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(Alliance News) - The FTSE 100 underperformed its European peers on Thursday, as the blue chip index's miners were struggling to cope with falling commodity prices.
"Markets in Europe initially took their cues from last night's declines in the US, slipping back in the wake of last nights unexpected shift in the timing of a possible rise in US interest rates, however any losses look likely to be limited," CMC Markets Chief Market Analyst Michael Hewson said.
He added: "The insistence was still there that the Fed sees inflationary pressure as being transitory in nature, though last night's changes suggest they may be starting to hedge their bets a little, and concern may be rising that 'inflation could turn out to be more persistent than we anticipate'. The reality remains that the Fed is a long way from withdrawing stimulus, it's merely seeding the ground for a slower rate, which suggests that investors probably need to get a grip."
The FTSE 100 index closed down 31.52 points, or 0.4%, at 7,153.43. The mid-cap FTSE 250 index ended down 82.52 points, or 0.4%, at 22,535.14. The AIM All-Share index lost 3.12 points, or 0.3%, to close at 1,241.37.
The Cboe UK 100 index closed down 0.5% at 712.63. The Cboe 250 ended down 0.4% at 20,269.72, but the Cboe Small Companies advanced 0.2% to 15,356.73.
In mainland Europe, the CAC 40 in Paris advanced 0.2%, while the DAX 30 in Frankfurt added 0.1%.
In the US, Wall Street was mixed in early trading, with tech stocks boosting the Nasdaq. The Dow Jones Industrial Average was down 0.6%, the S&P 500 flat but the Nasdaq Composite was up 1.0%.
IG analyst Joshua Mahony said: "A volatile start to the US session has highlighted the difficulties faced by markets, with a rare rise in jobless claims highlighting how traders are unsure how economic surprises should be treated. Yesterday's FOMC meeting served as a rude awakening for the markets, with the presumption that monetary policy would remain accommodative in spite of rising inflation being severely undermined."
US initial jobless claims rose unexpectedly for the first time in over a month, the latest figures from the Department of Labor showed on Thursday.
For the week ending June 12, US initial jobless claims rose to 412,000 from 375,000 the week before. The latest figure was higher than the market forecast, cited by FXStreet, of 359,000 claims. It was also the first increase following six consecutive weeks of decline.
"If a healthy minority of members are willing to raise rates in 2022, it begs the question of exactly how long those same members would wait before they see tapering as being necessary. Nonetheless, today’s surprise rise in initial and continuing jobless claims does undermine the increasingly hawkish stance adopted by many Fed members," Mahony continued.
He added: "While GDP forecasts may have been raised by the FOMC, the first jobless claims since April does highlight how we could be in for a road bump in the economic recovery. For the most part this is likely to be a blip within a positive in jobs. However, with markets worrying that strong economic data could push the Fed towards tightening, we are starting to see markets take on a 'bad news is good news' approach."
The dollar was higher against major counterparts in the wake of the Fed's rate decision.
The pound was quoted at USD1.3933 on Thursday evening in London, down sharply from USD1.4103 at the London equities close Wednesday. Sterling fell below the USD1.40 level for the first time since early May.
The euro stood at USD1.1920, sharply lower from USD1.2117. Against the yen, the dollar was trading at JPY110.30, up from JPY109.94.
Gold, however, was sharply lower on the back of the greenback's strength. The precious metal was trading at its lowest levels in over a month, priced at USD1,768.00 an ounce at the London equities close on Thursday, sliding from USD1,857.40. Silver slipped to USD25.96 from USD27.76 on Wednesday evening, falling below USD26 for the first time in over a month.
In London, miners were following commodity prices lower.
Fresnillo lost 3.4%, Glencore 3.6%, BHP 3.3%, Antofagasta 2.2%, Rio Tinto 2.3% and Anglo American gave back 3.4%.
Travel and leisure stocks, however, had a positive day over UK government plans to open up international travel for passengers who have been double jabbed in the expectation that more countries will open up routes for holiday destinations.
British Airways-parent International Consolidated Airlines added 1.9%, while midcap budget airline easyJet was up 2.4%, TUI 2.4%, Trainline 5.1% and Irish carrier Ryanair closed up 3.0%.
CMC's Hewson, however, noted vaccine passports remain a "highly contentious topic".
"Nonetheless something along these lines is likely to be required if anyone wants to travel outside of the country in the not-so-distant future," he continued.
IG's Mahony added: "With Portugal back in the amber list, the summer season is whittling away without any notable surge in bookings for hard-hit airlines. However, today's news offers a glimmer of hope that we could see a major uptick in demand for flights as the 30 million people with both doses could take the advantage of a less stringent travel policy.
"Undoubtedly the quarantine rule made it almost impossible for many to fly given that it would force many to lose an addition 5 to 10 days of work if they are unable to work remotely. However, the airline sector could look attractive once again should the government take steps to help save the summer for many. "
Whitbread gained 1.8%. The Premier Inn owner was upbeat over its prospects as lockdown restrictions ease.
Total UK accommodation sales were down 61% in the first quarter, the 13 weeks to May 27, compared to the same period in financial 2020, the 13 weeks to May 30, 2019, with the period being the last similarly timed period before the onset of the Covid-19 crisis. Food & Beverage total sales were down 86%, reflecting the UK government's lockdown restrictions that were in place for most of the quarter.
Whitbread said total first quarter sales were down 70% from two years earlier and like-for-like sales were down 71%. Whitbread said that, since May 17, trading has been strong, with high levels of demand in tourist locations, driven by the anticipated bounce in leisure demand post reopening, and also by the period including May half-term school holidays.
Looking ahead, Whitbread said outlook and guidance is unchanged from what was provided at the full-year results in April, despite the four-week delay in the UK government's Step 4 of lockdown easing, announced on Monday.
Whitbread expects leisure demand in coastal and other tourist locations to remain very strong throughout the summer, while the full recovery of leisure demand is dependent on the final release of lockdown, and the return of unrestricted events.
In the FTSE 250, Dr Martens ended the worst performer, losing 11%, after the boot maker reported a fall in pretax profit, as it released its first set of earnings since floating in London.
For the financial year that ended March 31, revenue was up 15% to GBP773 million from GBP672.2 million the year before, but pretax profit declined 52% to GBP35.7 million from GBP74.8 million.
Looking ahead, Dr Martens said the guidance set out at the IPO in February remains unchanged, for both financial 2022 and over the medium-term. In financial 2022 it expects high-teens revenue growth, as it laps the Covid-19 hit experienced in financial 2021.
Brent oil was quoted at USD74.06 a barrel on Thursday evening, down from USD74.88 late Wednesday.
In the international economics calendar on Friday, there is a Bank of Japan interest rate decision overnight, followed by UK retail sales and Germany producer price index at 0700 BST.
The local corporate calendar is headlined by blue chip grocer Tesco's first quarter results alongside full-year results from Telecom Plus and Inspecs Group.
By Paul McGowan; paulmcgowan@alliancenews.com
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