LONDON MARKET CLOSE: Weak US Services Data Add To Market Gloom

LONDON (Alliance News) - There was another afternoon sell-off for UK stock indices Wednesday, as Wall Street's opening gains swiftly turned to losses after two separate disappointing service purchasing managers' index readings.

The FTSE 100 closed down 1.4% at 5,837.14, marking its third successive session of losses. The FTSE 250 closed down 1.9% at 15,992.42, and the AIM All-Share ended down 0.5% at 690.27.

In Europe, the French CAC 40 closed down 1.3% and the German DAX 30 ended down 1.5%.

On Wall Street at the London close, the DJIA was down 0.2%, the S&P 500 down 0.6% and the Nasdaq Composite traded down 1.1%.

US stocks fell after a report from the Institute for Supply Management revealed growth in the US service sector slowed in January. The ISM said its non-manufacturing index dropped to 53.5 in January from an upwardly revised 55.8 in December, although a reading above 50 still indicates growth in the service sector. Economists had expected the index to inch up to 55.5 from the 55.3 originally reported for the previous month.

The decrease by the non-manufacturing index was partly due to a steep drop by the business activity index, which tumbled to 53.9 in January from 59.5 in December.

Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee, said "the majority of the respondents' comments are positive about business conditions; however, there is a concern that exists relative to global conditions, stock market volatility, and the effect on commercial and consumer confidence."

Separately Markit's services PMI for the US fell to 53.2 in January, its lowest reading since late 2013, against economists' expectations of a more modest fall to 53.7 from December's reading of 54.3.

Markit said its respondents were concerned that the wider economic outlook will constrain their growth opportunities in the coming year. Furthermore, respondents noted signs of a slowdown in cyclical demand, driven in part by greater caution about the economic outlook.

"Deteriorating financial market conditions, global growth uncertainties and the upcoming election are all taking their toll, not to mention the strong dollar, which is not only hurting manufacturing but is also hitting the service sector through reduced tourism and travel," said Chris Williamson, chief economist at Markit.

The dollar fell against other major currencies. At the European equity close, the euro traded the dollar at USD1.1052 versus USD1.0898 at the close Tuesday. The pound traded the dollar at USD1.4580, compared to the price close on Tuesday of USD1.4388.

The pound was also boosted by strong domestic services data. Survey figures from Markit Economics showed that the Chartered Institute of Procurement & Supply/Markit services PMI rose marginally to 55.6 in January from 55.5 in December against the consensus forecast of a fall to 55.4.

Markit said the UK's dominant service sector output has now been in expansion for over three years, with this year's figure slightly stronger than the long-run average but weaker than the growth seen in 2013, 2014 and 2015.

On the London Stock Exchange miners, so often the chains restricting the FTSE 100, made up the majority of the handful of gainers in the blue-chip index with Anglo American the best performer, up 8.6%, and both Glencore and Rio Tinto up 1.9%.

Also amongst the gainers was GlaxoSmithKline, up 0.8%, after the pharmaceutical giant posted results in line with expectations for 2015 and said it would hit its revenue target for new drugs ahead of schedule.

The company's closely-watched core earnings-per-share fell to 75.7 pence from the 95.4p it reported a year before, in line with the company's guidance and consensus expectations of 76.0p.

Glaxo reported a pretax profit of GBP10.53 billion, significantly up from the GBP2.97 billion it reported a year as a result of exceptional gains from a significant deal with Swiss peer Novartis in 2014, as it saw revenue of GBP23.92 billion, up from GBP23.00 billion a year before.

Elsewhere, Chief Executive Officer Andrew Witty echoed earlier sentiments that, following the company's deal with Novartis, there was now an option for "different structures" for the business in the future. The company has faced frequent speculation about a potential split-up in recent years, and this has heated up in the last few months after prominent fund manager Neil Woodford renewed calls for the company to be broken up.

The FTSE 350 Banking sector index closed down 3.6%, with banks ending amongst the heaviest fallers in the FTSE 100. Barclays closed down 4.7%, Standard Chartered down 4.3%, and HSBC Holdings down 3.7%, amongst others.

IG's senior market analyst Chris Beauchamp said: "A heady cocktail of worries – faltering economic growth, concerns about contagion from energy stocks and diminishing expectations regarding a Fed move have all conspired to send bank shares down around the world."

Adding to the concerns about the US Federal Reserve, New York Fed President William Dudley warned that the deteriorating outlook about the global growth and dollar strength would hurt the US economy. In an interview with MNSI, Dudley said the Fed would consider persistent tightening of financial conditions very seriously while pursuing its planned interest rate hikes.

Oil prices encountered volatility towards the end of the London equity trading session. Brent oil traded close to the USD33 a barrel marker for most of the day before dropping sharply on a report from the US Energy Information Administration saying its crude oil stocks rose by 7.8 million barrels in the week ending January 29, compared to the forecast for a 4.8 million barrel rise.

However, after a sharp drop Brent shot higher and at the London close was quoted at USD34.34 a barrel, compared to USD33.07 at Tuesday's close.

The gold price also rose as the dollar fell. At the London close it was quoted at USD1,138.90 an ounce versus USD1,125.76 on Tuesday.

In the economic calendar Thursday, European Central Bank President Mario Draghi will be making a speech in Frankfurt at 0800 GMT, just before the ECB releases its monthly economic bulletin at 0900 GMT. The Bank of England will then announce its policy decision, and simultaneously release its meeting minutes and inflation report at noon.

In the afternoon, US continuing and initial jobless claims are at 1330 GMT, as are unit labour cost data and nonfarm productivity. US factory orders are at 1500 GMT.

In the UK corporate calendar, oil and gas major Royal Dutch Shell, pharmaceutical company AstraZeneca, medical devices maker Smith & Nephew, specialist insurer Beazley and Primary Health Properties all report full-year results. There are also trading statements from Vodafone Group, caterer Compass Group and DFS Furniture, while easyJet releases January traffic statistics.

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

Copyright 2016 Alliance News Limited. All Rights Reserved.