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LONDON (Alliance News) - UK stock indices are continuing to slide Monday, with markets fearing that an expected further taper of US quantitative easing this week will accelerate the slowdown of growth in emerging markets.
Bad news from some key UK blue chips also is dragging heavily on the leading index.
By mid-morning Monday the FTSE 100 is down 1.4% at 6,571.22, the FTSE 250 is down 1.0% at 15,547.10, and the AIM All-Share is down 1.2% at 851.28.
UK stock took a negative lead from Asian markets, which closed heavily lower, with the Japanese Nikkei falling by 386 points or 2.5% to 15,005.73, its lowest level in more than two months. Hong Kong's Hang Seng index closed down 2.1%, while the Shanghai Composite closed down 1.0%.
"Residual jitters following Friday?s bloodbath on Wall Street continue to ripple across the financial markets: Asian shares plunged at the open of the trading week and European markets are in negative territory in early trade," said DailyFX strategist Ilya Spivak.
Two major names are weighing heavy on the FTSE 100 Monday - BG Group and Vodafone.
Vodafone shares are down by 5.0% following the denial from AT&T that it would be making a bid for the world's second-largest mobile phone company. Many analyst had been expecting a takeover offer to be announced, with the disappointment that it will not be forthcoming clearly reflected in the stock price this morning. Vodafone traded 23% of its average daily volume in the first 6 minutes from the market open. Accendo Markets Michael Van Dulken calculates that almost 21 of the 69 points the FTSE 100 is down by are attributable to Vodafone.
BG Group shares are down more than 15% after the oil and gas multinational revised down its 2014 and 2014 oil production forecasts due to year-on-year decline in Egypt and the US. Oil production is now seen in the range of 590,000 to 630,000 barrels of oil equivalent per day in 2014, and 2015 levels in the range of 710,000 to 750,000 barrels of oil equivalent per day, down from the company's 775,000 to 825,000 barrels of oil equivalent per day guidance given in September. Accendo Markets calculates the huge share price drop to be providing almost a 19 point drag on the FTSE 100.
In a relatively quiet day for economic data, the results of the German IFO survey have been the primary interest. The survey shows the feelings of German businessmen, as opposed to the ZEW survey, whose respondents are analysts. It recorded an increase in business sentiment to 110.6 in January from 109.5 in December, beating the 110.0 expected by economists.
The euro moved marginally higher on the reading, although currency majors remain relatively quiet and well supported, as emerging market currencies continue to suffer. Against the dollar, the euro currently trades at USD1.3685 and the pound trades at USD1.6540.
Gold also remains well supported in the flight from emerging market risk. Peaking at a 10-week high in early trade of USD1,279.10 per ounce, the yellow metal currently is slightly off that high at USD1,269.30 per ounce.
The main market focus of the week remains Janet Yellen's first FOMC meeting as Federal Reserve chair, with investors largely expecting a further USD10 billion taper to Fed bond buying to be announced on Wednesday. Although the market reaction to the announcement of the first cut to quantitative easing in December was mild, the current concern surrounding emerging market growth suggests a second cut may be of more concern.
"If history is any guide, the Fed will focus on the domestic, not the international environment," says Societe Generale strategist Kit Jukes. "With Treasury yields down and the recent US economic data encouraging, the FOMC will probably push ahead and reduce the pace of buying to USD65 billion per month. And that won?t help ease market tension," says Jukes.
Still to come Monday, US Markit Services PMI for at 1358 GMT, where economists are expecting an increase to 56.2 in January, from 55.7 in December.
At 1500 GMT, US new homes sales data is released, followed by the Dallas Fed Manufacturing Business Index for January at 1530 GMT.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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