MARKET COMMENT: Russian Convoy Drives Markets Ahead Of Long Weekend

LONDON (Alliance News) - UK stocks ended mixed Friday after Federal Reserve Chair Janet Yellen failed to give any clear guidance on when US interest rates might start to rise, and as investors remained cautions after the Russian aid truck convoy entered Ukraine without permission and without a Red Cross escort.

The FTSE 100 closed down just 2.4 points at 6,775.25, while the FTSE 250 closed up 0.3% at 15,881.08, and the AIM All-Share closed fractionally higher at 764.05.

Developments in Ukraine weighed heavier on major European markets, with the French CAC 40 closing down 0.9%, and the German DAX closing down 0.6%.

After the European market close, US markets are also mixed, with the DJIA down 0.1%, the S&P 500 down 0.1%, and the Nasdaq Composite up 0.2%.

Yellen's speech at an annual meeting of central bankers in Jackson Hole, Wyoming, was highly anticipated, but the Fed Chair delivered a finely balanced narrative that provided little clue as to when the US central bank will start raising interest rates.

Yellen said that there could be an earlier interest rate rise than expected "if progress in the labour market continues to be more rapid than anticipated," but also that, if economic performance turns out to be disappointing then "rates likely would be more accommodative than we currently anticipate."

"In typical central banker fashion Ms Yellen did a lot of talking but said very little," said IG market analyst David Madden.

European Central Bank President Mario Draghi will give a speech in Jackson Hole at 1930 BST and investors will be keen to hear if the ECB has been doing any more preparatory work for the possible introduction of an asset purchase programme. Bank of England Deputy Governor Ben Broadbent is also due to speak from the economic symposium in Wyoming on Saturday.

The markets were more sensitive to the latest events in Ukraine, the country accusing Russia of a direct invasion as a huge aid convoy entered its territory without an escort from the Red Cross, which Ukraine had demanded. The EU said Russia is acting in "clear violation" of Ukraine's border, while NATO Secretary General Anders Fogh Rasmussen called it a "blatant breach" of Russia's international commitments.

"There wasn't too much to the news of Russian aid trucks crossing the border, albeit without permission; but it had the potential to escalate quickly and traders didn’t hang around to wait for the escalation," said CMC Markets market analyst Jasper Lawler, referring to a slide in Europe's equity markets when the news broke.

The Russian Foreign Ministry said it decided to set the lorries in motion without a Red Cross escort because it was fed up with "endless artificial delays." Almost 280 Russian lorries had remained at the border with Ukraine for a week.

The UK-listed retail stocks underperformed Friday after Barclays downgraded the European general retail sector to Negative, from Neutral, and also cut its forecasts for a number of UK retail stocks.

Barclays sees a "less rosy picture ahead" for the overall sector, saying that tightening monetary policy in the UK will likely pressure the finances of UK households, forcing a reconsideration of spending habits after five years of near-zero interest rates. Barclays prefers stocks exposed to Europe, given that the European Central Bank seems likely to maintain ultra low interest rates for considerably longer than the Bank of England.

Halfords Group was amongst the biggest fallers, ending down 1.5% after being downgraded by the bank, while Dunelm Group lost 1.1%, and Kingfisher lost 0.7%.

The dollar was broadly stronger by the close of the European equity markets, with the pound trading at USD1.6570, and the euro trading at USD1.3235.

The pound has lost more than 1.5 cents against the dollar this week, marking the seventh consecutive weekly fall in the currency pair, it's worst run of consecutive weekly falls in more than four years. Since the start of July, the pound has given up about 3.5% against the dollar.

The London market will remain closed on Monday for the late summer bank holiday, but any surprises from Jackson Hole and any further developments in the story of the Russian aid convoy over the weekend will likely provide the early drivers for European markets.

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

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