LONDON (Alliance News) – Stocks in London ended lower on Wednesday as concerns over global growth and trade wars continued to plague investors.
The FTSE 100 index closed down 100.92 points, or 1.4%, at 6,921.84. The FTSE 250 ended down 58.54 points, or 0.3%, at 18,271.10, and the AIM All-Share closed down 10.86 points, or 1.2%, at 911.31.
The Cboe UK 100 ended down 1.4% at 11,761.33, the Cboe UK 250 closed down 0.1% at 16,363.32, and the Cboe Small Companies ended down 0.8% at 11,310.08.
In Paris the CAC 40 ended lower 1.4%, while the DAX 30 in Frankfurt ended down 1.2%.
“The sour investment sentiment today, is largely down to the severe declines the US incurred yesterday. Longer-dated US government bond yields fell yesterday, and that rattled confidence and increased chatter about a potential recession in the largest economy in the world,” said David Madden, market analyst at CMC Markets.
Investors were concerned after the US treasury bond market yield curve “inverted” heightening fears of an economic slowdown.
The yield on the five-year Treasury dropped below the two-year and three-year Treasury yields on Monday. The short-term yield overtook the long-term yield, thereby producing a negative spread – this is when the yield curve “inverts”. The inversion in US Treasury yields has not occurred since 2007.
“It’s important to note that neither of these measures of yield curve steepness have been reliable precursors to recessions. We think this move may be better interpreted as a market signal to the Federal Reserve that it needs to temper the pace of its rate hikes in 2019. As a recession indicator, the most reliable yield curve spreads have been those with larger maturity gaps, such as 2-10 year,” said analysts at LPL Financial.
There is also concerns about the truce between the US and China on trade after China promised action but gave no details on the tentative truce.
On the London Stock Exchange, Shire ended among the blue chip risers, up 3.1% after Japan’s Takeda Pharmaceutical Co announced its shareholders approved resolutions related to the proposed acquisition of Irish drugmaker.
Takeda has now satisfied the shareholder approval condition required to implement the deal. Shire also announced that it has secured merger approval from shareholders at a general meeting and court approval for its scheme of arrangement.
It is expected that completion of the acquisition will take place on January 8.
At the other end of the large cap index, equipment rental firm Ashtead Group ended as the worst performer, down 5.8% amid fears over the health of the US economy.
“The group derives the majority of its revenue in the US, and the fears traders have in relation to the state of the US economy is likely to be a factor in the decline,” commented CMC’s Madden.
In the first quarter of Ashtead’s current financial year, its US business Sunbelt contributed 84% of group revenue. Ashtead will report half-year results next Tuesday.
Hargreaves Lansdown closed down 4.5% after Morgan Stanley downgraded the fund supermarket to Underweight from Equal Weight.
Pearson closed down 3.6% after Liberum highlighted a negative read-across to Pearson’s US Higher Education business following a disappointing set of second quarter results from Barnes & Noble Education, one of the largest retailers of college books in the country.
Barnes & Noble Education’s comparable second quarter textbook sales fell 8.1%, worse than the company had expected. The firm partly blamed this fall on price deflation by publishers, Liberum said, with lower enrollment also making up a small part of the disappointing result.
GlaxoSmithKline closed down 3.5% after Barclays cut the drugmaker to Equal Weight from Overweight.
In the FTSE 250, troubled travel agent Thomas Cook ended the best performer, up 47% at 33.32 pence rebounding after falling to a fresh six-year low of 19.63p on Tuesday. Last week, Thomas Cook warned on profit, cautioned on its outlook and suspended its final dividend. Still, the stock remains 72% lower over the past year.
The pound was firm quoted at USD1.2744 at the London equities close, compared to USD1.2732 at the close Tuesday.
In domestic political news, legal advice provided to the Cabinet on Prime Minister Theresa May’s Brexit deal warned that it could result in the UK becoming stuck in “protracted and repeating rounds of negotiations”.
The six-page 33-paragraph document by Attorney General Geoffrey Cox was released to MPs a day after the House of Commons found the government in contempt of parliament for trying to keep it secret.
Critics of May’s deal argue that the terms of a backstop designed to keep the Irish border open will deny the UK the power to withdraw from a customs union without agreement from Brussels.
Cox found that the protocol setting out the terms of the backstop “does not provide for a mechanism that is likely to enable the UK lawfully to exit the UK-wide customs union without a subsequent agreement”.
The deal faces stiff opposition in parliament, with the crucial vote taking place next Tuesday.
Moreover, the Bank of England has warned that the UK economy will take a savage hit, the kind not even seen during the global financial crisis a decade ago, in the event of a disorderly Brexit.
“GBP/USD has held above USD1.27, with some hoping that parliament will choose to try for a revocation of Article 50 and suspend the entire process. However, it may not be that simple, as it will likely need to go back to national parliaments. Everything with Brexit is complicated, so trying to turn the clock back to 23 June 2016 is not going to be simple,” said IG chief market analyst Chris Beauchamp.
On the economic front, UK services sector growth slowed to its weakest level in nearly two-and-a-half years in November, amid weaker growth in both business activity and new work as Brexit concerns intensified, defying expectations for a modest improvement.
The CIPS UK Services purchasing managers’ index, or PMI, fell to 50.4 from 52.2 in October, marking the lowest level since July 2016, survey results from IHS Markit showed.
A reading above 50 signals expansion in the services sector. Economists had forecast a score of 52.5.
The UK Composite PMI, which combines manufacturing, construction and services, also fell in November, down to 51 from 52.2 in October. Economists had expected a reading of 52.3.
Both the services and composite PMIs were the lowest since July 2016.
“The surveys are so far consistent with 0.1% GDP growth in the fourth quarter, thanks to the expansion seen back in October, but growth momentum has since been lost and risks are clearly tilted to the downside,” IHS Markit Chief Business Economist Chris Williamson said.
The euro was marginally lower at USD1.1345 at the European equities close, against USD1.1352 late Tuesday.
In economic news from the continent, the eurozone’s private sector growth was the lowest in more than two years during November, led by Germany, though the pace of slowdown was less than what was estimated initially.
The final Eurozone Composite purchasing managers’ index fell to 52.7 from October’s 53.1, survey data from IHS Markit showed on Wednesday. The figure was slightly higher than the flash estimate of 52.4.
A reading above 50 suggests growth in the eurozone private sector, which has now expanded through out the past five-and-a-half years.
Among the euro area countries, Germany’s composite PMI fell to 47-month low of 52.3 in November, which was slightly better than the flash estimate of 52.2. Italy’s measure was unchanged at 49.3, signaling contraction for a second successive month.
Additionally, the eurozone services PMI fell to 53.4 from 53.7 in October, which was higher than the flash estimate of 53.1. The latest reading was the lowest in over two years.
Germany’s services PMI hit a six-month low of 53.3, matching its flash estimate. France’s measure fell to 55.1, which was slightly better than the flash estimate of 55.
Brent oil was quoted at USD63.15 a barrel at the London equities close, higher than USD61.92 at the close Tuesday.
On Thursday the Organisation of the Petroleum Exporting Countries will hold its 175th general meeting in Vienna, Austria, with investors hoping for a production cut from the cartel. However, non-member Russia’s resistance to a significant production cut has been a stumbling block.
“We continue to believe that the market will need to see at least a 1.0 million barrels per day cut, while anything less would likely be viewed as bearish, as this would still leave the global market in surplus over the first half of 2019. All eyes remain on Russia, with media reports suggesting that they are still resisting significant cuts,” said analysts at ING.
Gold was flat quoted at USD1,236.47 an ounce at the London equities close against USD1,238.84 late Tuesday.
Financial markets in the US were closed in honour of former president George HW Bush. Bush – Republican president between 1989 and 1993 – died last Thursday, aged 94.
The economic events calendar on Thursday has Germany factory orders at 0700 GMT and US ADP employment data for November, which prelude Friday’s jobs report, at 1315 GMT.
The UK corporate calendar on Thursday has full year results from budget hotel operator easyHotel, half year results from paper and packaging company DS Smith and a trading statement from fashion retailer Ted Baker.
By Arvind Bhunjun; firstname.lastname@example.org
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