News of a big fine in the banking sector and gloomy comments from the Bank of England (BoE) weighed on UK equities on Wednesday, with London’s stock market finishing lower for the first time in six sessions.
A weak start on Wall Street was also pressuring stocks as the benchmark S&P 500 and Dow Jones indices pulled back from record highs.
The UK’s FTSE 100 closed down Wednesday after a five-day winning streak had sent the index to 6,627.4 by the end of trade on Tuesday, its highest finish since 29 September.
Meanwhile, the BoE’s Inflation Report was closely watched by investors on Wednesday, as policymakers revised down their forecasts for growth and inflation.
The Monetary Policy Committee believes that consumer-price inflation will dip below 1% within the next six months and will not return to the 2% target until the end of 2017, easing the pressure for an early rise in interest rates.
In economic data on Wednesday, the UK unemployment rate held steady at 6% in September, disappointing those looking for a drop to 5.9%. However, average weekly earnings in the three months to September rose at an annual rate of 1%, well ahead of expectations.
Low price rises should not be a reason for the BoE not to tighten policy as long as it thinks inflation is on track to move back to target. But the stars are not yet aligned – stronger wages are showing through, but so too are fears about the global recovery.
Oil prices hit a four year low, with Brent Crude slipping to $79.38 (50.42 pounds) a barrel this afternoon for the first time since September 2010. This came following news from the U.S. Energy Information Administration which reported that production rose above 9 million barrels a day in the week ended 7th November, the highest level seen since 1986. News also hit the markets that China’s industrial sector was slowing more quickly than had been expected. Oil remains under the cosh after China Industrial production data confirmed the nation’s slowdown moving into the fourth quarter of the year, intensifying questions over global demand while production is rising.
The Spanish economy remains in deflation as prices in October were 0.1% lower than they were a year ago. Elsewhere in the Eurozone, France and Germany recorded respective inflation rates of 0.5% and 0.8% last month, well below the European Central Bank’s 2% target and with German prices falling by 0.3% in October, pressure will be piling up on Mario Draghi to take further steps.
On Friday FTSE indices reversed early softness to close higher on the back of gains in retailers, while a string of oil stocks did a volte-face on earlier losses brought about by a bleak outlook for the oil price.
At the close, FTSE 100 was up 18.92 points, or 0.29%, to 6654.37. FTSE 250 rose 12.23 points, or 0.08%, to 15,644.1. Wall St was mixed despite retail and consumer confidence data showing improvement. Euro zone inflation and gross domestic product data pleased.
Author: Eytan Krips
Eytan Krips | Managing Director
Eytan, has over 20 years experience in trading financial instruments and is head of the trading desk here at KK Bullion. Eytan’s close consistent observance of the financial markets allows him to bring you the important financial news which could affect your portfolio first.