MARKET COMMENT: UK Stocks Close Mixed, Tech Sector Under Pressure

LONDON (Alliance News) - The UK's major stock indices closed mixed Thursday after a roller coaster of a day, but technology stocks were again among the worst performers as concerns that shares in the sector are overvalued continued to cause selling.

The equity markets in London had begun the day higher along with major indices on the continent, after policy makers at the US Federal Reserve signaled that interest rates won't be going up any time soon, even when quantitative easing ends. But the bullish sentiment soon faded and stocks dropped again.

The FTSE 100 managed to close fractionally higher at 6,641.97, the FTSE 250 down 0.1% at 16,148.54, and the AIM All-Share down 0.2% at 844.61. In Paris, the CAC 40 closed down 0.6%, and the German DAX 30 closed down 0.5%.

When the European markets closed, the US markets were lower, with the tech-heavy Nasdaq down 1.8% as Wednesday's Fed-inspired rally again turned into a bout of heavy selling.

"The Federal Open Market Committee members are so keen to reassure us of their accommodative monetary policy bias, that they will happily inflate asset bubbles globally," said Societe Generale strategist Kit Jukes.

In the UK, the FTSE 350 Technology Hardware and Equipment sector index was the heaviest faller Thursday, losing more than 2.0%. ARM Holdings led the falls, closing down 2.4%.

Real Estate Investment Trusts did well, with the FTSE 350 sector index up 1.2%, after the Bank of England again held its key interest rate at 0.5% and maintained its GBP375 billion a month asset buying programme. Land Securities Group was the biggest blue chip gainer, closing up 2.7%.

Housebuilders including FTSE 100-listed Persimmon and FTSE 250-listed Bellway did well after the latest set of house price data showed growth accelerating to a six year higher, with prices up in every region of the country. The March house price balance from the Royal Institute of Chartered Surveyors climbed to +57, well above forecasts for +44.

"House prices are booming, and are likely to continue booming while interest rates stay low and the government provides subsidies for house purchase," said Berenberg chief economist Rob Wood. "The fact that this is not just a London phenomenon shows that it is returning confidence and loose monetary policy driving the market".

Berenberg now expects an initial UK rate hike to come in the first quarter of 2015, with a 35% chance of a move in the fourth quarter of 2014.

Rate hikes are potentially bad news for the UK's retailers, particularly those already struggling to make headway in the current era of historically low rates, as it would leave consumers with mortgages and other debts less money in their pockets.

Marks & Spencer ended the day as the heaviest FTSE 100 faller Thursday, down 3.1%. The retailer has been struggling with falling womenswear sales for decades, but reported a 1.9% increase in sales in the last quarter of its financial year, driven mainly by food and online sales. Sales at its general merchandise unit, which include clothes and home products, also rose 0.2%.

That masked a host of issues however. Like-for-like sales at the merchandising unit were still down 0.6%, and the retailer had to heavily discount to shift stock, meaning profit margins came under pressure.

While the news was encouraging, "there is clearly a lot more to do for M&S to stem market share decline in womenswear in the UK on a sustained basis," said Shore Capital analyst Clive Black.

WH Smith also closed lower. It raised its interim dividend by 15% after it reported a slight increase in pretax profit for the first of its financial year. However, the improvement was again down to cost cutting and sales continued to decline.

The book seller and stationer has been retrenching from the UK high street for many years, and some of its best stores are now at airports and railway stations. High street sales were down 7%, which the company failed to offset with a 2% rise in travel sales.

Recruiter Hays closed at the top of the FTSE 250, gaining 4.6%, after releasing a positive trading statement.

In other assets, the gold price rose for the third straight day and is trading at a near three-week high of USD1,320.30 per ounce. "There is still uncertainty in eastern Ukraine and this is prompting a flight to quality assets like gold, said IG analyst Alastair McCaig.

Russia's President Putin Thursday warned European leaders of possible gas supply cuts because of his country's ongoing debt dispute with Ukraine. Meanwhile, Ukraine's interim President Oleksandr Turchynov tried to diffuse some of the tension in his country, offering pro-Russian protesters in the east amnesty from prosecution and more regional autonomy. Any amnesty would be conditional on the protesters laying down arms and vacating occupied buildings, he said.

In the bond markets, Greece ended its four-year exile from international markets on Thursday, raising EUR3 billion, or USD4.2 billion, in an international bond issue.

The Greek Finance Ministry said that the "demand for the bonds was very strong," with nearly 90% of the bonds taken by international investors. It said the transaction is expected to be settled next week. The five-year bonds were auctioned off at a coupon rate of 4.75 per cent. The government was initially aiming to raise 2.5 billion euros in the sale at a higher interest rate of 5%.

Major currency pairs remained relatively stable, with the euro just slightly higher against the dollar at USD1.3890, and the pound just slightly lower at USD1.6780.

In the economic calendar Friday, China's March CPI will be released overnight. Economists expect consumer prices to have fallen by 0.5% over the month, while it is still expected to be showing annual inflation of 2.5%.

Over the morning, the second reading of German CPI is due, along with the Spanish numbers, with US PPI numbers to come in the afternoon.

The big US banks will also be in focus as JP Morgan kicks off the first quarter earnings season for the US financial sector.

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

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