LONDON (Alliance News) - London and other European share prices ended lower Wednesday, after a rebound by Wall Street lost some strength towards the end of trading.
Among individual stocks in London, International Consolidated Airlines Group was the best blue-chip performer after being named Top Pick in the European Transport sector by Barclays, while Fresnillo and Randgold Resources led decliners, hit by falling gold prices.
The FTSE 100 index ended below the 6,000 point mark, down 1.7% at 5,979.20 points, having touched an intraday high of 6,095.05. The FTSE 250 closed down 0.7% at 16,601.31, and the AIM All-Share finished down 0.1% at 716.56.
In Europe, major stock indices also ended down, with the CAC 40 in Paris off 1.4% and the DAX 30 in Frankfurt down 1.3%.
Share prices across Europe received a boost from a positive open in New York, with London, Paris and Frankfurt having traded higher before losing strength towards the end of the session.
At the London close, Wall Street still was trading higher, with the Dow Jones Industrial Average and S&P 500 index both up 1.2% and the Nasdaq Composite up 1.1%. US equities were shaking off Tuesday's losses provoked by the uncertainty surrounding the China's economy and losses by its stock markets.
China's central bank had reduced Tuesday its key interest rates by 0.25 percentage point each, according to its website, the fifth time it has lowered rates since November last year. The benchmark one-year lending rate was cut to 4.6% and the deposit rate to 1.75%. The new rates are effective from Wednesday this week.
The renminbi deposit reserve ratio was lowered by 0.5 percentage point, effective September 6. The ratio for large banks after the move will be 18%. The Chinese central bank said the reduction was intended to maintain reasonably adequate liquidity in the banking system, and promote steady moderate growth of money and credit.
Societe Generale analyst Wei Yao said the stimulus measures by the People's Bank of China were "absolutely necessary" to reverse the liquidity tightening caused by its foreign-exchange intervention earlier this month. However, the analyst said that the Chinese central bank's intervention may not be enough if its yuan intervention continues, and it has to decide on its strategy.
"If the PBoC wants to stabilise currency expectations for good, there are only two ways to achieve this: complete FX flexibility or zero FX flexibility. At present, the latter is also increasingly unviable, since the capital account is much more open. Therefore, the PBoC has merely to keep selling FX reserves until it lets go," SocGen's Yao said.
Meanwhile, Nomura forecasts another reserve requirement cut by China's central bank, likely in the fourth quarter on this year, and said it believes that fiscal policy will play a larger easing role in the second half of 2015.
Analysts had said that the recent moves by the PBoC may delay a potential US interest rate hike in September by the US Federal Reserve, with commentators saying it could be pushed back to December. This month, comments from several Federal Open Market Committee members suggested that the possibility of a "lift-off" in September is fading away.
New York Federal Reserve President William Dudley said Wednesday in New York that a rate hike next month "seem less compelling to me [now] than it was a few weeks ago". Nevertheless, as US Fed Chair Janet Yellen has said before, Dudley said that he expects the US central bank to raise rates this year, and repeated that moves on monetary policy remain "data-dependent".
The market also picked apart comments made on Monday by Atlanta Federal Reserve President Dennis Lockhart, who said he expects the "normalisation" of the US monetary policy to begin "some time this year". Analysts noted that the Fed official had said earlier this month that a rate hike in September could be "appropriate".
Market participants will keep an eye on the Annual Economic Symposium in Jackson Hole, which starts Thursday hosted by the Federal Reserve Bank of Kansas City, for insight into the sentiment of Fed officials, though Fed Chair Janet Yellen will not attend.
Lloyds Bank said there are now "considerable risks" to its 16-17 September Fed meeting "lift-off" call. However, the bank said it is mindful of the US Fed's desire to avoid another "'taper tantrum', not letting market participants and collective positioning 'believe' that extraordinary monetary accommodation is here to stay forever".
Lloyds also highlighted the risks that might emerge in the period between November and December, "which might complicate the execution of a 'lift-off'", including the US federal budget and a ‘hard deadline’ for US federal debt limit, among other risks.
On the London Stock Exchange, IAG was the best blue-chip performer, up 2.4%. Barclays resumed its coverage of the owner of British Airways and Spanish airlines Iberia and Vueling with an Overweight rating, saying the group can sustainably beat its mid-cycle targets. The bank said it believes IAG really can generate cash through the cycle, something which in its view is not nearly reflected in its current valuation. Barclays named IAG its Top Pick in the European Transport sector.
Mining stocks dug a hole again. Fresnillo and Randgold Resources led FTSE 100 fallers, down 7.0% and 4.6%, respectively, as gold prices declined. At the London close, the yellow metal was standing at USD1,122.10, having touched an intraday high of 1,146.08 in early trade.
Outside the FTSE 100, shares in Paddy Power and Betfair Group surged after the companies reached an agreement in principle to merge in an all-share deal.
Under the terms of the merger, Paddy Power shareholders would own 52% of the combined company, with the remaining 48% owned by Betfair shareholders. Immediately prior to completion of the deal, Paddy Power's shareholders would get an EUR80 million special dividend.
Paddy Power gained 20%, while Betfair jumped 21%. Meanwhile, rivals Ladbrokes, down 2.7%, and William Hill, down 3.0%, were amongst the worst performers in the FTSE 250, as they face the prospect of a larger competitor.
HSS Hire Group shares ended down 39% after the tool equipment hire company company issued a profit warning, hit by continued variable demand among its customers, which has made predicting an outcome for the full year difficult. HSS Hire said that while trading improved in July, some further softness has been seen in August. It now anticipates its full-year earnings to be below market expectations and said it is assessing further cost-saving opportunities through a refinancing which would take place in 2016.
In a busy UK corporate calendar Thursday, CRH, AMEC Foster Wheeler, Hays, Evraz, Hansteen Holdings, Lamprell, Melrose Industries, STV, Hunting, Marshalls, Petropavlovsk, Playtech, Sopheon, Xaar, John Laing Group, Nomad Foods and Fyffes release half-year results, among many others.
In the economic calendar, German import prices and UK Nationwide housing prices are due at 0700 BST. In the US, alongside the start of Jackson Hole symposium, there are initial and continuing jobless claims and the Gross Domestic Product Price Index at 1330 BST. US Pending home sales are due at 1500 BST, while Energy Information Administration Natural Gas storage is at 1530 BST.
By Daniel Ruiz; danielruiz@alliancenews.com
Copyright 2015 Alliance News Limited. All Rights Reserved.
26 Aug 2015 15:19