TP ICAP Share News (TCAP)

LONDON (Alliance News) - Stock prices in London ended 2016 on a high, with the FTSE 100 index setting a new record to finish a year of political surprises for investors, from the UK's vote to leave the European Union to the US's vote to make Donald Trump its next president.

After a half-day session in London, the FTSE 100 ended up 0.3%, or 22.57 points, at 7,142.83 on Friday, its highest level ever. The index finished the year 14% above the level at which it started, its best annual performance since 2009, when the market was recovering from the steep losses triggered by the 2008 financial crisis.

The FTSE 250 finished up 0.3%, or 47.77 points, at 18,077.27 on Friday. The mid-cap index ended the year up 3.7%.

Meanwhile, the AIM All-Share ended up 0.2%, or 1.68 points, at 843.99 on Friday, having risen 14% in 2016.

FTSE 100-listed retail property investor Hammerson ended up 1.8% on Friday, among the best performers, after it sold a 50% stake in the Watermark development in Southampton to Singapore sovereign wealth fund GIC Private for GBP48.5 million.

In the FTSE 250, TP ICAP ended up 4.8%. TP ICAP completed the acquisition of NEX Group's global hybrid voice broking and information business, with 310.3 million new TP ICAP shares allotted to NEX shareholders, giving them a 56% stake in the former Tullett Prebon.

Meanwhile, NEX said its share consolidation will become effective from Friday, at which point the total issued ordinary share capital of NEX will be 379.7 million ordinary shares. NEX shares rose 4.5%.

Stocks in London started 2016 hindered by worries about the health of the Chinese economy. Weak economic data from the world's second-largest economy caused severe losses for Asian stock markets, with Chinese stock market authorities invoking a circuit breaker rule on the very first day it came into effect. The circuit breaker rule was put in place after Chinese market volatility in the second half of 2015.

Adding to concerns about the Chinese economy at the beginning of 2016 was the continued weakness in oil prices. Brent crude fell as low as USD27.08 a barrel in mid-January, a level not seen since October 2003, amid expectations of lower demand from China and Europe and the threat of growing supplies from Iraq, Iran and Libya.

However, the North Sea benchmark soon started its 2016 recovery on hopes that members of the Organisation of the Petroleum Exporting Countries would agree to freeze oil production. This supported a recovery in both the FTSE 100 and FTSE 250 in London, the two indices sharing a heavy weighting of oil producers.

The deal eventually arrived late in November, when the oil cartel confirmed it will reduce production by 1.2 million barrels a day to 32.5 million barrels day effective from January 2017.

In December, oil prices found further support when non-OPEC countries joined OPEC in applying cuts to crude output. At the London equities close on Friday, Brent oil was quoted at USD56.77 a barrel, having hit a high of USD57.50 during Asian hours.

The price of gold also rose during 2016, though it was well off its best level of the year by Friday. Gold started 2016 at USD1,061.12 an ounce, following a sharp decline at the end of 2015. The precious metal started a strong rally in February, hitting its peak for the year in July at USD1,375.01 an ounce, as Brexit-related concerns mounted among investors in the wake of the UK's EU vote.

However, gold declined thereafter, hurt by a rising dollar and ending the year just 9% higher than it started it, quoted at USD1,157.13 an ounce on Friday.

London stock indices were still trying to find firm ground when in late June the outcome of the EU referendum took the market by surprise. The UK had voted to exit the EU, with the Leave campaign winning by 52% to 48%.

This prompted the resigning of Prime Minister David Cameron, while the pound collapsed to levels not seen since 1985. The FTSE 100 and the FTSE 250 stock indices also suffered, as economists predicted a shock to the UK economy and the start of a long period of uncertainty.

However, after just two days of declines, the blue-chip index staged an impressive bounce back, taking back all the losses from the two previous sessions. The decline in sterling against the dollar promised to dress up the results of large dollar-earning London-listed firms, supporting a rally in their shares.

The more domestically focused FTSE 250 took longer to recover.

Although the immediate hit to UK economy after the Brexit referendum has been far less harmful than what many economists had estimated, mid-cap stocks were hurt by uncertainty over the upcoming negotiations with the EU to leave the bloc - as talk veered from a 'hard' to a 'soft' Brexit - and the position taken by Prime Minister Theresa May, who took office on July.

Although the FTSE 250 took back some ground in July and by the end of the year had reversed all the Brexit-related losses, it still underperformed the FTSE 100, finishing the year only slightly higher.

Following the Brexit vote, the Bank of England announced in August a substantial package of stimuli for the UK economy, including an interest rate cut to a record low of 0.25%, the first rate cut since 2009, and an expansion in asset purchases. This put further pressure on the already weaken pound.

While the BoE said at the time that it was willing to cut interest rates further, the central bank removed that statement at its December meeting, reflecting the better-than-expected performance in the UK economy so far.

The weakened pound played an important role in the post-Brexit recovery in stocks. Following the initial decline, the UK currency touched a fresh 1985 low at USD1.1806 amid a 'flash crash' in October, later blamed on a 'fat finger' error.

The pound recovered some ground toward the end of 2016, quoted at USD1.2317 late Friday.

Financial markets were taken by surprise again in November by the election of Trump as US president. However, this time, stock prices skipped the decline and went straight to the rally. As the dollar rose on expectations of higher US interest rates, gold sank.

The Trump win was followed in December by the first such increase in US interest rates - widely expected by analysts - following a strong recovery in the US jobs market and US consumer inflation. The Federal Reserve lifted rates for the second time since the financial crisis, and for the first time since December 2015.

In London, the blue-chip index found support to take its last big jump of the year as Italy's latest political crisis erupted and then seemed to be contained.

Following a 'No' vote in a referendum on constitutional reforms held in early December, Prime Minister Mateo Renzi resigned, quickly replaced by foreign minister Paolo Gentiloni.

After worries about the future of Monte dei Paschi di Siena hit European banking stocks in December, the Italian government received on Friday the green light from EU authorities to provide liquidity measures for the troubled bank.

The euro declined against the dollar in 2016, suffering from the challenges present during the year to the European Union and from the strong dollar.

The euro was quoted late Friday at USD1.0537 compared to USD1.0857 at the start of 2016. It reached a peak of USD1.1616 in May, when the Remain campaign was ahead in UK polls before the Brexit referendum.

As London closed early on Friday, the CAC 40 index in Paris and the DAX 30 in Frankfurt were both down 0.2%. Meanwhile, in the US, the Dow 30, the S&P 500 index and the Nasdaq Composite were called for a higher open, all pointed up 0.2%.

Stock markets in Europe and in the US have full-day trading sessions on Friday.

Still in a thin economic calendar on Friday, the Chicago purchasing managers' index for December is at 1445 GMT, while the Baker Hughes US oil rig count is at 1800 GMT.

Stocks markets in London and the New York will be closed on Monday, reopening on Tuesday. Paris and Frankfurt will open as usual on Monday.

In the economic calendar on Sunday, the Chinese non-manufacturing Purchasing Managers' Index reading is at 0100 GMT.

On Monday, Markit manufacturing PMI readings for France, Germany and the eurozone are at 0850 GMT, 0855 GMT and 0900 GMT, respectively.

On Tuesday, the Caixin manufacturing PMI reading for China is at 0145 GMT. German unemployment figures and consumer inflation are at 0855 GMT and 1300 GMT, respectively. The Markit manufacturing PMI reading for the UK is at 0930 GMT. The same for the US is at 1445 GMT, while US construction spending is at 1500 GMT.

In the UK corporate calendar, clothing retailer Next will be the UK first retailer to provide a Christmas update on Wednesday.

By Daniel Ruiz; danielruiz@alliancenews.com

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