News Column

MARKET COMMENT: FTSE Bounces Off Worst Level In 4-Months But Ends Down

August 8, 2014

Jon Darby

LONDON (Alliance News) - The FTSE 100 closed lower Friday for the third consecutive day, with geopolitical issues continuing to dominate the markets focus as the US began a new bombing campaign in Iraq, three years after last pulling its military out of the country.

US President Barack Obama late Thursday authorized airstrikes against Islamist militants that have taken over swathes of territory in Iraq and Syria, and said it could act to prevent a possible "act of genocide" against displaced minority communities.

European stocks opened considerably lower on the news, with the FTSE 100 reaching its lowest level in almost four months in early trade before stocks were lifted off their worst level in the afternoon as US futures markets managed to turn around from pointing much lower to result in a slightly higher open on Wall Street.

The FTSE 100 ended the day down 0.5% at 6,567.36, while the FTSE 250 managed to recover its losses to close just fractionally higher at 15,243.38, and the AIM All-Share closed down 0.1% at 749.39.

Within major European markets, the French CAC 40 closed down 0.1%, and the German DAX 30 closed down 0.3%.

After the European market close stocks in the US are pushing a little higher, with the DJIA up 0.4%, the S&P 500 up 0.4%, and the Nasdaq Composite up 0.3%.

The fresh US military action in Iraq is the latest issue on a growing list of global problems that has weighed on investor sentiment this week and caused the FTSE 100 to lose almost 2.0% since Monday.

Tensions between Russia, Ukraine and western governments remain on a knife-edge; the World Health Organisation has declared an Ebola outbreak an international emergency, and the trading of rockets and bombs between Hamas and Israel resumed Friday, immediately after a 72-hour ceasefire ended without resolution.

While geopolitical issues have stolen most of the headlines in a week relatively light on economic data. Numbers that have been released were also disappointing, with Italy slipping into a triple-dip recession, and PMI data across the eurozone coming in a little light of expectations.

As European Central Bank President Mario Draghi pointed out after the policy meeting on Thursday, the recent trend has been for the hard data that follows the PMI's to be lower than the leading indicators, which is particularly concerning considering the effect that the sanctions on Russia appear to be having in Europe.

"If geopolitical risks materialise it will of course result in lower third and fourth quarter growth," said Draghi at the press conference that followed Thursday's policy meeting.

It was only a month ago that the German DAX was making an all time high above 10,000 points. The German market has now lost more than 10% since that peak, closing 0.3% lower Friday alone at 9,009.32 points.

Safe-haven demand pushed the gold price up overnight to its highest level in three weeks of USD1,322.69 per ounce. The precious metal has softened since then and at the time of the equity market close is broadly flat on the day at USD1,3110.50 per ounce.

Similarly, concerns over supply disruption in the oil market sent the price of Brent Oil up to a weekly high of USD106.82 per barrel, but it has since slipped back to USD104.73.

Oil producer Afren ended the day down just 1.3% despite opening significantly lower after making the decision to suspend operations at the Barda Rash field in the Kurdistan region of northern Iraq, although it has said it doesn't expect a significant hit to its cash flow. Gulf Keystone Petroleum, which also operates in the area, ended down 1.1%, whileGenel Energy ended down 2.3% despite saying its own operations in the region have been unaffected by the unrest in the region.

The mining stocks provided the main support to the London market on the back of firmer precious metal pricing. Fresnillo ended at the top of the FTSE 100, up 3.2%. Centamin closed up 0.8%, andAfrican Barrick Gold gained 1.3%.

Amid a much quieter day of corporate updates, Catlin Group was amongst the biggest gainers in the FTSE 250, closing up 4.3% after the insurer said its first-half pretax profit more than doubled to USD318.0 million in the first-half, up from USD145.0 million in the previous year, boosted by an improved underwriting performance.

Dixons Carphone has fallen for for the second time in as many days since its new listing. The new electronics retail giant fell ended at the bottom of the FTSE 250 Friday, down 4.9%.

The calendars look relatively light on Monday, with interim results due from Huntsworth, SVG Capital, and Synthomer, and very little economic data.

Chinese CPI data is due to be released over the weekend, however, while any further developments in the geopolitical situations that have been driving markets recently will of course be closely monitored.

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Source: Alliance News

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