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LONDON (Alliance News) - Equities across Europe closed lower Thursday following another heavy fall in Chinese stock markets, while disappointing US initial jobless claims data provided another suggestion the US Federal Reserve may push back a potential US interest rate hike.

The FTSE 100 ended down 0.6% at 6,367.89, the FTSE 250 finished down 0.9% at 17,239.37, and the AIM All-Share closed down 0.6% at 743.55. European indices also closed in red, with the CAC 40 in Paris down 2.1% and the DAX 30 in Frankfurt down 2.3%.

When the European equity markets closed, Wall Street was adding to Wednesday's decline, with the Dow 30 down 1.2%, the S&P 500 off 1.1% and the Nasdaq Composite down 1.8%.

The US Labor Department released a report on Thursday unexpectedly showing another uptick in initial jobless claims in the week ended August 15.The report said initial jobless claims crept up to 277,000, an increase of 4,000 from the previous week's revised level of 273,000. The continued increase came as a surprise to economists, who had expected jobless claims to edge down to 270,000 from the 274,000 originally reported for the previous week.

With the unexpected increase, jobless claims climbed further off the more than 40-year low of 255,000 set in the week ended July 18.The report also said the less volatile four-week moving average rose to 271,500, an increase of 5,500 from the previous week's revised average of 266,000.

Meanwhile, the Labor Department also said continuing claims, a reading on the number of people receiving ongoing unemployment assistance, fell by 24,000 to 2.254 million in the week ended August 8. The four-week moving average of continuing claims still climbed to 2.265 million, an increase of 9,500 from the previous week's revised average of 2.255 million.

The job data came a day after the release of the minutes of the July 28 and 29 Fed meeting revealed that most members of the Federal Open Market Committee believed conditions for raising interest rates were approaching but not yet achieved. While meeting participants said the US labour market had improved notably since early this year, many saw scope for further improvement. Some members also expressed concerns about the outlook for inflation and whether it would support an interest rate hike.

Notes from the meeting said that one member of the committee "indicated a readiness to take that step at this meeting but was willing to wait for additional data to confirm a judgement to raise the target range." Overall, the panel "concluded that, although it had seen further progress, the economic conditions warranting an increase in the target range for the federal funds rate had not yet been met."

Societe Generale analyst Kit Juckes highlighted that concerns about China were cited in the Fed minutes even before the yuan adjustment, which started on August 11, and the continued recent slide in Chinese equity prices. The analyst said that the reasons given by the US central bank do not make a September hike impossible and notes that most economists who thought September likely before the minutes still do, but their nerves are just a little frayed.

However, economists at Nomura said that the "doubts" expressed in the Fed minutes imply that the probability of a "lift-off" at the September meeting has gone down materially. Instead of next month, Nomura thinks that a rate hike in December is now more likely. Moreover, the broker includes the possibility of no interest rate increase this year, even though Fed Chair Janet Yellen had said she expects conditions to be right for the US central bank to lift US rates later this year.

China share prices dropped again on Thursday with the benchmark Shanghai Composite Index falling 3.4%, while the Hang Seng in Hong Kong lost 1.8%, having touched its lowest level of 2015. The declines came amid continuing concerns about China's economy despite another round of cash injections this week by People's Bank of China.

Furthermore, uncertainty over the implications of China's yuan devaluation linger, despite the country's central bank Thursday setting the yuan midpoint once again marginally higher than the prior setting.

IG market analyst David Madden said that the People's Bank of China's decision to intervene in the currency market has done little to restore confidence in the Chinese stock market, with dealers dreading that more intervention will be required. Madden notes that the great worry is that China will undergo a dramatic drop in its rate of economic growth, and the knock-on effect ill damage Europe's own recovery.

"It used to be just Australia that would catch a cold when China sneezed, but the Chinese selloff is far more infectious than initially thought," said Madden. "We won’t see the impact of the Chinese currency devaluation for a few more months, and when it does trickle down, it will be painful."

Meanwhile, the International Monetary Fund said it won't add the yuan to its basket of reserve currencies for at least a year, giving markets more time to adjust to the possible addition of China's yuan as part of a review of global reserve currencies.

Crude oil prices extended overnight losses after data from the US Energy Information Administration showed Wednesday that crude oil stocks rose by 2.62 million barrels in the week ending August 15. Stocks were forecast to fall by 777,000 barrels.

West Texas Intermediate fell to a new six-and-a-half year low on Wednesday at USD40.39 a barrel, while Brent oil hit its lowest level since mid-January at USD46.33 a barrel. At the European stock markets close, WTI was at USD41.51 a barrel, and Brent oil was at USD47.10 a barrel.

As crude prices dropped, London-listed oil-related stocks rebounded after several sessions of declines, with Royal Dutch Shell 'B' shares up 0.5%, Nostrum Oil & Gas up 1.9% and Cairn Energy up 2.0%.

Mining stocks also rebounded, with the FTSE 350 Mining Index ending as the best performing sector, up 2.7%, following seven consecutive sessions ending down. Anglo American, up 4.4%, Antofagasta, up 3.5%, and BHP Billiton, up 1.6%, were amongst the best blue-chip performers. Gold miners Fresnillo, up 5.6% and Randgold Resources, up 5.8% benefited from the rise in the gold price, standing at USD1,149.60 an ounce when the European stock markets closed.

In the FTSE 250, platinum minder Lonmin was the biggest gainer, up 21%. However, the stock is still down 80% in 2015.

Kaz Minerals ended up 14% after Kazakhstan said it will allow its currency to float freely, which saw the tenge devalue sharply against the dollar. All of Kaz Minerals' operations are in Kazkakhstan, and the devaluation of the tenge will drive down costs at its operations, while sales are denominated in dollars. The recent devaluation in China and the decline in Russia's currency from ongoing sanctions also are significant to Kaz as both countries are major trading partners with Kazakhstan.

Kaz said Thursday it swung to a tiny pretax profit in the first half of the year, though it added that the Bozshakol mine will not be commissioned on schedule before the end of the year due to the recent fire at the site. This has been pushed back until early 2016.

Outside mining stocks, Mondi, down 3.0%, Prudential, down 2.8%, British American Tobacco, down 2.1%, and Hammerson, down 1.9% dragged down the FTSE 100 index, as the heavyweight tobacco, paper and packaging, insurance and property companies went ex-dividend. In particular, BAT and Prudential are among the largest companies by market capitalisation in the FTSE 100.

On the UK economic front, retail sales grew only marginally in July, data from the Office for National Statistics showed. Retail sales including auto fuel gained 0.1% month-on-month in July, but reversed a 0.1% drop in June. It was slower than the expected growth of 0.4%. On a yearly basis, retail sales including auto fuel advanced 4.2%, the same rate of growth as seen in June. Sales were expected to expand 4.4%.

Excluding fuel, retail sales increased 0.4% following a 0.3% drop seen a month ago and coming in line with expectations. Annual growth in sales excluding auto fuel improved to 4.3% in July, as expected, from 4.1% a month ago.

Outside the UK, new elections are to take place in Greece on September 20, government sources told dpa, adding that Prime Minister Alexis Tsipras will step down to make way for the new polls.

The news come after Greece's Finance Minister Euclid Tsakalotos announced that the Hellenic country has paid the European Central Bank EUR3.4 billion in time to meet an important Thursday repayment deadline, hours after receiving a EUR13 billion payment from its latest bailout. Failure to meet Thursday's deadline could have precipitated a Greek bankruptcy, as the country's banks are dependent upon a credit lifeline provided by the Frankfurt-based lender.

"After months of difficult and intense negotiations, all sides have respected their commitments and have created an opportunity to restore mutual trust, financial stability and confidence, which are preconditions for Greek economy to grow again," the European Commission said in a statement.

Greece has been granted its third bailout in five years, providing some respite after months of uncertainty about the country's economic future. Athens must now implement far-reaching social and economic reforms in return for up to EUR86 billion in aid in total.

In the economic calendar Friday, the Chinese Caixin manufacturing Purchasing Manager's Index is due at 0245 BST, while German Gfk consumer confidence survey is due at 0700 BST. French, German and eurozone manufacturing PMIs are expected at 0800, 0830 and 0900 BST, respectively. UK Public sector net borrowing is due at 0930 BST. In the US, Markit manufacturing PMI is due at 1445 BST.

In a light UK corporate calendar, HgCapital Trust, HellermannTyton Group and Tritax Big Box REIT release half-year results.

By Daniel Ruiz; danielruiz@alliancenews.com

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