SuperGroup Share News (SGP)

LONDON (Alliance News) - UK shares closed lower Thursday, ending a run of three consecutive daily gains for the FTSE 100, as dovish comments from the Bank of England were not enough to offset a sharp drop in oil and commodities-related stocks.

The pound also was under pressure, after the BoE kept its key interest rate at a record low and signalled that borrowing costs would remain unchanged through next year as it cut its forecast for inflation.

In what has been dubbed "Super Thursday", a dovish economic outlook from the Bank of England damped the prospect of an interest rate hike in the near term and suggested that interest rates are unlikely to rise until late 2016, as inflation is expected to remain low.

The Monetary Policy Committee, headed by Governor Mark Carney, voted 8-1 to hold the interest rate at 0.50%, the bank said, with Ian McCafferty the lone dissenter as he sought an increase in the Bank Rate by 25 basis points. The rate has been held at this record-low level since 2009.

Policymakers voted unanimously to maintain quantitative easing at GBP375 billion.

While economists had widely expected the bank to leave the benchmark rate and the size of its stimulus unchanged, some had forecast that at least one more rate-setter would join McCafferty this month in seeking a rate hike.

"The dovish surprise came from the inflation forecasts," said Jasper Lawler, market analyst at CMC Markets. "The BoE forecasts were so dovish that the Bank of England almost seems more aligned with the European Central Bank than the Federal Reserve," he added.

"The outlook for global growth has weakened since the August Inflation Report," the bank said, downgrading its medium-term growth prospects for the UK economy. Output growth is now expected to be at 0.6% in the fourth quarter.

Going forward, UK economic growth is forecast to remain at around this rate. The bank expects the economy to grow 2.7% this year and 2.5% in 2016. Then, growth is projected to improve to 2.7% in 2017. In the August report, the bank had projected 2.8% growth for 2015 and 2.6% next year.

Inflation is projected to pick up over coming months, but less quickly than projected in August, the bank noted. The central bank estimated consumer price index inflation to rise to 0.4% in December, and to 0.7% in March 2016. Inflation is expected to return to the 2% target in around two years, the BoE saod.

"The first interest rate hike from 0.50% to 0.75% is still most likely to happen in May 2016, but the risks now seem to be that the increase could be later than this rather than before it," IHS Global Insight economist Howard Archer commented.

The FTSE 100, which had been trading significantly lower Thursday morning with commodity and oil stocks weighing heavy, rallied strongly in the aftermath of the BoE's monetary policy decision, MPC meeting minutes and Inflation Report, before promptly heading back into negative territory.

The blue-chip index closed down 0.8% at 6,364.90 points, snapping a run of three consecutive daily gains, while the FTSE 250 closed down 0.4% at 17,117.13, and the AIM All-Share index closed down 0.1% at 746.31.

The FTSE 350 mining sector index as a whole ended the day down 3.7% as it gave back the gains posted on Wednesday after a better-than-expected services activity from China. Among its constituents, FTSE 100-listed Anglo American, Antofagasta, and BHP Billiton closed down 5.2%, 4.0%, and 2.3%, respectively.

Oil stocks also were among the heaviest blue-chip fallers as they gave back gains made at the start of the week, when they had benefited from a rise in oil prices. FTSE 100-listed BP ended the day down 2.6%, while peers BG Group closed down 2.1% and Royal Dutch Shell 'A' shares closed down 2.2%. The FTSE 350 oil and gas producers sector index lost 2.6%.

At the UK equity market close, Brent oil traded at USD48.32 a barrel, with West Texas Intermediate oil prices trading at USD45.84 a barrel.

In Europe, stocks closed higher, with the CAC 40 index in Paris ending the day up 0.6% and the DAX 30 in Frankfurt up 0.4%, after the European Commission upgraded its growth forecasts for the eurozone for 2015.

In its Autumn 2015 forecast, the Commission said that gross domestic product in the euro area is set to grow by 1.6% this year, slightly faster than the 1.5% predicted in May.

At the same time, the commission lowered its projection for next year to 1.8% from 1.9% as the impact of positive factors such as falling oil prices, expansionary monetary policy and a weaker euro fade, while new challenges such as emerging market slowdown emerge. Eurozone growth was projected to improve to 1.9% in 2017.

"The impact of the positive factors is fading, while new challenges are appearing, such as the slowdown in emerging market economies and global trade, and persisting geopolitical tensions," the report said. "Backed by other factors, such as better employment performance supporting real disposable income, easier credit conditions, progress in financial de-leveraging and higher investment, the pace of growth is expected to resist the challenges in 2016 and 2017."

The commission retained its inflation projection for the eurozone for this year at 0.1%, while it slashed the outlook for next year to 1% from 1.5%. Headline inflation was forecast at 1.6% in 2017.

Stocks in in the US were lower at the UK equity market close. The NASDAQ Composite was down 0.4%, while the Dow 30 and S&P 500 both were down 0.1%.

The US Labor Department released a report Thursday showing an unexpected increase in productivity in the third quarter. Productivity climbed by 1.6% in third quarter following an upwardly revised 3.5% jump in the second quarter. The continued growth came as a surprise to economists, who had expected productivity to edge down by 0.2% compared to the 3.3% increase that had been reported for the previous quarter.

The report also said unit labour costs rose by 1.4% in the third quarter after tumbling by 1.8% in the second quarter. Economists had expected costs to surge by 2.3%.

Meanwhile, a day before the release of its closely watched monthly non-farms jobs report, the US Labor Department also revealed that first-time claims for US unemployment benefits rose more than expected in the week ended October 31. The report said initial jobless claims climbed to 276,000, an increase of 16,000 from the previous week's unrevised level of 260,000. According to FXStreet.com, economists had expected jobless claims to edge up to 264,000.

In the forex market, the pound fell sharply against its rivals Thursday following the dovish outlook from the Bank of England. At the close of the UK equity market, the pound traded at USD1.5240. The euro traded at USD1.0866.

"If ‘Super Thursday’ was meant to be ‘Super Depressing’ then the Bank of England succeeded, with a more dovish than expected report causing a migraine for the pound," said Connor Campbell, financial analyst at Spreadex.

In the commodities market, gold traded at USD1,105.61 an ounce.

AstraZeneca ended the day as one of the biggest winners in the FTSE 100. The drugmaker closed up 2.5% after it upgraded its revenue guidance for 2015 again, having done the same at its interim results, as the decline in sales for the third quarter met expectations and as the group continued to invest in its drug pipeline in order to head off further generic challenges it will face in 2016.

The company upgraded its revenue guidance for the full year in constant currencies to expectations for a broadly flat performance against 2014, having previously guided to a low-single-digit percentage decline. That decline had itself been an upgrade issued at the company's interim results in July, after it had previously guided to a mid-single-digit percentage decline.

The group also upgraded its core earnings per share guidance for the year, a closely-watched gauge of the company's performance. It now expects a mid-to-high single-digit percentage increase year-on-year for 2015, upgraded from its prior expectation for a low single-digit increase.

RSA Insurance Group, closing up 3.4%, was the biggest riser in the blue-chip index. The company said it enjoyed a good performance in the third quarter despite a "distraction" arising from takeover interest from Swiss insurer Zurich Insurance Group, which has since withdrawn from talks to buy its London-listed rival.

Chief Executive Stephen Hester said he has been pleased with the turnaround effort he has led at RSA since he was named as chief executive in February 2014 in the wake of an accounting scandal at its business in Ireland and heightened claims. Year-to-date net attributable profits were ahead of RSA's plans, the company said, with third-quarter profit including GBP21.0 million in disposal gains from the sale of its Indian associate, bringing total disposal gains for the year-to-date to GBP153.0 million.

Standard Chartered was among the biggest losers in the FTSE 100, closing down 6.3%. Fitch Ratings, a credit rating agency, downgraded the Asia-focused bank, citing "unfavourable profitability and asset quality trends" and its weak performance relative to peers.

The downgrade comes two days after Standard Chartered said it wants to raise GBP3.3 billion from shareholders and will scrap its final dividend, cut 15,000 jobs and restructure billions of dollars in risk-weighted assets. The ratings agency cut Standard Chartered's long-term issuer default rating to A+ from AA-, and reiterated its negative outlook on the bank.

WM Morrison Supermarkets closed down 4.0%, after it said sales declined in the third quarter of its financial year as it continued to invest in price cuts amid a deflationary UK grocery market.

Morrisons said that total sales excluding fuel were down 2% in the 13 weeks to November 1, on the same period the year before, or down 4.6% including fuel. Like-for-like sales declined 2.6% excluding fuel, and 5.1% including fuel. Analysts said the like-for-like sales excluding fuel figure was below consensus expectations.

In the FTSE 250, SuperGroup, closing up 9.2%, ended the day as the biggest riser in the mid-cap index after it reported growth in revenue in the first half of its financial year, boosted by sales increases in both retail and wholesale, and said its gross margin is expected to be ahead of full-year guidance. The clothing retailer, which owns the Superdry brand, said total group revenue rose 22% in the 26 weeks ended October 24 to GBP254.9 million from GBP208.2 million in the same period the year before.

Kitchens and joinery products manufacturer Howden Joinery Group was another of the index's biggest risers, closing up 7.1%. The company said trading has remained strong so far in the second half of 2015, and it remains confident on hitting its expectations for the full year.

Amec Foster Wheeler, meanwhile, was the heaviest faller among mid caps. Shares in the oil and gas engineering services company plummeted 23% after it warned on its outlook for the remainder of the year and into 2016 as it said margin deterioration will hit its second-half results and said it will slash its dividend in half in order to cope with the tough conditions.

The company said its underlying revenue for the full year has been in line with expectations in the first nine months of 2015, but said that due to the ongoing weakness in oil and gas markets, its second half margins will be weaker than the first due to continued pricing pressures and an adverse revenue mix. Amec said it will cut its dividend payout for 2015 by 50%.

Travel operator Thomas Cook Group ended the day down 7.3%. The UK halted flights between the UK and Egypt's Sharm El Sheikh on safety grounds after a Russian plane crashed on Saturday in Egypt shortly after taking off. Speaking on Thursday, UK Prime Minister David Cameron said that the crash was "more likely than not" caused by a bomb. Fellow travel agent TUI lost 1.9%.

In the data calendar Friday, preliminary September readings of the Japanese leading economic index and the coincident index are released at 0500 GMT, with German industrial production numbers and French trade data at 0700 GMT and 0745 GMT, respectively.

UK manufacturing and industrial production data are scheduled to be released at 0930 GMT.

In the afternoon, investors will shift their attention to the release of the latest US non-farm payrolls figure and employment data at 1330 GMT. The expectation, according to FXStreet.com, is for the US economy to have added 180,000 jobs in October, moderately higher than the 142,000 jobs added in September.

The US unemployment rate, also released at 1330 BST, is expected to remain unchanged at 5.1%.

Investors will also be keeping a close eye on speeches by Federal Reserve Bank of St. Louis President James Bullard and Federal Open Market Committee member Lael Brainard at 1300 GMT and 2015 GMT, respectively.

In the corporate calendar, FTSE 100-listed satellite operator Inmarsat is scheduled to publish third-quarter results Friday, with fellow blue-chip Intu Properties is due to release a trading update. FTSE 250-listed Synthomer is expected to release an interim management statement.

British Airways, Aer Lingus and Iberia owner International Consolidated Airlines Group is expected to publish its traffic statistics for October in the afternoon.

By James Kemp; jameskemp@alliancenews.com; @jamespkemp

Copyright 2015 Alliance News Limited. All Rights Reserved.