LONDON (Alliance News) - London's major equity markets all closed in the red Thursday as stock investors reacted negatively to the Federal Open Market Committee's monetary policy statement post-close Wednesday and strong Chicago purchasing managers index data.
The FOMC kept its USD85 billion-per-month asset buying scheme unchanged, as expected, but investors focused on a less-dovish-than-expected tone in its statement, prompting equity markets to open lower across the world Thursday.
The rate- and policy-setting committee saw "growing underlying strength in the broader economy" but was awaiting "more evidence that progress will be sustained before adjusting the pace of its purchases."
However, it made no mention of the recent US government shutdown, an issue that had made markets push expectations for the start of the reduction of asset purchasing into 2014. Investors think the Fed may now start so-called tapering as early as December.
"Whilst acknowledging the recent slowdown in the housing market, which was somewhat dovish, the Fed also dropped its prior statement about tightening financial conditions, which leaves the door slightly ajar for a December taper," said Jonathan Pryor of Investec Corporate Treasury.
The start of tapering is perceived to be bad for stocks because it will reduce the flow of cheap money that has been driving the economic, and hence corporate, recovery.
Potential further evidence of progress came in the form of the Chicago Manufacturing PMI, which came in at 65.9 for October, up from 55.7 in September and way above economists' expectations of 55.0. The reading is the highest since March 2011 and the biggest gap to expectations on record.
US initial jobless claims came in roughly as expected at 340,000, down from 350,000 previously and broadly in-line with an expected reading of 339,000.
The FTSE 100 closed down 0.7% at 6,731.43, the FTSE 250 closed down 0.7% at 15,479.95, and the AIM All-Share index closed down 0.1% at 808.39. The lower close snapped a five-day winning streak for the FTSE 100 and the AIM All-Share.
At the close of the UK equity markets, Wall Street was trading flat to slightly higher. The DJIA was flat at 15,611.92, the S&P was up 0.1% at 1,764.23, while the Nasdaq was up 0.2% at 3,937.7
Poor economic numbers from the across Europe Thursday weighed heavily on the euro.
German retail sales declined for a second straight month in September, dropping a calendar-and-seasonally-adjusted 0.4% month-on-month, while economists' consensus was a 0.4% gain. In August, sales fell 0.2%. Similarly, Germany's forward-looking consumer confidence index declined unexpectedly heading into November. The confidence index edged down to 7 in November from 7.1 in October, missing expectations of an increase to 7.2.
Italy's unemployment rate increased more-than-expected in September and reached a record high as economic activity continued to be dragged down by the ongoing recession, and placements stalled amid fears that a recovery is unlikely in the near future. The seasonally-adjusted unemployment rate advanced to 12.5% in September from 12.4% in August and 12.1% in July, data released by statistical office Istat showed on Thursday.
Unemployment numbers showed the jobless rate across the whole euro zone rose to 12.2% in September, with the August figure also being revised up to 12.2% from 12.0%.
At the close of the UK equities market, the euro trades at USD1.3589 and GBP0.8468.
Oil and gas producers was one of the biggest falling FTSE 350 sector indices, closing down 2% after Royal Dutch Shell, ending down 4.9% at 2,077.3486 pence, was one of the biggest fallers on the blue-chip index. It joined UK rival BG Group and France's Total in warning that profits are being hurt by lower refining margins in Europe.
The Anglo-Dutch oil giant said pretax profit fell 29% in the third quarter as further security problems in Nigeria hit its production. Adjusted current cost of supply income over the period was USD4.5 billion. With the consensus around USD5.1 billion, the results have missed expectations by almost 15%, said Liberum Capital analyst Andrew Whittock. Higher operating and exploration expenses and maintenance activities also weighed on its performance.
Croda, closing down 8% at 2,423.7918p was another big faller in the FTSE 100. While the company's third-quarter revenue was up 4.4% to GBP267.9 million and pretax profit for the period was up 5.4%, the increase in profits was below both Deutsche Bank's forecasts and consensus expectations. Looking ahead, Croda's management expects fourth quarter profits at similar levels because of weakening forex and subdued market conditions.
BG Group, up 2.2% at 1,272.4p, closed as the top gainer on the FTSE 100 in contrast to Shell. The company said production will recover in the fourth quarter as it completes its North Sea maintenance shutdowns and brings new projects into production. The company also said it is on track to deliver on schedule, and within its USD20.4 billion budget, the world's first project to convert coal seam gas to liquefied natural gas. Alongside this, BG's Margarita Phase 2 and Bongkot North Phase 3K sites are now onstream while the company has agreed the sale of its US midstream assets and achieved the disposal of its Quintero LNG terminal, generating a total of USD400 million. However, BG did report that its pretax profit fell 11% in its third quarter as reduced activity in the US hit the company's production rates.
AIM-listed Sefton Resources, closing up 49% at 0.53p, saw its shares jump after it said it has had discussions with parties interested in funding or buying its assets, although it can't yet be certain a deal will be done. The potential acquisition or funding talks come as it looks at strategic alternatives for the company.
Royal Bank of Scotland Friday will become the third of the major UK banks to give a trading update, joined by blue-chip Meggitt, and FTSE 250-listed Berendsen, Direct Line Insurance Group and F&C Asset Management. Smith (DS) releases a trading statement.
In the data calendar Friday, Chinese and Russian manufacturing PMI data is released overnight. UK Markit manufacturing PMI is scheduled for 0928 GMT. In the US, Markit manufacturing PMI is expected at 1358 GMT, with ISM manufacturing PMI data at 1400 GMT.
By James Kemp; jameskemp@alliancenews.com; @jamespkemp
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