MARKET COMMENT: FTSE 100 Has Worst Week Since June As Crimea Talks Stall

LONDON (Alliance News) - The FTSE 100 suffered its worst weekly performance in nine months, while gold has risen to a six-month high, as investors de-risked their portfolios ahead of a weekend that is likely to see more tensions among Russia, Ukraine, and the West.

The FTSE 100 closed down 0.4% Friday at 6,527.89. The UK's leading index has lost 185 points, or 2.8% since Monday, its worst weekly performance since June 2013. The FTSE 250 lost 0.4% to close at 16,124.92, while the AIM All-Share fared even worse, falling 1.1% to close at 869.53.

US Secretary of State John Kerry was in London meeting his Russian counterpart Sergey Lavrov Friday to try to dissuade Russia from going ahead with a planned referendum on Sunday that will ask residents of the Crimea if they want to be part Russia or revert to a post-Soviet constitution under which the region would maintain some autonomy.

However, despite six hours of "candid discussions", during which Kerry said he made clear the US position that the referendum is illegal under international law, it appears that little has been agreed, and the referendum is still set to go ahead.

German Chancellor Angela Merkel, the Western European politician with both the most influence and the most to lose from the problems in Eastern Europe due to German-Russian trade relations, also has ramped up her rhetoric - stating Berlin's position that "the territorial integrity of Ukraine cannot be overridden". Merkel has ruled out military force, but warned that the crisis could cause "massive damage to Russia, economically and politically".

Despite the political pressure, Lavrov said in a press conference following the meeting with Kerry that Russia will not adjust its position until after the referendum, and that it "will respect the will of the Crimean people".

Within major European equity markets, the French CAC 40 closed down 0.8% while the German DAX 40 staged a late rally to close up 0.4%. Over the week, however, the DAX has been amongst the world's worst performers, losing 3.2% since Monday.

"Global stock markets have plunged this week as risk aversion started to kick into a higher gear. It was all about the escalation of the crisis in Ukraine while concerns intensified over China after the release of some shocking data from world’s second largest economy," said Forex.com analyst Fawad Razaqzada.

Concerns over slower Chinese growth and increased credit risk also are weighing on sentiment following the first ever Chinese corporate bond default last week. Chinese Premier Li Keqiang said on Thursday that future defaults are "unavoidable". This "suggests the potential for domino defaults, whose affects could ripple across the globe, and in the process drive expectations for 2014 lower," said CMC Markets chief market analyst Michael Hewson.

Precious metals have been boosted by safe-haven flow due to the uncertain backdrop. Gold pushed to a new six-month high of USD1,387.87 per ounce Friday, while silver hit a two-week high of USD21.776.

Following the close of European equity markets, stocks on Wall Street, which are regarded to have less exposure to the Ukraine crisis, are trading broadly flat.

Economic data Friday showed the UK trade deficit widened further than expected in January, providing a headache of Chancellor Gerorge Osborne ahead of Wednesday's budget presentation. The total UK trade balance recording a significant deficit of GBP2.565 billion in January, increasing from GBP0.668 billion in December.

In 2012, Osborne set a target of doubling UK exports to GBP1 trillion by 2020. However, ONS data show that exports have so far remained broadly flat. "Exports are not likely to be a strong driver of growth this year," said Berenberg chief UK economist Rob Wood. "The domestic-driven recovery, which is broadening out into especially import-intensive capital expenditure, will probably drag in more imports and keep the trade deficit from narrowing through this year," the economist said.

The data did little to hurt the pound which has remained remarkably stable against the dollar Friday, currently trading at USD1.6615.

The euro recovered ground after falling sharply overnight on the back of comments from European Central Bank President Mario Draghi. Draghi said that additional policy steps still may be necessary by the ECB. The central banker said the strength of the single currency is becoming of increasing importance with regard to price stability. The euro fell to a low against the dollar of USD1.3840 but later traded back up to USD1.3915, after some encouraging economic data Friday.

The number of people employed in the Eurozone increased for the first time since the second-quarter of 2011, according to the latest employment change data from Eurostat. The index recorded a 0.1% gain in the fourth-quarter of 2013, up from flat in the third quarter. German CPI inflation also was confirmed at 0.5% in February, up from the 0.6% drop in January.

Amid a quieter UK corporate calendar than of late, the top-moving stocks on the London market have mostly been due to risk aversion. Emerging market-focused Aberdeen Asset Management PLC led the FTSE 100 fallers, closing down 2.9%. In the FTSE 250 Bank of Georgia Holdings PLC was the heaviest faller, losing 7.2%.

Food & Drug Retail was the best performing sector, with the supermarkets rebounding from the heavy selling suffered on Thursday from the decision by Wm Morrison Supermarkets PLC to join the sector price war. J Sainsbury PLC closed up 2.8% Friday, with Tesco PLC up 1.5% and Morrisons up 1.4% - although the sector is still significantly down over the week.

There was more bad news for Morrisons Friday, as the supermarket confirmed it had been the target of theft from its staff payroll system. The fear that customer details could have been leaked appeared to read across to Morrisons partner Ocado, as Ocado shares dropped ad much as 10% on the news, but recovered most of the drop and closed down 3.8%.

The best performing FTSE 100 stock was Fresnillo PLC, closing up 2.9%, benefiting from the spike in precious metal prices.

New AIM listing Boohoo.com enjoyed a stellar first day of unconditional trading, closing up 70% from it's IPO price of 50 pence, at 85.136p.

Any further developments in Ukraine ahead of Sunday's referendum will be of market interest over the weekend.

Next week, global consumer price inflation will be in early focus, with Eurozone CPI numbers due on Monday, followed by US CPI on Tuesday.

Wednesday will be a significant day for economic news, when in the UK the Chancellor Osborne will deliver his 2014 budget to Parliament, and we also get the latest UK unemployment numbers, along with the minutes from the latest Bank of England policy meeting.

The next US Federal Reserve meeting is also just around the corner, with a further USD10 billion taper to asset purchases expected to be announced after the European market close on Wednesday.

By Jon Darby; jondarby@alliancenews.com; @jondarby100

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