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LONDON (Alliance News) - Stocks indices are lower across the UK and Europe Thursday, reacting badly to the hawkish tone struck by new Federal Reserve Chair Janet Yellen on Wednesday, while UK stocks continue to rebalance on the back of the tax adjustments announced in Wednesday's budget.
By mid-morning Thursday the FTSE 100 is down 1.2% at 6,496.20, the FTSE 250 is down 1.1% at 16,165.00, and the AIM All-Share is down 0.9% at 861.48.
The picture within major European markets is a similar one, with the CAC 40 down 0.7% and the DAX 30 down 0.9%.
With very little in the economic calendar, the markets have been left to dwell on the comments from Yellen last night, as investors and analysts try to get used to the new Fed chair's communication style, which appears to be a lot more open that her predecessor Ben Bernanke.
Markets pounced on Yellen's comment that the period of time between the end of tapering and the first rate hike could be as little as six months, and sent US equities lower and the dollar higher. European equities have followed suit Thursday.
Yellen, in her first post meeting press conference as Fed chair, said that the "considerable time" alluded to in the earlier FOMC statement before interest rates are lifted was "hard to define", but "probably means something in the order of around six months, or that type of thing."
Asian equities fell Thursday on the back of the comments and the further USD10 billion cut to the US quantitative easing programme. The Nikkei closed down 1.7%, the Hang Seng down 1.8%, and the Shanghai Composite down 1.4%.
While the market gets used to the Fed's new communication style, upcoming appearances from other Fed officials may garner even more interest. "It is possible that her (Yellen's) remark was not meant to be as specific as the markets took it to be," said Rabobank senior strategist Jane Foley. "If this is the case Fed officials may attempt to push back against last night?s market reaction," Foley says.
Minneapolis Fed President Narayana Kocherlakota was the first to dissent against the new chair, voting not to move away from the specific numbers-based forward guidance that was dropped at the meeting. Kocherlakota speaks on monetary policy in Washington on Friday.
Within UK equities Thursday, the life insurance companies continue to suffer following the major shake up to the pension market announced in Wednesday's budget. George Osborne effectively destroyed the annuity market by allowing individuals more control of their pension pots. Barclays now expects the individual annuity market to decline by two-thirds from GBP12 billion to GBP4 billion per year within the next 18 months. "We believe the UK budget has the potential to lead to the demise of the UK individual annuity market," says Barclays analyst Alan Devlin.
Following a greater than 50% share price fall on Wednesday, Partnership Assurance again leads the FTSE 250 lower, down a further 10%. Fellow annuity provider Resolution Limited leads the FTSE 100 fallers, down 6.9%. Legal & General is performing slightly better, up 0.8% Thursday, rebounding from the 8.4% fall suffered on Wednesday.
The bookmakers also are continuing to come under pressure on the back of the increased levies on fixed-odds gaming terminals. The impact on the bookmakers seems to be even worse than first thought, after William Hill put out a statement Thursday estimating that the change will cost then GBP22 million, rather than the GBP16 million it estimated on Wednesday. There appears to have been a mix up over exactly which gaming terminals will be affected by the increased tax rate, and the levy covers more than first thought.
William Hill is one of the heaviest FTSE 100 fallers, down 2.9%, while Ladbrokes is one of the worst fallers in the FTSE 250, down 5.3%.
Outside of the assessment of the budget, Savills leads the FTSE 250 gainers, up 3.3% after the real estate group reported results ahead of expectations and subsequently received an upgrade to Buy from Numis Securities.
SSE leads the few blue chip gainers, up 2.4% after receiving an upgrade to Overweight from Morgan Stanley. The bank also significantly increased its price target on the utility group to 1,735p from 1,280p.
A two-day meeting of EU leaders in German is underway, with news on further sanctions against Russia in response to its actions over Crimea expected. There have been reports of a split in opinion between leaders, notable between UK Prime Minister David Cameron and German Chancellor Angela Merkel, with Cameron pushing for harsher consequences than his German counterpart.
The most likely next sanction step is an extension of asset freezes and travel bans against individuals rather than economic sanctions against the country as a whole, unless there is a military escalation, analysts say.
The Financial Times reported Thursday that 2% of London's luxury house buyers are Russian. Statistics such as these, along with Germany's strong trade links with Russia, highlight why leaders may be reluctant to impose economic sanctions.
The price of gold has stabilised after having fallen to a two-week low over recent sessions. The precious metal now trades at USD1,326.95 per ounce.
In the absence of any further data drivers, the dollar has strengthened against both the pound and the euro since Yellen's comments Wednesday. Currently the pound buys USD1.6520, while the euro buys USD1.3772.
Still to come Thursday, the UK CBI industrial trends survey at 1100 GMT, followed by US initial jobless claims at 1330 GMT, and the Philadelphia Fed Manufacturing Survey at 1400 GMT.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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