LONDON MARKET CLOSE: Stocks Weak As Fed Decision Remains Uncertain

LONDON (Alliance News) - UK stocks closed lower Friday and Wall Street also was trading in negative territory, after a mixed US labour report, released ahead of the long Labor Day weekend, left analysts none the wiser whether the US Federal Reserve will raise US interest rates this month or later in the year.

The FTSE 100 index ended down 2.4% at 6,042.92, meaning it lost 3.3% for the week as a whole. The FTSE 250 closed down 1.6% at 16,808.02, and the AIM All-Share shed 0.2% to 733.01. In Europe, the CAC 40 in Paris finished down 2.8% and the DAX 30 in Frankfurt down 2.7%.

At the London close, in New York, the Dow 30 was down 1.5%, the S&P 500 was down 1.4% and the Nasdaq Composite down 0.9%. US stock markets will be closed on Monday for the Labor Day holiday.

The US Labor Department reported much weaker than expected US job growth in the month of August. It said non-farm payroll employment climbed by 173,000 jobs in August, well below the increase of 220,000 jobs anticipated by economists.

The weaker-than-expected job growth in August came as job gains in the health care and social assistance and financial activities sectors were partly offset by decreases in manufacturing and mining jobs.

However, the report also showed upward revisions to the job growth seen in both June and July, with the revised data showing increases of 245,000 jobs in each month.

The report said the US unemployment rate edged down to 5.1% in August from 5.3% in July, while economists had expected the rate to dip to just 5.2%. The bigger-than-expected decrease pulled the US unemployment rate down to its lowest level since hitting 5.0% in April of 2008, just prior to the onset of the recent recession.

The dollar strengthened against the pound following the release of the jobs report, with the pound buying USD1.5175 at the London close, after standing at USD1.5245 prior to it.

Analysts at Nomura said that the numbers were positive for the US inflation outlook and could give it more confidence that inflation will gradually pick up in the near term.

The broker said that the jobs report has increased, "but only marginally", the probability of a US interest rates lift by the US Federal Reserve in its September 16-17 Federal Open Market Committee meeting. However, Nomura's central case is "still" for a December "lift off".

Before the release of the jobs report, Jeffrey Lacker, president of the Richmond Federal Reserve, seemed up for a rate hike in September.

"I am not arguing that the economy is perfect, but nor is it on the ropes, requiring zero interest rates to get it back into the ring," Lacker said in a speech in Richmond on Friday morning. "It's time to align our monetary policy with the significant progress we have made."

Lacker's were the amongst the latest comments coming from a Fed official, after Fed Vice Chairman Stanley Fischer left the door open for a rate hike in the next FOMC meeting. Fischer's words came after New York Fed President William Dudley said last month that lifting interest rates in September appeared "less compelling" to him than it had a few weeks ago.

The mixed US jobs report may increase the interest in other economic reports due next week, for example the weekly initial and continuing jobless data due on Thursday, while the Fed's monetary policy announcement is set for September 17 the following week.

"Whilst this bombardment of information doesn’t really clear anything up, the markets appear to have taken it one way, and one way only," said Spreadex analyst Connor Campbell, meaning negatively.

The analyst also pointed out that the full re-opening of the Chinese stock markets on Monday is another reason why investors might have not been too keen on taking any risk going into the weekend.

"It isn’t clear at the moment how the Shanghai Composite is going to open next week, and that uncertainty, combined with the spectre of some potentially brutal losses, is exacerbating Friday’s market-wide collapse," Campbell said.

Stocks in Asia declined Friday, though Shanghai remained closed to celebrate the 70th anniversary of China's victory over Japan in the Second World War. The Japanese Nikkei 225 closed down 2.2%, while Hong Kong returned to trade after a holiday on Thursday, with the Hang Seng index ending down 0.5%.

Stock across Europe wiped out all the gains earned on Thursday from a doveish press conference by European Central Bank President Mario Draghi, in which he had said the central bank stands ready to act again to spur growth and inflation in the eurozone.

The ECB maintained it has "a willingness" to act using all the tools at its disposal to meet its annual inflation target of just below 2%, including adjusting "the size, composition and duration" of its EUR1.1 trillion monetary stimulus programme, Draghi told a press conference after the central bank maintained all of its key interest rates unchanged.

Draghi said the ECB was revising down its 2015 inflation forecast to near zero, warning that consumer prices could fall back into negative territory because of slumping oil prices. The Frankfurt-based central bank also trimmed its euro-area growth projection for the year to 1.4% from 1.5% previously, as demand from the world's leading emerging economies, notably China, contracts.

On the London Stock Exchange on Friday, mining stocks were the amongst the biggest fallers, with Anglo American down 5.9%, Glencore down 4.4%, Antofagasta down 2.1% and BHP Billiton down 2.8%. In the FTSE 250, Vedanta Resources and Kaz Minerals were the worst performers, down 12% and 8.2%, respectively. The FTSE 350 Mining Sector Index was the worst performing index, down 5.3%.

Next ended down 3.0% at 7,602.19 pence after being cut to Underperform from Neutral by Exane BNP Paribas, which lowered its price target on the stock to 7,400p from 7,700p.

Also weighing on Next shares, the BDO High Street Sales Tracker survey for August on Friday showed the UK high street had its worst month since November 2008, with sales declining year-on-year as consumers decided to desert the high street in favour of taking holidays abroad. The survey showed UK high street sales were down by 4.3% in August, the worst performance for the sector since the financial crisis in 2008 and the fourth consecutive month of like-for-like declines. Shares of fellow retailer Marks & Spencer Group were down 1.8%.

Hikma Pharmaceuticals was in the short list of blue-chips ending in the green, up 0.2% after being upgraded to Buy from Neutral by Goldman Sachs. The other one was International Consolidated Airlines Group, up 0.5%. Aer Lingus, which IAG is set to acquire, on Friday joined IAG and other London-listed airlines in reporting strong passenger traffic in August. Aer Lingus itself ended down 0.4%.

In the FTSE 250, Booker Group finished amongst the best performers, up 1.3% at 178.49p. JP Morgan raised its price target on the grocery wholesaler to 200p from 174p previously, and reiterated an Overweight rating.

In a light UK corporate calendar Monday, Associated British Foods issues a trading statement, Dechra Pharmaceuticals releases full-year results, and Green REIT published half-year results.

In the economic calendar, Germany's industrial production is due at 0700 BST, while eurozone's Sentix investor confidence is due at 0930 BST.

By Daniel Ruiz; danielruiz@alliancenews.com

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