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LONDON (Alliance News) - UK stocks have been unable to hold onto early gains Thursday.
Having initially moved higher after being soothed by the understanding that global monetary policy is likely to stay accommodative for some time yet, the FTSE 100 and other major European indices have slipped into the red, ahead of the Bank of England announcement still to come.
By mid-morning Thursday the FTSE 100 is down 0.1% at 6,630.50, while the FTSE 250 is up 0.1% at 16,184.56, and the AIM All-Share up 0.2% at 848.08.
A similar turnaround within major European markets sees the French CAC 40 and the German DAX both down about 0.4% after initially pushing higher Thursday.
The minutes from the latest US Federal Reserve policy meeting released Wednesday gave the impression that the Fed is in no rush to raise interest rates, even after it finishes winding down its monthly asset purchases. Despite concern from some that the ultra-lose monetary policy being employed by major global central banks may be leading to asset bubbles, the policy is supporting equity markets for now.
"The Federal Open Market Committee members are so keen to reassure us of their accommodative monetary policy bias, that they will happily inflate asset bubbles globally," said Societe Generale strategist Kit Jukes in a morning note to clients.
The obvious potential asset bubble in the UK is house prices, and indeed the latest reading of the market, from the Royal Institute of Chartered Surveyors, showed another jump in prices. The March house price balance climbed to 57% in March, well above forecasts for 44%. The survey showed house prices moving higher in every region in the country and overall prices reaching a six-year high.
"House prices are booming, and are likely to continue booming while interest rates stay low and the government provides subsidies for house purchase," said Berenberg chief economist Rob Wood. "The fact that this is not just a London phenomenon shows that it is returning confidence and loose monetary policy driving the market," the economist says.
Greece has been making headlines Thursday after its central bank returned to the bond market with a five-year auction. The auction was reported to be at least 8x oversubscribed, with a final yield of 4.95%. The positive outcome comes after data Thursday showed Greek unemployment still at 27%, and an annual deflation rate in the county of 1.3%.
"Much of this demand for Greek bonds seem to be investors banking on Germany and the European Central Bank ensuring that they will do whatever it takes to safe-guard the eurozone economy. In some ways, you could say investors are buying into German/ECB-guaranteed Greek bonds," said ETX Capital market strategist Ishaq Siddiqi.
The euro remains well supported against the dollar amid the auction. Wednesday's Fed minutes may frustrate ECB officials who have been trying to talk the single currency lower in recent appearances. This potentially makes the introduction of extraordinary ECB policy measures all the more likely. Against the dollar, the euro trades near a three-week high at USD1.3858.
Having reached a near six-week high overnight after the dovish fed minutes, the pound has softened a little against the dollar ahead of the Bank of England announcement still to come Thursday. The pound currently trades at USD1.6770.
The BoE is widely expected to stand pat on policy at 1100 GMT, with rates expected to be maintained at 0.5%, with the stock of GBP375 billion in assets unchanged.
Although no change is expected Thursday, with low interest rates seen to be fuelling the housing boom, economists are starting to bring in their expectations for the first interest rate rise. Berenberg now sees the first rate hike in the first quarter of 2015, with a 35% chance of a move in the fourth quarter of 2014.
Within UK equities, the General Retail sector had initially provided a boost to stocks, with Marks & Spencer briefly leading the blue chip gainers after showing an improvement in its clothing sales, along with growing online and international revenue. Despite the encouraging news, M&S shares have since turned negative to trade down 1.6%. Shore Capital remained neutral on the stock following the update, with analyst Clive Black saying "there is clearly a lot more to do for M&S to stem market share decline in womenswear in the UK on a sustained basis."
Also within the retailers, WH Smith shares have turned negative after a positive start, with the group saying total sales were down by 4% in the first half. Management have tried to retain investor attention by raising the interim dividend by 15% to 10.8p.
The energy suppliers are not performing well after Centrica-owned British Gas has been forced to make GBP5.6 million in payments following errors in its switching and renewal process. The UK energy regulator Ofgem found that the energy supplier wrongly blocked business customers from switching and failed to give some businesses notice that their contract was due to end.
Centria shares are creating a drag on the FTSE 100, down 1.1%. In an uncertain energy regulation environment, SSE shares are down 1.0%, with United Utilities down 0.7%.
Still to come Thursday, the BoE decision at 1100 GMT, with US initial jobless claims in the afternoon at 1230 GMT.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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