MARKET COMMENT: Stocks Fall Heavily, But FTSE 100 Ends Quarter Higher

LONDON (Alliance News) - London stock indices fell sharply Tuesday despite an upward revision in UK fourth quarter GDP, as oil prices declined on the possibility of a nuclear deal in Iran that threatens to push more oil into an already oversupplied global market.

The FTSE 100 closed down 1.7% at 6,773.04, the FTSE 250 ended down 0.7% at 17,090.64, and the AIM All-Share index fell 0.5% to 716.20.

That meant London's blue-chip index ended the first quarter of 2015 up 3.2%, mainly due to an eight-day run of gains starting in mid-January that was prompted by expectations, which proved correct, that the European Central Bank would expand its quantitative easing programme.

"Economic data reported for the UK was generally strong on Tuesday but it wasn’t enough to hold up equity benchmarks which came in for some end-of-quarter repositioning and profit-taking. Price drops in resource companies were exaggerated by light holiday volumes," said Jasper Lawler, market analyst at CMC Markets, of Tuesday's action.

The decline in equities indices was broad-based. In Europe, the French CAC 40 and the German DAX 30 both ended down 1.0%, while at the close of the London equity markets, the DJIA was down 0.3%, and the S&P 500 and the Nasdaq Composite were both down 0.2%.

Crude oil prices were pressured by signs that Iran is about to reach a deal with the West that would lift sanctions on its oil. Reports say Russia's foreign minister is en-route to Switzerland to re-join talks between Iran and the West over Tehran's nuclear program. If an agreement on inspections can be worked out, Iran's oil is expected to add to a global supply glut that has already driven oil prices to their lowest levels in six years.

At the London close, Brent oil was trading at USD55.16 and West Texas Intermediate was trading at USD47.89 a barrel.

BG Group, down 2.7%, and BP, down 2.1% were amongst the biggest fallers in the FTSE 100. In the FTSE 250, Premier Oil, down 4.3%, and Tullow Oil, down 3.4% were two of the worst performers. The FTSE 350 Oil and Gas Producers index ended down 2.3%, while the FTSE 350 Oil Equipment, Services & Distribution index closed down 2.0%.

The UK economy grew by more than the prior estimate in the fourth quarter, according to the third reading of the figure. Gross Domestic Product grew 0.6% sequentially in the fourth quarter, revised up from the last reading of 0.5% published in February, the Office for National Statistics said. The growth was therefore unchanged from the 0.6% expansion seen in the third quarter.

Similarly, the annual growth for the fourth quarter was revised up to 3.0%, above the 2.7% figure that economists had expected. The growth rate accelerated from 2.8% in the prior quarter.

However, investors also focused on the UK's current account deficit - the difference between exports and imports of goods and services - which came in worse than expected. The deficit narrowed to GBP25.3 billion from a previous reading of a deficit of GBP27.7 billion, but this was still wider than the deficit of GBP21.5 billion that economists had been expecting.

"It's going to take years to turn these trend round, which are born of low investment returns in Europe vs the UK and the long-term erosion of the overall net foreign asset position of the UK," said Societe Generale analyst Kit Juckes.

"Needless to say, such a big balance of payments hole is unhelpful at a time of political uncertainty, reflective of a country living beyond its means and really scary if the UK, or global economies were to slow sharply." Juckes added.

The equity indices had opened sharply down, but have been paring the losses since consumer confidence numbers came in above economists' expectations. Consumer confidence unexpectedly rebounded in March, the Conference Board said in a report, with the increase driven by an improved short-term outlook for both employment and income prospects.

The Conference Board said its consumer confidence index jumped to 101.3 in March from an upwardly revised 98.8 in February. Economists had expected the index to edge down to 95.5 from the 96.4 originally reported for the previous month.

DIY retailer Kingfisher was the best-performing stock in the FTSE 100, closing up 4.4%. The company reported a drop in sales and profit for its last financial year which it blamed on a slower French market and the strength of sterling, but it said the new CEO plans to organise the company "very differently" to create a unified business that will share IT systems and buying and stock inventory infrastructure.

Meggitt closed as one of the worst blue-chip performers, down 2.5%, after Exane BNP Paribas initiated the engineer of components for the aerospace, defence and energy markets at Underperform.

In the FTSE 250, Pace was one of the best performers, closing up 2.4%, after it was upgraded by Liberum to Buy from Hold, as the broker believes the discount "on all metrics" at which the company is trading to its closest peers in unjustified.

Thomas Cook Group, up 1.8%, was also a big gainer, after it said it is trading in line with management's expectations for its current financial year, having sold almost all the winter season holidays and more than half of the summer season. The travel operator said the UK business continues to trade ahead of last year, with "significant" bookings growth driven by robust demand particularly for its Winter Sun holidays, and while trading in Continental and Northern Europe is tough compared to last year's strong performance, it has improved since the first quarter.

Mitie Group, down 5.6%, was one of the biggest mid-cap decliners. The outsourcing company said it expects its headline operating profit for the year end-March to be slightly below current market expectations as a result of market pressures in its homecare and social housing businesses caused by local authority spending cuts.

Former Quindell Chairman Robert Terry emerged as a major shareholder at troubled AIM-listed stockbroker Daniel Stewart Securities, taking a 7.4% stake in his first big deal since he left the business he founded.

According to Daniel Stewart, Rob Terry now has about 52 million shares in the company after buying 31.25 million shares at prices ranging from 0.15 pence to 0.554p on Tuesday, meaning he already owned 20.75 million shares. The shareholding is held both directly and through "company/family interests", according to a regulatory filing. Daniel Stewart has 705.9 million shares in issue.

Shares in Daniel Stewart closed up just over eight-fold at 1.65 pence, after hitting a high of 1.85 pence, it's highest level since June 2011.

In the economic calendar Wednesday, there are non-manufacturing and manufacturing Purchasing Managers' Index readings from China at 0200 BST, and manufacturing PMI for Japan at 0235 BST, before Chinese HSBC manufacturing PMI at 0245 BST. In Europe, there is Markit manufacturing PMI for France at 0850 BST, Germany at 0855 BST, the eurozone at 0900 BST, the UK at 0930 BST and the US at 1445 BST. ISM manufacturing PMI for the US is at 1500 BST.

In a light corporate calendar, full-year results are due from miner Evraz, half-year results from online fashion retailer ASOS and a trading update from transport company FirstGroup.

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

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