LONDON MARKET CLOSE: Stocks End Down; Dollar Hit As US GDP Disappoints

LONDON (Alliance News) - A hawkish US Federal Reserve statement on Wednesday kept London stocks subdued Thursday, while a weaker-than-expected preliminary US GDP print saw the dollar give up some of the gains it made on Wednesday.

Growth in US economic activity slowed in the third quarter, according to a report released by the Commerce Department. The report said annualised real gross domestic product rose by 1.5% in the third quarter compared to the 3.9% jump seen in the second quarter. Economists had expected a 1.7% increase.

The slowdown in the pace of economic growth was primarily due to a downturn in private inventory investment, which subtracted 1.4 percentage points from growth in the third quarter after being neutral in the second quarter. The Commerce Department also pointed to decelerations in exports, non-residential fixed investment, consumer spending, state and local government spending, and residential fixed investment.

The surprising deceleration in US economic growth dented gains the dollar had made late Wednesday after an equally surprising hawkish statement by Fed policy makers. At the London close, the pound traded the dollar at USD1.5296 and the euro traded the dollar at USD1.0965.

The Fed released a statement on Wednesday evening saying it has kept US interest rates at effectively zero, in-line with analyst expectations. The vote to hold interest rates was 9-1, with only Richmond Fed President Jeffrey Lacker arguing for a rate hike.

However, Federal Open Market Committee members pointedly said that an increase in interest rates is still on the cards for their next meeting in December.

Analysts also noted the absence of a sentence that had appeared in the Fed's September statement referring to the restraining influence of global economic and financial developments on US economic activity and inflation. The October statement instead said the Fed "is monitoring global economic and financial developments", suggesting it sees fewer potential global risks to the US since its September meeting.

A number of media reports said that traders assigned a higher likelihood of the Fed raising rates in December, with the implied probability in the Fed fund futures rising to 50%.

The Fed statement saw the FTSE 100 index close down 0.7% Thursday at 6,395.80 points. The FTSE 250 ended down 0.2% at 17,114.41 and the AIM All-Share also lost 0.2% at 740.81.

In Europe, the CAC 40 in Paris ended down 0.1% and the DAX 30 in Frankfurt down 0.3%.

Wall Street was lower at the London close. The Dow 30 and Nasdaq Composite indices were both down 0.2%, while the S&P 500 index was off 0.1%.

On the London Stock Exchange, Barclays closed as the worst performer in the FTSE 100, down 5.7%. The bank missed market expectations and cut guidance for 2016, as its adjusted pretax profit fell in the third quarter, with larger losses in the non-core businesses that Barclays is winding down more than offsetting stronger earnings in three of its four main operating businesses.

Barclays raised its 2016 core cost guidance by GBP400 million. Previously, Barclays had guided cost of "less than GBP14.5 billion". The new costs relate to implementing structural reforms, such as the establishment of an intermediate holding company in the US and, later, the ring-fencing of Barclays' retail bank in the UK from its other activities. The structural costs are expected to cost GBP1.1 billion in total from 2015 as the reforms are implemented over the coming years.

Smith & Nephew closed down 4.7% after it agreed to acquire Blue Belt Holdings in the US for USD275 million, as it maintained its outlook for 2015 and reported a slight rise in revenue for the first nine months of 2015.

The medical equipment company expects revenue growth from Minnesota-based Blue Belt, which works in orthopaedic robotics-assisted surgery, to be over 50% in the medium-term. However, Smith & Nephew said that its group trading profit margin will be diluted by around 60 basis points in 2016 as a result of investment it will make in combined research and development programmes and supportive clinical evidence

Mining stocks were amongst the worst performers Thursday, tracking a fall in commodity prices. Jasper Lawler, markets analyst at CMC Markets, said the threat of a Fed rate hike and the instability it would cause in emerging markets weighed on commodity prices. At the London close gold traded at USD1,149.40 an ounce while silver traded at USD15.59 an ounce.

Randgold Resources ended down 5.1%, Anglo American down 4.8% and Fresnillo down 4.4%.

Royal Dutch Shell said it swung to a major loss in the third quarter after booking substantial exceptional charges and suffering a fall in revenue, with its results missing analyst expectations by around a third.

The FTSE 100 oil and gas giant reported a USD6.10 billion current cost of supply loss overall in the third quarter of 2015, swinging from a USD5.30 billion profit a year earlier. That loss was caused by exceptional items totalling USD7.90 billion.

The exceptional items were mainly driven by decisions to pull out of major projects during the period to try to make the company more competitive. The charges, combined with lower oil prices, sent Shell's earnings in the first nine months of 2015 down 87% from a year before, falling by almost USD13.00 billion.

Shell 'A' shares closed down 1.9%, while 'B' shares ended down 1.7%.

At the London close Brent oil traded at USD49.19 a barrel while West Texas Intermediate was quoted at USD46.26 a barrel.

In the FTSE 250, Playtech added 2.8% after it said it has seen strong trading from both its gaming and financial divisions in the third quarter of 2015. The gaming division's revenue increased by 23% to EUR143.4 million in the third quarter of 2015, while the financial division's revenue amounted to EUR27.5 million in the period, without a prior year comparison.

Overall, third-quarter revenue increased by 47% to GBP170.9 million. "Given the strength of our business and the momentum that we are enjoying, we have confidence for the remainder of 2015 and beyond," Chief Executive Mor Weizer said.

Millennium & Copthorne Hotels was the worst mid-cap performer, shedding 5.2%. The hotel operator reported a lower pretax profit in the third quarter, with revenue in the quarter also slowing but remaining ahead in the year-to-date.

Pretax profit in the third quarter was GBP36.0 million, a 28% fall on the GBP50.0 million it made a year earlier, and this dragged its pretax profit for the nine months to the end of September down 9.3% to GBP98.0 million from GBP108.0 million a year earlier.

Millennium & Copthorne said the slowdown in its revenue per available room was driven by the performance of its Asian hotels, which were hit hard in the quarter by the weakness showing in the Chinese economy.

Still ahead in the economic calendar, Japanese inflation numbers are at 2230 GMT and unemployment data is at 2330 GMT. This is before the Bank of Japan's monetary policy decision on Friday at 0300 GMT.

Later Friday, German retail sales are at 0700 GMT, and eurozone inflation and unemployment are at 1000 GMT. In the US, personal consumption data is at 1230 GMT, the Chicago purchasing managers' index is at 1345 GMT, and the Reuters/Michigan consumer sentiment index is at 1400 GMT.

The UK corporate calendar is relatively busy for a Friday. There are third-quarter results from Royal Bank of Scotland, oil and gas company BG Group, and International Consolidated Airlines Group. IAG on Thursday approved the payment of its first dividend since its creation in 2011. The owner of British Airways and Spanish airline Iberia said it will pay an interim dividend of EUR0.10 per share and said it intends to pay a final dividend as well.

Also Friday, FTSE 250-listed pet-related products and services retailer Pets At Home issues a trading statement, as does textile service company Berendsen, while specialty chemicals company Elementis releases an interim management statement.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

Copyright 2015 Alliance News Limited. All Rights Reserved.