Britain’s FTSE 100, alongside other European markets, recovered from this morning’s declines amid some upbeat economic data and as Wall Street opened higher.
Having followed Asian and US markets lower, a better than expected update on Eurozone industrial production – which rose 1.8% in December – and a decline in UK inflation back to the Bank of England’s 2% target helped European shares recover.
Added to that, a report showed US retail sales advanced more than forecast in December. Investors are now watching earnings figures from major US banks for direction.
Of London stocks, Ashmore remained down 12% (see morning report below) with other fund management firms following the emerging markets specialist lower.
The FTSE 100 closed up 0.1% at 6,766.
The British pound rose 0.4% to $1.6449 as the decline in inflation raised hopes that the Bank of England would have more leeway to keep rates at rock bottom for longer.
Global stocks fall as Ashmore leads FTSE retreat (09:58am)
A simmering New Year caution over high stock prices turned into a full-blown market rout overnight, with the largest fall in US stocks since November being followed by steep losses in Asia and Europe.
The S&P 500’s 1.3% decline was followed by a 3% slide for Japan’s Nikkei 225, as investors questioned valuations and steeled themselves for the next cut to US stimulus.
Europe was faring only slightly better, with Britain’s FTSE 100 – which hasn’t rallied quite as hard as other developed market indices over the past year – dropping just 0.5%. Not even a decline in the UK inflation rate to 2%, the lowest in four years and hitting the Bank of England's target, could provide relief for gloomy investors.
The declines on Wall Street come as Federal Reserve officials suggested that the central bank’s gradual reduction of its stimulus scheme will continue despite Friday’s mixed US jobs report. Atlanta Fed president Dennis Lockhart said he supports ‘similar tapering steps’ as December’s $10 billion reduction in QE announced by the Federal Reserve last month
‘The prospect of another reduction of stimulus at the end of this month, set against rather lofty valuations has seen investors decide to take some money off the table in a week that sees US earnings start to come in thick and fast starting with JP Morgan this afternoon,’ summed up Michael Hewson, chief market analyst at CMC Markets.
Jonathan Sudaria, a dealer at Capital Spreads, had his own take on the weakness in markets so far in 2014: ‘The markets have stalled as no new catalysts have crystallised to keep the bulls going and the double-edged sword of good economic data being bad if it leads to monetary tightening has kept other traders on the sidelines.’
Emerging markets have not experienced the gains that developed markets have enjoyed in recent years, and this was telling in a financial update from London’s biggest FTSE 250 faller on Tuesday. Ashmore (ASHM.L) shares fell 12% to 363p after the emerging markets focused asset manager reported net outflows of $3.5 billion from its funds in the last three months of 2013.
At a time when investors are muling whether to put their money back into emerging markets Ashmore chief executive Mark Coombs pointed to ‘greater clarity over US monetary policy’ that gave him ‘confidence for the year ahead’.
Even so, Ashmore shares are not cheap, reckons Numis analyst David McCann. ‘We view Ashmore as a core long-term holding, but one which we believe offers only fair value today’, he summed up.
House builder Barratt Developments (BDEV.L) failed to find traction among investors, falling 0.8% to 378p, despite reporting that total home sales grew 71% in the first six months of its financial year compared to the prior year, thanks to the government's Help to Buy scheme and growing buyer demand.
Analysts welcomed the numbers, which beat their forecasts. Gavin Jago of Shore Capital said: ‘We expect strong earnings growth over the medium term, which should lead to increasing dividend income for shareholders and maintain our buy recommendation for the shares.’
There was at least some good news for UK-based investors as the rate of inflation dropped with the consumer prices index (CPI) rising by just 2% in the year to December 2013, down from 2.1% in November.