have given up early positivity by mid-morning Monday to trade lower amid concerns over the health of the European economy, and as investors already look towards the Federal Reserve meeting later in the week, which is expected to bring an end to US quantitative easing.
By mid-morning Monday, the FTSE 100 is down 0.4% at 6,361.23, the FTSE 250 is down 0.3% at 15,040.20, and the AIM All-Share is off 0.2% at 707.61.
London and other major European stock markets, had opened higher, buoyed by positivity about the results of the EU bank stress tests released on Sunday. However, by mid-morning, the French CAC 40 and the German DAX 30 are both down 0.7%.
There has been a wide variance between the performance of the banks Monday depending on how they performed in the test. Germany's Commerzbank, for example opened as much as 5.0% higher out of relief for having passed the test, while Italy's Banca Monte dei Paschi di Siena has fallen about 17% after failing and showing the biggest capital shortfall out of all the banks being tested.
Overall, the EU regulators failed 25 of the 130 banks being stress-tested as part of the Asset Quality Review. This was in line with expectations following a leaked report last week and was initially taken positively by the market given that none of the key big names were failed.
However, concerns soon crept back into the market, in part because of yet more disappointing data from German. The German IFO business climate survey fell to 103.2 in October, from 104.7 in September. That's the sixth consecutive monthly fall, the lowest confidence reading since December 2012, and worse than the 104.1 print that had been expected.
The disappointing business confidence in Europe's biggest economy heightened concerns that, no mater how well capitalised the banks might be, it is a lack of demand for new loans that is the real problem in the eurozone, rather than a lack of ability or willingness to lend. All eyes will now be on the level of take up of the European Central Bank's next Targeted Long Term Refinancing operation, something which ECB President Mario Draghi has said he expects to increase following the stress tests.
Further weighing on sentiment this week, Wednesday brings a Federal Reserve meeting, at which the policy makers are widely expected to end the US quantitative easing programme. A recent pick up in market volatility has prompted calls from some quarters for the end of QE to be delayed. While most analysts still expect the programme to end, the exact wording of the Fed's policy statement will be a key market focus this week.
Lloyds Banking Group is the worst performer amongst the UK banks, as well as one of the worst performing FTSE 100 stocks. Lloyds is down 2.4% after only passing the EU stress test by a relatively low margin. Analysts have expressed concern over what this means for Lloyds given that the UK banks all will face a tougher round of testing on December 16, when the UK regulator applies a more stringent scenario to their balance sheets. The UK test will, for example, stress the banks against a 30% house price fall, compared to the 15% fall in the EU tests.
Royal Bank of Scotland is also down 1.7%. The banks with a higher focus on the UK mortgage market are seen as most at risk in the upcoming UK stress tests.
Travel stocks are enjoying some respite in the London market as the global effort to counter the Ebola outbreak appears to have been stepped up, and there was no news of a further spread of the virus into Europe or the US over the weekend. The Texas nurse that had the first US case received the all-clear on Friday, and the US is implementing quarantine measures for health workers returning from Ebola effected nations. While this has created some controversy amongst health workers, and friction between state and federal governments, it has been well-received by the markets.
Holiday operator Tui Travel is the best performer in the FTSE 100, up 1.8%. Intercontinental Hotels Group is up 1.9%, and cruise ship operator Carnival is up 0.6%.
Electronics group Renishaw leads the FTSE 250 gainers, up 3.4%, after saying it expects the revenue growth trend it experienced in the first quarter to continue through the second half of its financial year, extending the guidance it gave for the second quarter.
Petra Diamonds lags at the other end of the mid-cap index, down 4.0%, despite saying its revenue grew by more than half in its fiscal first quarter, buoyed by higher production and the proceeds from the sale of an exceptional blue diamond. VSA Capital notes that Petra shares have risen by 48% since the start of the year and that the diamond market is exhibiting expected seasonal weakness.
Still to come Monday, US home sales data, the US Market services PMI for October, and the Dallas Fed manufacturing business index are due ahead of the Wall Street opening bell, with social media giant Twitter coming into focus later when it releases its third-quarter results.
Futures currently indicate that a slightly lower open can be expected in the US, with the DJIA, S&P 500, and Nasdaq Composite all pointing down between 0.1% to 0.2%.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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