LONDON MARKET MIDDAY: Sea of red as US Fed tapering seen this year

(Alliance News) - Stock markets in Europe were enduring the aftermath of the release of the minutes of the latest US Federal Reserve meeting, where a majority of monetary policy board members said they expect to reduce bond purchases later this year.

"The FTSE 100 took a bath on Thursday morning, dragged lower by weakness in the resources sector amid fears the US Federal Reserve might be about to pull the rug from under the market by tapering its support for the economy early," AJ Bell investment director Russ Mould said.

The Fed's July policy meeting notes showed a reduction in monthly asset purchases could begin as early as this year.

"Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year," the Federal Open Market Committee meeting minutes read.

Investors now expect Fed Chair Jerome Powell to make an announcement about tapering in the next few months, with the process likely to begin before the end of the year - with attention now firmly fixed on next week's Jackson Hole central bank symposium in Wyoming.

Mould continued: "The Fed minutes, showing a split between members over when to start scaling back financial stimulus, the continuing spread globally for the Delta variant, weakness in the Chinese economy and the turmoil in Afghanistan add up to a cocktail of worries which are dogging investor sentiment."

The FTSE 100 index was down 137.59 points, or 1.9%, to 7,032.03 at midday Thursday, verging on dipping under the 7,000 mark since late July. The mid-cap FTSE 250 index was down 213.19 points, or 0.9%, at 23,623.25. The AIM All-Share index was down 0.5% at 1,259.89.

The Cboe UK 100 index was down 1.9% at 699.40. The Cboe 250 was down 0.8% at 21,495.28, and the Cboe Small Companies was 0.8% lower at 15,345.77.

The losses were not contained to London, with European and Asian markets also taking a hit.

In mainland Europe, the CAC 40 stock index in Paris was 2.5% lower, while the DAX 30 in Frankfurt was down 1.6%. In Tokyo, the Nikkei 225 index closed down 1.1%, while in Hong Kong, the Hang Seng ended down 2.1%.

"The question now is whether a volatile week is the prelude to the kind of late summer sell-off we have seen in previous years or if the market can regain its poise moving into the autumn," Mould added.

In London, mining giants were weighing on the FTSE 100 index.

"Commodity prices fell, although whether that's from the Fed's decision or from virus worries is another question. Note that industrial commodities are at the bottom of the list – copper, oil, aluminum, nickel. This signifies concern about weakening global growth," Marshall Gittler, head of Investment Research at BDSwiss, said.

Anglo American, the worst performer in the FTSE 100, was down 10%, while Rio, Glencore, Evraz and BHP shed 1.6%, 2.6%, 2.4% and 2.8%, respectively.

Anglo's particularly sharp drop reflected the stock also going ex-dividend Thursday. Phoenix Group lost 5.1%, M&G 4.7% and Imperial Brands shed 4.5% for the same reason.

Brent oil was quoted at USD66.34 a barrel midday Thursday, sharply lower from USD68.75 late Wednesday in London. Gold was trading at USD1,788.90 an ounce, up against USD1,779.25.

Antofagasta, down 4.3%, guided for lower copper production in 2021.

In the six months to June 30, pretax profit spiked to USD1.78 billion from USD387.5 million a year before. Revenue surged 68% year on year to USD3.59 billion from USD2.14 billion.

Copper sales volume slipped 6.3% to 325,100 tonnes, and gold sales fell 4.3% to 103,700 ounces, but the firm's realised copper price jumped 80% to USD4.42 per pound while the gold price increased to USD1,776 per ounce from USD1,680 a year before.

As a result, Anto's cash flow from operations grew to USD2.46 billion from USD906.9 million, allowing the miner to declare a dividend of 23.6 US cents, up from 6.2 cents a year before.

Anto noted the driest year of a 12-year drought in Chile will hurt production in the second half. The miner lowered its full-year outlook for copper production to be between 710,000 to 740,000 tonnes versus previous guidance of 730,000 to 760,000.

The drought could also hurt output next year, Antofagasta warned.

In the FTSE 250, mortgage specialist OSB Group was the best performer, up 4.4%, as it reported first-half increases in income and profit, as the lender released bad loan provisions and sold more mortgages into a buoyant UK housing market.

Profit was driven by the release of bad loan provisions, a growing loan book and a lower cost of retail funds, OSB said.

Total income in the first half of 2021 was up 18% year-on-year to GBP290.0 million from GBP245.3 million. Pretax profit more than doubled to GBP221.9 million from GBP99.3 million.

In the first half of 2019, before the acquisition of Charter Court Financial Services, OSB made total income of GBP143.8 million and pretax profit of GBP91.0 million.

The bank reinstated its interim dividend at 4.9 pence per share, in line with its policy of paying a third of the previous year's total payout as an interim dividend. It decided against a payout in the first half of 2020.

At the other end of the index, Helios Towers was down 4.8% as it went ex-dividend. The telecommunications infrastructure company which operates towers providing mobile signal said its loss narrowed in the first half of 2021, as the company invested in its infrastructure portfolio and expanded into Senegal.

Its pretax loss narrowed to USD43.6 million in the six months ended June 30, compared to a USD83.0 million loss in that period a year prior. The company had reported a USD18.7 million loss in the first half of 2019, before the pandemic.

As sites and tenancies continued to grow, revenue rose to USD212.4 million, up 4.1% year-on-year from USD204.0 million and 11% above the USD190.7 million reported two years earlier.

The number of sites increased by 21% in the first half to 8,603 from 7,092, whilst tenancies grew 15% to 17,090 from 14,906.

Increased revenue was offset by the negative impact of depreciation and disposal costs.

US stock market futures were pointed for further losses on Thursday. The Dow Jones Industrial Average and the S&P 500 were both called down 0.6%, while the Nasdaq Composite was seen opening down 0.4%.

The Fed's minutes led to a spike in the dollar overnight. The pound was quoted at USD1.3696 early Thursday, down from USD1.3750 at the London equities close Wednesday. The euro was priced at USD1.1694, down from USD1.1705.

However, against the Japanese yen, the dollar was trading at JPY109.73, soft from JPY109.92.

By Paul McGowan; paulmcgowan@alliancenews.com

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