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LONDON (Alliance News) - London's main equities indices closed mixed Tuesday, with the blue chip FTSE 100 ending down after markets were spooked by a missile test in the Middle East and small caps ending higher.
The first week of September has got off to a busy start, with two huge M&A deals, a raft of strong economic data from most of the world's major economies, and continuing tensions around the situation in Syria.
The FTSE 100 rallied strongly Monday on the economic data and on relief that any military strike against Syria would be delayed after President Obama decided to consult Congress, but fears of action in the region came to the fore again Tuesday after markets were spooked by reports from Russia that the Defence Ministry had spotted missiles being fired in the Mediterranean.
The reports knocked about 0.5% off all the London indices, boosted the dollar, and sent oil and gold prices sharply higher as investors scurried for safety, and the markets only retraced some of those moves once it was confirmed by Israel that it had been testing its missile defence shield.
The FTSE 100 finished the day down 0.6% at 6,468.41, while the FTSE 250 lost just 0.1%, closing at 14,681.46, and the AIM All-Share, which absorbed the days shocks with least volatility, managed to close slightly higher, up 0.2% at 759.02.
Vodafone led blue chip shares lower from the open after its huge deal that saw Vodafone accept USD130 billion in cash and shares from Verizon Communications for its 45% stake in Verizon Wireless. The stock had run higher for several days ahead of the announcement, and while it closed Tuesday down 3.4% at 205.89 pence, it's still about 9% higher than it was a week ago.
Vodafone's announcement was almost overshadowed by Nokia's announcement late Monday that it has sold its mobile phone business to Microsoft for USD7.2 billion.
More positive data backed growing confidence in the UK economic recovery Tuesday. Construction PMI for August came in at 59.1, an unexpected rise from 57.0 in July, and way above the expected marginal fall to 56.9. The numbers add to Monday's Manufacturing PMI reading, which came out at the strongest level for 2.5 years. Conversely, US manufacturing PMI out later in the afternoon fell slightly to 53.1, from 53.7 previously, missing forecasts of 54.0.
The increasingly positive UK data is keeping the pound strong against other major currencies. The pound topped USD1.56 Tuesday after the PMI numbers were released, and traders were also citing the Vodafone deal, with billions of dollars potentially being converted into sterling.
Wednesday brings a round of services PMI's, firstly from China overnight and then across Europe. Two big economic events are still to come later in the week. On Thursday the Bank of England rate setting committee will meet to discuss interests rate and asset purchase decisions. No change is expected but any announcements will be watched closely as further pressure piles on Mark Carney's forward guidance with every UK data reading surprise to the up side. On Friday all eyes will be on the US for the August non-farm payrolls and unemployment numbers.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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