LONDON (Alliance News) - London stocks were firmly in the red Friday midday, with financial stocks suffering the most from a general sense of risk aversion among investors, who preferred the bond market to equities, with UK gilt yields hitting record lows.
The FTSE 100 was down 1.5%, or 95.38 points, at 6,136.46. The FTSE 250 was down 1.3% at 16,882.15, and the AIM All-Share was down 0.4% at 741.33.
The large-cap index was set to give back all the ground added so far in the week. On Monday, a speech by US Federal Reserve Chair Janet Yellen read by investors as doveish spurred gains across stocks, with market participants appearing to rule out the possibility of a US interest rate hike at the Federal Open Market Committee meeting ending next Wednesday.
"A lack of any specific fundamental spark to this weakness highlights the fact that somewhat pessimistic market sentiment has been hidden by the optimism of lower-for-longer rates at the US Federal Reserve in response to last weeks' weak [US] payrolls number," said IG analyst Joshua Mahony.
"With Treasury yields hitting all-time lows, gold rallying sharply, and the riskier equities selling off, it is clearly a case of risk-off for financial markets today," Mahony added.
The yield of the UK benchmark 10 year gilt fell to a record low on Thursday, amid growing concerns about the state of the global economy. On Wednesday, the World Bank downgraded its global growth outlook due to sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows.
The global economy was forecast to grow 2.4% in 2016 instead of the 2.9% projected in January, the official lender said in its June Global Economic Prospects report. The growth outlook for 2017 was trimmed to 2.8% from 3.1%. Nonetheless, the pace of expansion is expected to pick up to 3.0% by 2018.
Hargreaves Lansdown senior analyst Laith Khalaf said the low yield on UK government bonds "paints a pretty pessimistic picture of the global economy, and suggests we are set for an extended period of low or negative inflation, and weak economic performance". Khalaf noted the yield on the benchmark 10 year gilt dropped below 1.25% for the first time on Thursday.
"While all eyes have been on the EU referendum campaign, gilt yields have been slipping, fast. The Fed 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," Khalaf noted.
Gold was retaining its recent gains, quoted at USD1,268.12 an ounce at midday. The precious metal stood at USD1,269.52 at the London equities close on Thursday. Gold miners Randgold Resources and Fresnillo were the only two FTSE 100 stocks in the green at midday, up 0.5% and 0.1%, respectively.
Financial stocks were leading the much-more voluminous list of blue-chip decliners, with the FTSE 350 Banks sector index down 2.4%, as was the FTSE 350 Life Insurance/Assurance sector.
Miners also were amongst the biggest fallers in the FTSE 100 and FTSE 250, with the FTSE 350 Mining sector index dropping 1.7%. The resource stocks were hit on Thursday by lower dollar-denominated commodity prices following renewed strength in the US dollar.
On Friday, the greenback continued to appreciate against other currencies. The pound was quoted at USD1.4430 at midday, versus USD1.4479 at the London close on Thursday. Similarly, the euro was quoted at USD1.1298 Friday midday, down from USD1.1332 on Thursday.
Among individual stocks, shares in supermarket chain Tesco were down 2.2%. 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.
Shore Capital reiterated its Hold rating on Tesco, saying, "more structurally we feel we need a little more visibility and progress on core chain margin profiling and deleveraging before we become more fundamentally positive."
In the FTSE 250, Vectura Group was the best mid-cap performer, up 2.5%. The all-share merger between the respiratory pharmaceutical company and Skyepharma was completed Friday, as the scheme of arrangement regarding the terms of the merger became effective. 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.
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 was the worst performer in the FTSE 250, down 6.6%, while PageGroup, which officially changed its name from Michael Page International on Friday, was off 6.7%.
Shares in SThree, a smaller recruiter, were down 9.2%. SThree provided a trading update Friday, warning that uncertainty created by the upcoming European Union referendum has led to a slowdown in its UK business.
Essentra was down 4.3% at 574.50 pence. The plastic and fibre products company was adding to its 28% drop from Thursday, when it issued a profit warning for 2016, following a deteriorating in trading in its filter products business. Consequently CitiGroup lowered its price target on the stock to 730p from 950p, and JPMorgan cut its target to 693p from 926p.
In Europe, the CAC 40 index in Paris was down 1.9%, while the DAX 30 in Frankfurt was off 2.2%.
New York stocks were expected to follow Europe and Asia, with the Dow 30 index called down 0.5%, the S&P 500 seen down 0.6% and the Nasdaq 100 pointed down 0.7%.
In Asia Friday, the Nikkei 225 in Tokyo ended down 0.4%. The Hong Kong market returned to trade after a day off on Thursday and the Hang Seng fell 1.2%. The Shanghai market remained closed for Dragon Boat Festival.
Still in the economic calendar are a preliminary reading of the US Reuters/Michigan consumer sentiment index for June at 1500 BST and the US monthly budget statement at 1900 BST.
By Daniel Ruiz; danielruiz@alliancenews.com
Copyright 2016 Alliance News Limited. All Rights Reserved.
24 Oct 2019 16:19
