LONDON (Alliance News) - Resources stocks slumped on Thursday after minutes from the US Federal Reserve's April policy meeting and a speech by a US policymaker suggested a US interest rate hike in June is a real possibility, while travel stocks sunk following a plane crash in the Mediterranean.
The Fed minutes from the April 26-27 meeting showed "most" participants in the Federal Open Market Committee "judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the committee's 2% objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June."
"A few" Fed members considered it "appropriate" to raise US interest rates already last month, according to the notes of the meeting.
New York Fed President William Dudley, speaking in New York on Thursday, added to the hawkish picture as he said the Fed is likely to raise rates in the summer if the economy meets the bank's expectations. Dudley said "June is definitely a live meeting".
Lloyds Bank said the minutes indicate a rate hike is on the table for June, but only if economic developments warrant it. But the bank noted the recent downturn in Chinese data and the uncertainty cited by the Fed around the UK's EU referendum vote, the outcome of which will not be known until after the June meeting.
As such, while the minutes show a rate move in the summer "is possible, we are aware that we have heard this before and like a game of Chinese whispers it pays to be mindful that the message can still change," Lloyds said.
Jasper Lawler, an analyst at CMC Markets, said the odds of a June rate hike "improved significantly" following the meeting but noted the Fed's willingness to hike had the "usual caveat of needing to see stronger economic data." For that reason, Lawler said a hike in June still looks unlikely.
"It is unlikely there will be enough time to turn the tide of what has been mostly weak economic data this year. However the odds of a move in September have improved to the point that it now appears the most likely date, should the recent trend of data improvement have any legs," he added.
In the US, the Dow Jones Industrial Average was down 1.0% at the London close, while the S&P 500 was down 1.0% and the NASDAQ Composite was off 1.1%. US markets had opened lower but sunk further following Dudley's comments.
The pound was down against the dollar at USD1.4583, from USD1.4620 at the close on Wednesday, while the euro was down to USD1.1204, against USD1.1279.
In Europe, the CAC 40 in Paris closed down 0.8%, while the DAX in Frankfurt was off 1.4%.
The stronger dollar delivered a blow to gold and oil prices. Gold was down to USD1,251.18 per ounce, from USD1,272.11 at the close Wednesday, while Brent oil was down to USD47.73 per barrel, from USD49.54.
Subsequently, the FTSE 100 fallers were dominated by miners, with Fresnillo down 7.0%, Anglo American down 4.4% and Glencore, down 3.7%, the worst hit. The miners were joined by oil major Royal Dutch Shell, 'A' shares in which were down 4.9% while its 'B' shares fell 4.5%.
Overall the FTSE 100 closed down 1.8% or 112.45 points, at 6,053.35 points, while the FTSE 250 closed down 0.9%, or 151.13 points, to 16,730.11 for many of the same reasons.
Mid-cap miners Evraz, down 6.1% and Centamin, down 5.4% were all among the biggest fallers, while oil companies Tullow Oil, down 7.2%, and Ophir Energy, off 5.8%, joined the losers list.
On the flip side, the hawkish US Fed minutes helped banks higher as a rise in interest rates would be beneficial to net interest margins, a key driver of profit for lenders. Royal Bank of Scotland Group, up 1.4%, and Barclays, up 0.5%, benefited the most, though both had given up some earlier gains by the close.
Beyond the banks and resources companies, shares in postal service operator Royal Mail closed down 3.9% as pretax profit fell due to ongoing transformation costs the group has booked and it warned on an increasingly competitive parcels environment in the UK, particularly given the entry of US e-commerce giant Amazon.com's own delivery services.
The results were actually slightly ahead of consensus but broker Cantor Fitzgerald bemoaned a lack of clarity on Royal Mail's outlook, while Liberum said it sees long and short-term risks for the company.
At the other end of the blue-chip index, private equity investor 3i Group expressed confidence in its strategy of streamlining its portfolio as it posted growth in its net asset value per share in the year to the end of March, in addition to a higher dividend payout and higher total return. 3i shares closed up 2.5%, the best blue-chip performer.
Turning to the mid-cap index, tour operator Thomas Cook closed down 19%, by far the worst performer in the FTSE 250. The group reported a narrowed pretax loss for the first half of its financial year, despite lower revenue, but warned on its full-year outlook due to reduced demand for travel to Turkey and Belgium due to recent terror attacks in both countries.
This was compounded by news an Egyptair passenger plane travelling from Paris to Cairo with 66 people on board crashed in the Mediterranean Sea. In addition to the extra blow this handed to Thomas Cook shares, blue-chip rivals TUI, down 2.4%, and InterContinental Hotels Group, down 3.4%, also suffered.
Also falling in the mid-cap index was wealth manager Brewin Dolphin Holdings, down 7.0%, after it posted lower pretax profit for its first half amid tough market conditions and one-off gains booked a year earlier not repeating.
Pretax profit for the half year to the end of March was GBP21.5 million, 42% down from the GBP37.2 million it made a year earlier, though total funds under management at the end of the half was GBP32.8 billion, up 2.5% from GBP32.0 billion at the end of September, while discretionary funds grew 4.4% to GBP25.9 billion.
At the other end of the FTSE 250 struggling restaurant operator Restaurant Group, having risen nearly 7% during the day, ended up 2.5%, boosted by a Sky News report that private equity company Cinven was running the rule over the company ahead of a possible takeover bid. Restaurant Group, which runs the Frankie & Benny's and Garfunkel's chains, has been hit hard by a slew of profit warnings this year which has caused its shares to lose half their value so far in 2016.
The AIM All-Share closed the day down 0.3%, or 2.49 points, at 722.64.
Fevertree Drinks, the premium tonics and mixers maker, rose 16% after it said it "outperformed expectations" in the first four months of the year as the momentum seen in 2015 has continued into 2016. It added its results for 2016 are set to be "materially ahead of market expectations".
At the other end of AIM, mobile content company Mobile Streams slumped 34% after it warned losses for the year to the end of June would be "materially higher" that previously anticipated. The company said this was as a result of its investment in new products like ad-funded services, and scaling in new geographies like India, as well as ongoing challenges in its core market of Argentina.
Also published on Thursday, the Office for National Statistics said UK retail sales volumes climbed 1.3% in April from March, when volumes fell 0.5%. Sales were expected to grow only 0.6% month-on-month. On a yearly basis, growth in sales accelerated to a three-month high of 4.3% from 3.0%. Economists had forecast a 2.5% increase.
On the economic calendar for Friday will be PPI figures from Germany at 0700 BST, followed by Eurozone current account figures at 1000 BST and the CBI Industrial Trends Survey in the UK at 1100 BST. Retail sales and CPI data from Canada are due at 1330 BST.
In the corporate calendar Friday, precision instrumentation and controls manufacturer Spectris, banking, securities and asset management house Close Brothers and suits retailer Moss Bros Group publish trading updates. Retail property investor NewRiver Retail and wine wholesaler Majestic Wine publish annual results.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
Copyright 2016 Alliance News Limited. All Rights Reserved.
19 Jan 2016 07:49
