Pz Cussons Share News (PZC)

LONDON (Alliance News) - Stock markets across the UK and Europe closed lower Wednesday after a warning about the strength of the global economic recovery, with airline stocks leading the falls after a profit warning from Germany's Lufthansa and a major aircraft order cancellation by Emirates sent shock-waves through the sector.

Equities got off to a poor start after the World Bank late Tuesday downgraded it's global growth forecasts for 2014 to 2.8%, from the 3.2% growth it previously estimated. The bank said global economic growth in 2014 is likely to be weaker than expected, due to poor weather in the US, financial market turbulence, and the Ukraine crisis.

"Markets in Europe didn’t take too well the World Bank’s latest growth forecasts, trading in the red for most of the day," said CMC Markets market analyst Jasper Lawler.

The FTSE 100 had traded in a tight range amid low volumes Monday and Tuesday, but closed Wednesday 0.5% lower at 6,838.87. The FTSE 250 closed down 0.8% at 16,087.63, and the AIM All-Share closed down 0.5% at 799.42.

In Europe, the German DAX closed down 0.8% and the French CAC 40 closed down 0.9%, while on Wall Street, the DJIA was down 0.6% and the S&P 500 down 0.4% when the European markets closed.

Airlines were amongst the worst performing stocks across Europe, with International Consolidated Airlines Group, owner of British Airways and Spanish airlines Iberia and Vueling, closing down 3.1%, Easyjet down 4.0%, and Ireland's Ryanair down 1.9%.

German flag carrier Deutsche Lufthansa said it will no longer achieve its 2014 and 2015 operating targets, warning that it was having to reduce prices on European and US routes due to weak demand, and it had also been hit by a recent pilots strike. Lufthansa shares closed down almost 15% in Frankfurt.

Adding to airline woes Wednesday, Dubai-based Emirates decided to cancel an order of 70 A350 XWB aircraft from Airbus Group after reviewing its fleet requirements.

Rolls-Royce Holdings, which was due to provide the engines the cancelled Emirates planes, ended as one of the heaviest FTSE 100 fallers, down 2.8%, while GKN, which makes parts for Airbus planes, was down 1.1%. Rolls-Royce said the cancellation has knocked about 3.5%, or GBP2.6 billion, off its order book.

While stocks across Europe were falling, the pound put in a strong performance after UK unemployment fell to its lowest level since 2009.

Unemployment in the UK dropped by 27,400 in April, after falling by 28,400 in March, beating economists' expectations of a 25,000 fall. The headline three-month rolling average unemployment rate dropped to 6.6%, from 6.8%, beating expectations for a drop to 6.7%.

With the UK economy continuing to outperform while the European Central Bank is forced to introduce negative interest rates to boost its struggling economy, the pound peaked at an 18-month high against the euro Wednesday at EUR1.2413. Sterling also gained against the dollar Wednesday, reaching a session high of USD1.6797.

However, with the UK central bank now looking at a broad range of indicators as a trigger for potential interest rate increases, average earnings data, released at the same time as the unemployment numbers, were less positive, keeping a lid on sterling's gains. Average earnings growth has almost reached the the same level as inflation in recent months, creating excitement about the return of real wage growth. However, earnings growth slipped back to 0.9% in the three months to April, well below current UK CPI of 1.8%.

"Unemployment may be falling but this is largely being driven by a boom in the self-employed and isn’t being matched by a corresponding boost in pay packets," said UFXMarkets Managing Director Dennis de Jong. "We might not be in the same bleak position as the slumbering Eurozone but with average weekly earnings (growth) half the CPI inflation rate there is still a long way to go before workers notice any day-to-day improvement to their standard of living."

Shore Capital investment Strategist Gerard Lane said that the data reaffirms that the UK economic recovery is "job rich, pay poor" and "we suggest that this will aid the maintenance of a low inflation backdrop".

J Sainsbury outperformed the falling market Wednesday, leading the FTSE 100 gainers in early trade and closing up 1.2%, despite reporting a drop in like-for-like sales. The UK's third largest supermarket chain reported a 1.1% decline in like-for-like sales including VAT but excluding fuel for the 12 weeks to June 7, its second consecutive quarterly decline after nine years of unbroken sales growth.

"Even though the loss is bad news, some analysts were expecting worse, and Sainsbury’s forecast they’d outperform supermarket peers this year," said CMC Markets market analyst Jasper Lawler. "There does seem to be a general perception that they’re doing better than Tesco and Morrisons to fight off the discounters."

A number of big UK equity names going ex-dividend Wednesday also weighed on indices. Vodafone closed down 4.6% after going ex a 0.0747p full year dividend, while Johnson Matthey closed down 1.3% after going ex a 0.455 pence full-year payment.

Quindell, the AIM-listed provider of software and consultancy services, dropped 20% Wednesday after saying it won't be able to move to the London Stock Exchange's main market for the time being because it hasn't been able to satisfy some of the rules of a premium listing on that market.

Quindell saw its shares fall sharply back in April after Gotham City Research LLC said it was unable to reconcile between 42% and 80% of Quindell's profits. The stock, which is currently the seventh biggest by market capitalisation on AIM, now trades roughly 70% lower than it did less than three months ago, even though Quindell has rejected Gotham City's allegations, started legal action against it, and raised doubts about its motives after saying Gotham took a short position on Quindell before publishing its research.

Smaller oil and gas companies operating in Iraq were hit hard after Islamist insurgents in Iraq seized the city of Tikrit, their second major gain after capturing Mosul on Tuesday, the BBC quoted security officials as saying. The insurgents are from the Islamic State of Iraq and the Levant, the BBC said. Genel Energy closed down 5.8%, Gulf Keystone Petroleum more than 10%, and Afren down 4.4%. All three operate in Kurdish-run provinces north of the affected cities.

Looking ahead to Thursday's UK corporate calendar, full year results are due from Volex, WS Atkins, Halma, Mulberry Group, PZ Cussons, Hardy Oil & Gas, boohoo.com, and Pets At Home Group.

There's no UK data scheduled in the economic calendar Thursday. The morning focus will be on data from Europe, with French consumer price inflation data due ahead of the equity market open, and eurozone industrial production data due at 1000 BST.

US weekly initial jobless claims and retail sales data will provide the main afternoon economic focus.

By Jon Darby; jondarby@alliancenews.com; @jondarby100

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