MARKET COMMENT: UK Stocks Fall With Commodities; Scotland In Focus

LONDON (Alliance News) - The UK's main stock indices closed lower Thursday as a rebound in the companies most exposed to Scotland wasn't enough to offset weakness in mining and oil stocks amid a drop in commodity prices and news that the latest round of EU sanctions against Russia will be implemented as early as Friday.

The FTSE 100 closed down 0.5% at 6,799.62 and the FTSE 250 down 0.3% at 15,621.35, while the AIM All-Share closed fractionally higher at 776.07.

Major European markets also have ended lower, with the French CAC 40 down 0.2% and the German DAX down 0.1%.

After the European close, stocks in the US continue lower, with the DJIA down 0.2%, and the S&P 500 index down 0.1%.

The latest round of EU sanctions against Russia target five state-owned banks, three major defence companies, oil-exploration projects and 24 individuals, including "Russian decision-makers", EU governments said in a statement Thursday. The restrictive measures were officially agreed on Monday, but were thought to be on ice as a ceasefire in eastern Ukraine appeared to be holding. However, the measures will now be introduced on Friday with the proviso that they can be lifted again if the 12 points of the ceasefire agreement for eastern Ukraine are fulfilled.

While news of the sanctions cemented a lower close, UK equities were already struggling as the mining and oil stocks suffered from weaker commodity prices and some disappointing Chinese economic data. Chinese consumer price inflation slowed to a four-month low of 2% in August from 2.3% in July, missing expectations for a print of 2.2% and well below the governments official target of 3.5%, according to data from the Chinese National Bureau of Statistics released overnight.

Brent oil reached its lowest level in more than two years Thursday, bottoming at USD96.69 per barrel, despite US President Barrack Obama using the 13th anniversary of the 9/11 attacks to step up rhetoric on Islamic State militants who operate in some key oil-producing regions.

"Our objective is clear: We will degrade, and ultimately destroy, ISIL through a comprehensive and sustained counter-terrorism strategy," the president said in a nationally televised address at the White House.

Precious metal prices also dipped Thursday, with gold reaching a near eight-month low of USD1,234.70 per ounce, and silver reaching its lowest level in more than a year of USD18.548 per ounce.

As a result, most of the heaviest fallers in London were natural resource stocks, with Tullow Oil down 3.1%, Anglo American down 1.3%, Centamin down 4.5%, and African Barrick Gold down 5.1%.

Airlines received a boost from the low oil price, however, with International Consolidated Airlines up 0.9% and easyJet up 0.5%.

With just seven days to go before the vote on Scotland's potential split from the rest of the UK, the issue remains a key driver for the London market, and the stocks most exposed to the issue made something of a recovery Thursday from the slump they have fallen into since opinion polls started to show a rally in support for the "Yes" campaign at the weekend.

"We are one week away from the Scottish referendum on independence, and it is all traders are talking about," said IG analyst David Madden.

A number of the large financial institutions headquartered in Scotland have moved to reassure investors that they have contingency plans to move operations south of the border in the event of a "Yes" vote.

"While the scale of potential change is currently unclear, we have contingency plans in place which include the establishment of new legal entities in England," Lloyds Banking Group said in a statement.

Lloyds shares closed up 1.2% on the back of that reassurance, which was echoed by Royal Bank of Scotland, and pensions and investments group Standard Life, which gained 1.1% and 1.5%, respectively. Scottish power supplier SSE was the best-performing blue chip performer Thursday, closing up 1.8%.

It was also a busy day for the UK's retail sector. Morrisons surprised investors by delivering on its dividend commitment, announcing a 5% increase in its interim payment. The move comes less than two weeks after Tesco was forced to slash its own dividend by 75% in response to the ongoing pressures in the UK grocery sector.

Morrisons' share price was up and down like a yo-yo throughout trading Thursday as investors tried to decide whether management was confident, or just foolhardy. The stock opened 4% higher, before dipping negative, and ultimately ending up 0.7%. Tesco, on the other hand, has spent the day firmly in the red, closing down 1.3%.

Next, the UK's biggest clothing retailer by market share, dropped 3.0% despite a solid set of results showing a 19% rise in pretax profit to GBP324.2 million for the first half of the year, as revenue rose to GBP1.85 billion from GBP1.68 billion. Next shares have been on a stellar run over the last quarter and suffered a little profit taking in the absence of any further profit-guidance upgrades.

In the FTSE 250, Home Retail Group was the worst performer, closing down 7.3%. The group provided a mixed update Thursday, with sales growth slightly behind forecasts at Argos, and slightly ahead at Homebase. Management said Argos needs to continue at its "current run rate" for the group to achieve its full-year profit target of between GBP122 million and GBP135 million. However analysts have expressed concern whether the group will see a return on the GBP12.6 million it recently spent on refurbishing a number of its Argos stores.

Ocado had a better day, gaining 2.1% after reporting a 23% rise in group sales in the 12 weeks to August 10. Average orders per week at the grocery delivery company increased by 17% to 163,000, against 139,000 last year, but average order size was down by 1.7% to GBP111.64 against GBP113.54 in the corresponding period in 2013.

Ashmore Group closed down 5.2% after reporting a 34% drop in full-year pretax profit, saying it came under pressure due to emerging-market volatility, lower performance fees and the strength of the pound.

Still to come Thursday, European Central Bank President Mario Draghi is slated to deliver a keynote speech at the Eurofi Financial Fofum in Milan at 2000 BST. Following that, YouGov is expected to release the results of its latest opinion poll about the Scottish independence vote at 2200 BST. The results clearly have the potential to provide a big driver of UK markets on Friday morning.

Otherwise, Friday is looking a lot quieter than the session just ended, with no UK data of note, while the main event in the UK corporate calendar will be full-year results from FTSE 250-listed pub chain JD Wetherspoon.

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

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