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(Alliance News) -Â The FTSE 100 failed to sustain a short boost from US Federal Reserve Chair Jerome Powell's speech at Jackson Hole on Thursday, ending the session firmly in negative territory.
The FTSE 100 index closed down 45.61 points, or 0.8%, at 5,999.99. The FTSE 250 ended up just 8.46 points at 17,762.03, and the AIM All-Share closed down 2.38 points, or 0.3%, at 963.34.
The Cboe UK 100 ended down 0.5% at 598.45, the Cboe UK 250 closed up 0.1% at 15,114.42, and the Cboe Small Companies ended up 0.2% at 9,498.12.
In European equities on Thursday, the CAC 40 in Paris ended down 0.6%, while the DAX 30 in Frankfurt ended down 0.7%.
The FTSE 100 had trundled through Thursday's session before a short-lived rally into the green after comments from Powell.
The US Fed chief, in a speech for the annual Jackson Hole symposium, this year being held virtually, said the central bank has shifted to take on a "flexible form of average inflation targeting" in a bid to shore up the labour market.
The change means inflation can stay above the 2.0% target "for some time" before the Fed will need to act by raising interest rates. The aim is to correct the "shortfalls" in achieving the Fed's goal of maximum employment, and a recognition that with changes in the global economy, a tight job market does not necessarily drive prices higher.
Powell's remarks came just after data showed US initial jobless claims for the week to August 22 totalled 1.0 million, down from 1.1 million claims in the previous week. A separate release, from the Department of Commerce, showed the US economy shrank 31.7% in the second-quarter - not quite as bad as the initial estimate of a 32.9% drop but still the worst reading since records began in 1947.
The central bank will now seek to achieve inflation that averages 2% "over time", Powell said.
"If inflation runs below 2% following economic downturns but never moves above 2% even when the economy is strong, then, over time, inflation will average less than 2%. Households and businesses will come to expect this result, meaning that inflation expectations would tend to move below our inflation goal and pull realized inflation down," explained Powell.
"Thus, our approach could be viewed as a flexible form of average inflation targeting," he said.
Despite trading as much as 0.3% higher in the afternoon after Powell's speech, the FTSE 100 gave back these gains to end in the red on Thursday.
"Initially, investors loved the news the Federal Reserve has rolled out average inflation targeting of 2% and the fact that it will be putting more emphasis on 'broad and inclusive' employment. The new approach means inflation could rise above 2% for some time and will not necessarily lead to monetary tightening," explained Fawad Razaqzada, market analyst with ThinkMarkets.
He added, though: "However, judging by the reaction that followed, when the dollar rebounded sharply, some market participants clearly felt the new approach will bring about more uncertainty rather than transparency. Markets usually don't like uncertainty."
The pound was quoted at USD1.3192 at the London equities close, up slightly compared to USD1.3186 at the close on Wednesday but off Thursday's intraday day of USD1.3284.
The euro stood at USD1.1798 at the European equities close Thursday, down against USD1.1819 at the same time on Wednesday.
Against the yen, the dollar was trading at JPY106.50, up compared to JPY106.16 late Wednesday.
Stocks in New York were higher at the London equities close, with the Dow Jones up 0.8%, the S&P 500 index up 0.4%, and the Nasdaq Composite up 0.3%.
Brent oil was quoted at USD44.68 a barrel at the London equities close Thursday, down from USD45.58 late Wednesday. Gold was quoted at USD1,919.95 an ounce at the London equities close, also lower against USD1,944.17.
The worst performer in the FTSE 100 on Thursday was Homeserve, ending down 3.3% after Morgan Stanley cut the emergency home repairs business to Equal Weight from Overweight.
Rolls-Royce shares ended down 1.2% after the jet engine maker said it was looking to sell assets as it warned of "material uncertainties" caused by the coronavirus pandemic.
For the half-year ended June 30, revenue fell 26% to GBP5.82 billion from GBP7.88 billion last year.
On a reported basis, pretax loss widened to GBP5.4 billion from a loss of GBP791 million last year. It was the company's biggest interim loss on record.
The grounding of passenger jets due to the coronavirus crisis meant flying hours were halved. This hurt the revenue as airlines pay based on how much they use the engines, the trademark Rolls-Royce "power-by-the-hour" scheme.
"The timing of recovery of commercial aviation to pre-crisis levels and the availability of sufficient funding indicate the existence of material uncertainties that may cast significant doubt about the group's ability to continue as a going concern," Rolls-Royce warned.
Rolls-Royce said it was targeting potential disposals to raise at least GBP2 billion, including putting ITP Aero in Spain up for sale, among other businesses, to ease pressure on its balance sheet.
At the top of the blue-chips was WPP, closing up 6.5% despite swinging to an interim loss.
For the six months ended June 30, WPP posted a pretax loss of GBP2.58 billion, swinging from profit of GBP409 million a year prior. This was as revenue fell 12% year-on-year to GBP5.58 billion from GBP6.37 billion and administrative expenses jumped to GBP3.23 billion from GBP443 million.
Looking ahead, WPP said that assuming no further economic lockdowns, it expects earnings for the full year to be in line analysts' expectations of a 10% to 12% decline in like-for-like revenue less pass-through costs, and 10% to 13% headline operating margin.
Chief Executive Mark Read said: "Assuming there is no second wave nor major lockdown, the second quarter is expected to be the toughest period of the year, although we remain cautious on the speed of recovery."
In the FTSE 250, OneSavings surged 16%. The lender reported loan book growth in its first-half, with the firm also posting a near double-digit profit climb despite chunky impairment costs.
Net interest income during the half climbed 55% year-on-year to GBP233.8 million from GBP150.5 million, helping push pretax profit up 9.7% to GBP99.3 million from GBP90.5 million.
Profit growth came despite impairments of financial assets climbing almost ten-fold to GBP54.2 million from GBP5.9 million. Exceptional costs were reduced to GBP1.7 million, however, from GBP5.9 million a year earlier, when OneSavings booked a charge related to its merger with Charter Court.
Elsewhere in London, SDL shares jumped 31% while RWS Holdings shares slipped 12%. The two unveiled plans for an all-share tie-up with a view of creating "the world's leading language services and technology group".
Under the terms of the deal, SDL shareholders will be entitled to receive 1.2246 new RWS shares for each SDL stock they own.
Based on the exchange ratio and RWS's closing price of 741 pence on Wednesday, the deal values SDL shares at 907p. The duo noted this is a 52% premium to SDL's closing price of 598p per share on Wednesday. The transaction values all of SDL at roughly GBP854 million.
The UK corporate calendar for Friday has half-year results from plastic and fibre supplier Essentra and infrastructure investment company BBGI SICAV.
In Friday's economic calendar is eurozone consumer confidence at 1000 BST and US core personal consumption expenditures at 1330 BST. Bank of England Governor Andrew Bailey speaks at Jackson Hole around 1400 BST.
By Lucy Heming;Â lucyheming@alliancenews.com
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