News Column

MARKET COMMENT: Stocks Slide On Ukraine Concerns, Economic Data

August 6, 2014

LONDON (Alliance News) - UK stocks closed lower Wednesday, as investors were unnerved by a new increase in tensions surrounding Ukraine and following a series of weak economic data out of the Uk and Europe.

Russian President Vladmir Putin late Wednesday said nations that have implemented sanctions against Russia in reaction to the ongoing Ukraine crisis will be blocked from sending agricultural exports to Russia for one year. That followed a warning from NATO earlier in the day that a Russian military build-up at the border with Ukraine is creating a "dangerous situation," warning that Moscow could use the pretext of a peacekeeping mission to send troops into the country.

"We're not going to guess what's on Russia's mind, but we can see what Russia is doing on the ground - and that is of great concern," NATO spokeswoman Oana Lungescu said in a statement, noting that approximately 20,000 combat-ready troops have been amassed.

The FTSE 100 closed down 0.7% at 6,636.16, the FTSE 250 ended down 0.6% at 15,262.72, and the AIM All-share closed down 0.6% at 751.25.

In Europe, the DAX closed down 0.7%, while in Paris, the CAC 40 closed down 0.6%.

European markets had opened lower Wednesday after a weak session on Wall Street Tuesday, but when the European markets closed Wednesday, the DJIA was up 0.4% and the S&P 500 was up 0.4%. The Nasdaq was up 0.6%.

Weak economic data also weighed on the European markets.

British industrial production grew by less than expected in June as oil and gas extraction declined from May, data showed. Month-on-month, industrial and manufacturing output grew 0.3% each in June, the Office for National Statistics said. Economists had forecast both industrial production and manufacturing output to rise 0.6%. The increase in June reversed a 0.6% fall in May industrial output. Manufacturing output was down 1.3% in May.

In addition, the National Institute of Economic and Social Research's latest UK GDP estimate for the the three months to July was 0.6%, down from 0.8% in the second quarter, and down from the NIESR's previous estimate in June of 0.9%.

Italy, meanwhile, dropped back into recession as the country recorded a second successive quarter of quarter-on-quarter contraction at 0.2%, following a 0.1% quarter-on-quarter contraction in the first quarter.

UBS suggested that Italy's net trade could have been affected by geopolitical instabilities. "Although no details are available at this stage, we find it well possible that political uncertainties around Russia and the Middle East, which are both very important regions for Italian exporters, could have started to leave their first traces in Italian external trade in the second quarter," the bank said.

The disappointing morning UK and European economic data, as well as a general safe-haven move, saw the dollar make broad gains in the early session, although at the time of the European equity market close the dollar has softened a little again. Currently the pound trades at USD1.6853, and the euro trades at USD1.3380.

Pharmaceutical stocks led the FTSE 100 losers as increased scrutiny was placed on so-called tax inversion deals. Shire,AstraZeneca andSmith & Nephew were the biggest losers of the day, down 4%, 5.2%, and 4.1%, respectively. These companies were the focus of recent merger and acquisition activity that had been based around US companies buying foreign names with the intention of re-domiciling their tax liabilities to benefit from lower corporate tax rates.

This type of deal has come under increased scrutiny by regulators and lawmakers in the US. Walgreens, a big US drug retailer, on Wednesday appeared to have backed down in the face of increased political pressure and said it will retain its headquarters in the US, rather than move to the UK after it buys the remainder of pharmaceutical retailer Boots.

The FTSE 350 Mining sector was up 0.8% as companies benefited from a sharp rise in the price of gold, which was up 1.4% Wednesday.

On Thursday, the Bank of England and European Central Bank have rate-setting meetings. The BOE is expected to keep rates unchanged as 1200 BST, and the focus will be on the ECB decision at 1245 BST and its ensuing press conference at 1330 BST.

In the UK corporate calendar Thursday, interim results are due from insurers Old Mutual, Aviva, and RSA Insurance, along with numbers from Rio Tinto and Mondi amongst others.

Finally, the newly merged retailers Dixons Retail and Carphone Warehouse Group will start trading Thursday under new name Dixons Carphone PLC.

By Neil Thakrar;

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Source: Alliance News

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