LONDON (Alliance News) - Stocks in the UK ended lower Friday, as uncertainty surrounding the EU referendum in the UK and doubts about the state of the global economy prompted a general risk-off sentiment among investors, with financial stocks hit harder than most.
The FTSE 100 finished down 1.9%, or 116.13 points, at 6,115.76. The large-cap index gave back all the gains from earlier in the week, off 1.5% this week, touching a low it hadn't seen since mid-May. The FTSE 250 fell 1.7%, to 284.14 points, at 16,827.45 and the AIM All-Share fell 0.6%, or 4.51 points, to 739.62.
The FTSE 350 Life Insurance/Assurance sector and the FTSE 350 Banks sector dropping 3.5% and 2.8%, respectively, "since banks and insurance companies have the most to lose from the ongoing low rates environment", CMC Markets Jasper Lawler said.
Sentiment was boosted Monday across equities after a speech by US Federal Reserve Chair Janet Yellen was read by investors as dovish. Market participants appeared to rule out the possibility of a US interest rate hike at the Federal Open Market Committee meeting ending next Wednesday. However, the Yellen-inspired gains were all given back Friday.
IG analyst Joshua Mahony said the weakness in UK equities "highlights the fact that somewhat pessimistic market sentiment has been hidden by the optimism of lower-for-longer rates" in the US. Mahony pointed to the uncertainty surrounding the UK's June 23 referendum on whether to remain a member of the EU or leave as the main reason for the risk aversion seen on Friday.
"It is clear that there has been a big shift in sentiment around the Brexit over the past 10 days, with poll after poll proving that perhaps it will not be such a one sided affair as many presumed," Mahony said. "The strength in sterling associated with the perception of a 'remain' win has given way to sideways and unpredictable price action as traders factor in the risk of a sharp selloff in the event of a Brexit."
On Tuesday, the pound reached a high of USD1.4660, but has fallen against the dollar since then. Sterling stood at USD1.4336 at the London equities close, lower than USD1.4479 at the the same time Thursday.
The risk-off climate prompted investors to shift to the bond market, typically seen as a safer place for cash than equities. The yield on the UK benchmark 10-year gilt fell to record lows as amid growing concerns about the state of the global economy.
On Wednesday, the World Bank downgraded its global growth outlook to 2.4% in 2016 from the 2.9% projected in January due to sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows.
"While all eyes have been on the EU referendum campaign, gilt yields have been slipping, fast. The [US Federal Reserve] is backing away from rate rises following wavering employment data, and in Europe the central bank is pumping billions of euros into the bond market every month in the form of QE, both of which have served to drive yields down," Hargreaves Lansdown senior analyst Laith Khalaf said.
In Europe, the CAC 40 index in Paris fell 2.2%, while the DAX 30 in Frankfurt dropped 2.5%. The euro stood at USD1.1274 at the equities close Friday, compared to USD1.1332 on Thursday.
Meanwhile, stocks in New York were following Europe, with the Dow 30 down 0.5%, the S&P 500 down 0.7% and the Nasdaq Composite down 1.0%.
As investors looked for safety away from risky assets, gold enjoyed a surge from midday London time before falling back towards the London equities close. The precious metal was quoted at USD1,268.40 an ounce at the equities close, falling from a high of USD1,277.99 earlier on Friday, compared to USD1,269.52 late Thursday. London-listed gold miner Fresnillo, up 1.4%, was among a handful of risers in the FTSE 100. Randgold Resources, also a member of the blue-chip index closed unchanged.
Meanwhile, Brent oil retraced after reaching new 2016 highs earlier this week. The North Sea Benchmark touched a high of USD52.83 on Thursday, but was standing at USD50.88 at the close Friday, compared to USD52.01 on Thursday.
Among UK individual stocks, shares in supermarket chain Tesco fell 3.1%. The grocer said it sold its 95.5% stake in Turkish supermarket chain Kipa as well as its UK restaurant chain Giraffe. The disposal of Kipa will result in Tesco receiving cash proceeds of around GBP30 million from Swiss retail company Migros. Meanwhile, Giraffe is being sold to Boparan Restaurant Holdings for an undisclosed amount.
In the FTSE 250, Vectura Group added 1.6%. The all-share merger between the respiratory pharmaceutical company and Skyepharma was completed Friday. Skyepharma's shares were cancelled from trading, and shares in the merged entity were admitted to trading on the London Stock Exchange's Main Market on Friday morning. The merger was cleared by the UK Competition & Markets Authority in May.
Essentra ended among the worst mid-cap performers, down 4.9% at 570.47 pence. The plastic and fibre products company's fall came after a 28% drop on Thursday, when it issued a profit warning for 2016, following a deteriorating in trading in its filter products business. Brokers acted. CitiGroup reduced its price target on the stock to 730p from 950p, and JPMorgan cut its target to 693p from 926p.
Meanwhile, UK recruiters are not yet out of the earnings downgrade cycle, said Deutsche Bank, as it cut its ratings on Hays and PageGroup shares to Sell from Hold.
"We believe there are technological and demographic factors that impeded the ability to get back to peak conversion and by implication this will limit the upside to earnings," the Deutsche Bank analysts said.
Hays, the worst mid-cap performer, dropped 6.2%, and PageGroup, which officially changed its name from Michael Page International on Friday, fell 3.9%.
Shares in SThree, a smaller recruiter, fell 8.4%. SThree provided a trading update Friday, warning that uncertainty created by the UK's upcoming EU membership referendum has led to a slowdown in its UK business.
In a very light UK corporate calendar Monday, Schroder Real Estate Investment Trust releases full-year results.
In the economic calendar, China retail sales are due at 0300 BST, as well as the Asian giant's industrial production. UK's leading economic index is due at 1430 BST.
By Daniel Ruiz; danielruiz@alliancenews.com
Copyright 2016 Alliance News Limited. All Rights Reserved.
24 Oct 2019 16:19
