Stocks Sink Following Central Bank Minutes

 Stocks ended lower on Thursday, as the minutes from the European Central Bank's monetary policy meeting in July showed policymakers flagged the strength in the euro as a concern, following on minutes from the US Federal Reserve's meeting on Wednesday.

The FTSE 100 index fell to close down 0.6%, or 45.16 points, at 7,387.87. The FTSE 250 ended down 0.4%, or 86.16 points, at 19,773.08, and the AIM All-Share closed up 0.1%, or 0.69 point, at 1,002.32.

The BATS UK 100 ended down 0.5% at 12,565.76, the BATS 250 closed down 0.3% at 17,966.72, and the BATS Small Companies ended 0.1% lower at 12,189.08.

In mainland Europe, the CAC 40 in Paris ended down 0.6%, while the DAX 30 in Frankfurt ended 0.5% lower.

"Stocks have failed to maintain their recent ascendancy, with European and US indices under pressure in the wake of yesterday's FOMC minutes. Meanwhile, the ECB appears to be willing to cite euro strength as an issue, driving weakness across the board," said IG analyst Joshua Mahony.

ECB policymakers raised concern over the appreciation of the euro in July, the minutes from the monetary policy meeting accounts showed.

"Concerns were expressed about a possible overshooting in the repricing by financial markets, notably the foreign exchange markets, in the future," the bank said, according to minutes from the July 20 meeting. "The still favourable financing conditions could not be taken for granted and relied to a considerable extent on a continued high degree of monetary policy accommodation."

President Mario Draghi's comments at a banking forum in Portugal late June fed market expectations of an imminent tapering and sent yields and the euro soaring. Draghi and his colleagues are expected to drop any hint of a gradual withdrawal of stimulus, or tapering, in September and an actual decision in October.

The euro stood at USD1.1741 at the European equities close, up against USD1.1696 the prior day.

"Ultimately, with Draghi having talked down the euro for so many years, it is inevitable that markets will see value in the euro considering the economic resurgence that appears to be underway. For now, recent disinflation could calm the pressure on the ECB to act, yet it seems just a matter of time until we see rates, and thus the euro, rise once more," said IG's Mahony.

Meanwhile, eurozone inflation remained stable as initially estimated in July, final data from Eurostat showed. Inflation in the currency bloc held steady at 1.3% in July. The rate came in line with the flash estimate published on July 31.

Core inflation that excludes energy, food, alcohol and tobacco, rose slightly to 1.2%, as estimated, from 1.1% in June. On a monthly basis, harmonised consumer prices dropped 0.5% in July.

Inflation continues to stay well below the ECB's target of "below, but close to 2%".

The ECB minutes followed on from the US Federal Reserve's minutes from its own July meeting being published late Wednesday.

The Fed said it remains on track to unwind its USD4.5 trillion balance sheet at an "upcoming" meeting, and also expects to raise its benchmark lending rate by a quarter percentage point one more time this year despite ongoing concerns about stubbornly tame inflation.

Stocks in New York were trading lower at the London equities close. The DJIA and the S&P 500 index were both down 0.4%, and the Nasdaq Composite was trading 0.6% lower.

The Fed said industrial production in the US rose by slightly less than expected in the month of July, edging up by 0.2% in July after climbing by 0.4% in June. Economists had expected production to rise by 0.3%.

Meanwhile, the Fed of Philadelphia said manufacturing activity in the region saw a slightly slower rate of growth in the month of August. The modest decrease by the headline index was partly due to a slowdown in the pace of job growth.

The Philly Fed Index edged down to 18.9 in August from 19.5 in July, although a positive reading still indicates growth in regional manufacturing activity. The index had been expected to dip to 18.5.

"The day's data wasn't much help to the Dow; while the Philly Fed manufacturing index beat expectations, it still fell month-on-month, as did the industrial production reading," said SpreadEx analyst Connor Campbell.

"There's also the issue of Trump. While tensions with North Korea have retreated into the background, they've been replaced by the latest domestic crisis for the president," he added.

President Trump has drawn fire for not speaking out forcefully enough against white supremacists in the wake of violence at a rally in the city of Charlottesville, Virginia on Saturday that left one woman dead. Outrage swelled following a news conference on Tuesday in which he reiterated his initial response that "there's blame on both sides".

Eight members of the President's American Manufacturing Council - including the chief executives of Dow Chemical, Intel, Merck, 3M, Johnson & Johnson and United Technologies - have resigned since Sunday over the issue, while all members of the Strategic & Policy Forum agreed to quit the group Wednesday.

"Though it's hardly important when compared to the safety of people endangered by his implicit (and explicit) endorsement of far-right rhetoric, it does provide another roadblock for the elusive infrastructure and tax plans that helped propel the markets to record highs," said SpreadEx's Campbell.

"The dissolution of two business committees by Donald Trump is indicative of the fact that we are seeing the corporate world turning their back on the president in response to Charlottesville. Coming into power on a pro-business ticket where he promised to bring everyone together, we have seen zero pro-business policies implemented, and social divides widen," added IG's Mahony.

Back in the UK, data from the Office for National Statistics showed that retail sales volume grew 0.3% month-on-month in July, the same rate as logged in June. Sales were expected to rise at a slower pace of 0.2%.

On a yearly basis, retail sales volume growth slowed to 1.3% from 2.8% in June. Economists had forecast 1.4% annual growth. Excluding auto fuel, retail sales climbed 0.5% after rising 0.6% in June. This was also faster than the expected 0.1%.

The pound was quoted at USD1.2884 at the London equities close, compared to USD1.2857 at the same time on Wednesday, having spiked to an intraday high of USD1.2909 following the UK retail sales data, before falling back.

Meanwhile, UK exporters continued to log solid performance but they were concerned about economic factors. The British Chambers of Commerce's report said the BCC/DHL Trade Confidence Index fell by 2.25% in the second quarter. Nonetheless, the indicator still stands at 123.72, the third highest level on record.

In London, Kingfisher was the worst performer in the FTSE 100, down 2.5%. The DIY retailer said that the depreciation of sterling boosted total sales in the second quarter of its financial year, but also saw UK sales revert to a decline from an improved first quarter, while sales at constant currencies continued to fall.

In the second quarter to the end of July, Kingfisher said total reported sales grew by 4.0% to GBP3.15 billion year-on-year, as 17% growth in the Other International business and a 5.2% rise in France offset a 2.0% decline in the UK & Ireland.

The performance in France was an improvement on the 3.8% growth achieved in the first quarter, but the UK & Ireland result was disappointing following a 1.5% rise in the first quarter. Like-for-like sales in the UK & Ireland also reverted to a 1.0% decline in the second quarter, from a 3.5% increase the prior quarter.

Analysts were unimpressed with Kingfisher's trading update, with Investec calling the results "underwhelming" and Davy Research saying it believes the retailer will "remain under pressure" until its turnaround efforts start to pay off.

Gold miners rallied to track higher prices. An ounce of the precious metal was quoted at USD1,284.32 against USD1,273.33 on Wednesday. Blue-chips Fresnillo and Randgold Resources closed up 3.3% and 2.1%, respectively. Mid-cap Hochschild Mining ended 4.9% higher.

Brent oil was barely changed, and was quoted at USD50.67 a barrel at the close from USD50.74 at the same time Wednesday.

Johnson Matthey closed up 2.9% at 2,833.53 pence, after Bernstein raised the specialty chemicals company to Outperform from Market Perform, and raised its target price to 3,600.00p from 3,400.00p.

In the FTSE 250, Hikma Pharmaceuticals was by far the worst performer, down 7.8%, at 1,225.35 pence, after it trimmed its full-year revenue guidance for a second time as its Generics business continues to battle against tough market conditions.

The mid-cap pharmaceutical firm reported a rise in pretax profit to USD100 million in the first half of 2017 from USD83 million a year earlier, largely helped by lower general and administrative expenses, and a rise in revenue to USD895 million from USD882 million. It proposed an interim dividend of 11.0 cents, unchanged from the prior year.

Following the results, S&P Global cut Hikma's price target to 1,550.00 pence from 1,850.00p.

Hikma lowered its revenue expectations for the full year to USD2.0 billion, its second cut to guidance, having in May trimmed its forecast to a range of USD2.0 to USD2.1 billion from the USD2.2 billion it had guided with its 2016 results in March. It recorded revenue of USD1.95 billion in 2016.

This was due to lower expectations for its Generics business, after it said last week it no longer expects to have the generic version of GlaxosmithKline's chronic obstructive pulmonary disease drug Advair Diskus approved this year.

The slim corporate calendar on Friday sees mechanical and refractory engineering firm Goodwin post full-year results.

The economic calendar on Friday starts with China's house price index at 0230 BST, before attention turns to Europe, with the German producer price index at 0700 BST, EU current account at 0900 BST and EU construction data at 1000 BST. The US Baker Hughes oil rig count is due at 1800 BST.