Stocks Down As Attention Turns To Brexit Speech

Stocks in London ended lower on Thursday as investors digested the outcome of the US Federal Reserve decision to start unwinding its large balance sheet, with focus switching to UK Prime Minister's Theresa May's upcoming Brexit speech on Friday.

The FTSE 100 index closed down 0.1%, or 8.05 points at 7,263.90. The FTSE 250 ended down 0.6%, or 122.44 points, at 19,418.33, and the AIM All-Share closed down 0.2%, or 1.57 points, at 991.73.

The BATS UK 100 ended flat at 12,346.66, the BATS 250 closed down 0.6% at 17,654.42, and the BATS Small Companies also ended flat at 12,098.14.

"The British market is lagging its Continental equivalents as the latter managed to hold onto their gains and build on them. The bullish sentiment that sprung up on the back of the Federal Reserve's announcement last night has triggered a broad spate of buying in Europe," said CMC Markets analyst David Madden.

The Fed late Wednesday said it will allow its holdings of bonds to begin shrinking in October, as widely expected, marking the gradual winding down of a programme initiated to spur the economy during the 2008 financial crisis.

The reduction will start in October at USD10 billion a month, with the pace increasing to USD50 billion a month by October 2018, under a plan issued by the Fed in June.

The central bank left its benchmark interest rate unchanged at a target range of 1.00% to 1.25%, but the so-called 'dot plot' showed most Fed members expect another hike of 0.25% in the key interest rate before the end of 2017, followed by three further hikes next year.

The likelihood of another interest rate hike benefited banking stocks, with Barclaysclosing up 2.6%, Lloyds Banking Group closing up 2.5%, and Royal Bank of Scotland Group closing up 1.8%.

"The prospect of higher rates in the key US market, and indeed even the possibility of a modest rate rise in the UK, has prompted investors to buy up financial services stocks in hope of better margins and improved profits and dividends," said IG Group analyst Chris Beauchamp.

Following the fairly upbeat tone from the Fed's policy update, gold fell to its lowest level in September so far as investors moved away from safe-haven assets. The precious metal was quoted at USD1,292.25 an ounce at the close on Thursdayagainst USD1,311.51 at the London equities close on Wednesday.

The lower gold price sent gold miners tumbling, with Fresnillo and Randgold Resources among the worst performers, closing down 3.0% and 2.4% respectively.

The pound was slightly more resilient, quoted at USD1.3555 at the close Thursday, compared to USD1.3554 at the London equities close Wednesday.

"The GBP/USD is also making up for lost ground in the wake of last night's US dollar surge. The prospect of a rate hike from the Fed at the end of this year dented the pound yesterday, but today we are seeing a rebound in sterling. The solid upward trend the pound has been in throughout the year is still in place, so we may see some fresh buying," CMC's Madden noted.

Figures from the Office for National Statistics showed the UK budget deficit decreased to its lowest August level since 2007, public sector net borrowing excluding interventions decreasing by GBP1.3 billion to GBP5.7 billion. In the current financial year-to-date period, public sector net borrowing fell GBP200 million to GBP28.3 billion.

The Office for Budget Responsibility forecast public sector net borrowing will be GBP58.3 billion during the financial year ending March 2018.

Also on the domestic front, UK Prime Minister Theresa May chaired a special cabinet meeting on Thursday to discuss her much-anticipated speech on Brexit in Florence, Italy, on Friday, as critics said divisions in the government could make any new pledges largely symbolic.

The Prime Minister is expected to propose transitional arrangements for after Brexit takes effect in March 2019, and offer to settle EU demands for Britain's Brexit "divorce bill".

In mainland Europe, the CAC 40 in Paris ended up 0.5%, while the DAX 30 in Frankfurt ended up 0.3%.

The euro stood at USD1.1935 at the European equities close Thursday, against USD1.1994 at the same time the prior day.

In the aftermath of the events from the Fed, stocks in New York were lower at the London equities close. The DJIA was down 0.1%, the S&P 500 index down 0.2%, and the Nasdaq Composite down 0.5%.

On the London Stock Exchange, Johnson Matthey ended the trading session as the best blue-chip performer, closing up 14%, pleasing investors as it endeavoured to grab a piece of the next generation electric car market. The speciality chemicals company announced plans to make an initial investment of GBP200 million in battery material technology. This will "drive growth" in a market which it predicts could be worth more than USD30 billion once battery electric vehicles penetration increases to 10%.

Earlier this month it emerged that China, the biggest car market in the world, is planning to end production and sale of traditional fuel cars amid efforts to fight pollution, reports said, citing a Cabinet official. As an alternative, the country plans to promote development of electric car technology.

Investment in battery material technology is expected in 2018, Johnson Matthey said.

The company, which was holding its capital markets day, outlined its strategy for growth and value creation and also confirmed its guidance for the current financial year ending March 31, 2018.

The company said constant currency sales growth is expected to be around 6% year-on-year for the full year. It also said it is planning to make a further GBP50 million in savings over three years beginning in financial 2019. This is in addition to the GBP25 million in savings it announced in June.

Shares in CRH were also higher after the Irish building materials firm said it agreed to acquire US-based cement manufacturer Ash Grove Cement for a total consideration of USD3.5 billion. CRH itself has a market capitalisation of USD22.21 billion. Ash Grove operates eight cement plants across eight US states, CRH said, combined with extensive ready mixed concrete, aggregates and associated logistics assets across the US Midwest.

CRH shares closed up 2.5%.

At the other end of the large-cap index, Compass Group ended down 2.6%.

The contract catering company said Chief Executive Richard Cousins will step down from his role at the end of March 2018 and then retire from the group on September 30 after 11 years in the role. Cousins will we replaced by Dominic Blakemore, who is currently Compass Group's chief operating officer for Europe, prior to which he held the role of chief financial officer. Blakemore will become deputy CEO at the beginning of October this year, and take over as CEO on April 1, 2018.

In the FTSE 250, Kier Group ended the session as the best performer, closing up 6.3%.

The construction and property services company said it swung to a profit in its recently ended financial year as it continues to simplify its business to make its operations more efficient and create a balanced portfolio.

Kier reported a swing to a pretax profit of GBP25.8 million the year that ended June 30 from a pretax loss of GBP34.9 million a year before, thanks in part to Kier's growing position within its key markets - building, infrastructure and housing - which Kier said now represents 90% of its revenue and profit.

Revenue was in line with expectations and was up 5% to GBP4.28 billion from GBP4.08 billion the prior year, the construction group said. Kier's full-year dividend was increased 5% to 67.5p from 64.5p from last year.

IG Group Holdings closed up 4.5% after the online spreadbetting firm said it delivered record revenue in its first quarter.

IG said revenue in the three months ended August 31 rose by 21% year-on-year to GBP135.2 million from GBP111.4 million, with revenue per client up 11%. In the UK, revenue increased by 11%, while Europe, the Middle East & Africa revenue was up 31% and Asia-Pacific revenue rose by 32%.

Languishing at the bottom of the FTSE 250 was Capita, which closed down 12% as its interim profit sank and it failed to provide an update on its hunt for a new chief executive after Andy Parker's departure last week.

The outsourcer said profit fell in the first half of the year as revenue was hit by the loss of part of a major contract, and weakness in real estate and central government services, though profit rose on an underlying basis.

Underlying pretax profit rose 46% to GBP195 million from GBP134 million. However, reported pretax profit fell 26% to GBP28 million from GBP37 million. Capita said underlying revenue for the half year to June 30 slipped to GBP2.07 billion from GBP2.13 billion.

Several divisions performed below expectations, with the Digital & Software Solutions division's profit falling by 13% due to major licences ending.

Previous Chief Executive Officer Parker left the company last Friday, with Finance Director Nick Greatorex being appointed as interim CEO, combining his current role with that of interim CEO duties.

Around GBP497.0 million was slashed off Capita's total market value during Thursday's trading alone.

Brent oil was unmoved, quoted at USD56.22 a barrel at the close from USD56.20 at the same time the prior day.

The economic calendar for Friday sees services and manufacturing PMI data from France, Germany, the Eurozone, and the US at 0800 BST, 0830 BST, 0900 BST, and 1445 BST respectively.

In the UK corporate calendar are full year results from blue-chip engineering firmSmiths Group, and half year results from midcap over 50s insurer Saga.