Equity markets were on the retreat on Friday, following on from the previous session’s losses, as investors, according to most analysts, took profits from the most recent leg of the phenomenal rally seen in 2013.

 

“Volumes are below average and the selling is more a function of profit-taking after some strong window dressing into year-end than anything fundamental,” said Chris Weston at IG Markets.

 

Craig Erlam at Alpari agreed: “This just appears to be a little bit of profit taking after indices in the US ended 2013 at record highs.”

European stocks veered gently between small losses and narrow gains during morning trade. The FTSE Eurofirst 300 inched 0.1 per cent higher by mid morning, recovering from an earlier 0.2 per cent loss.

Frankfurt’s Xetra Dax climbed 0.2 per cent and London’s FTSE 100 added 0.1 per cent.

 

Hong Kong’s Hang Seng index was the worst performer in the Asia Pacific region, dropping 2.2 per cent. The Shanghai Composite lost 1.2 per cent and South Korea’s Kospi Composite fell 1.1 per cent.

The broad weakness followed a 0.9 per cent drop in the S&P 500 in the US overnight. There was no clear catalyst beyond investors taking profits after the index ended last year at a record high, having climbed 29 per cent – its biggest annual gain since 1997.

 

In Hong Kong, China-based companies performed the most poorly. The Hang Seng China Enterprises Index lost 2.6 per cent, pushing its one-month fall to 9.7 per cent.

New data showed that the rate of growth in China’s services sector dropped to their weakest point since August, consistent with the slowdown in the manufacturing sector seen earlier this week.

 

The non-manufacturing purchasing manager’s index, which fell from 56 in November to 54.6 in December, remains strongly in expansion territory, however, as any score above 50 indicates growth.

 

Profit taking was also evident in the currency markets as the trades which were most successful in 2013 were partially unwound in thin trading conditions.

Although markets in Tokyo remained closed, the dollar gave ground under the yen after climbing 22 per cent last year. The US currency fell 0.5 per cent to Y104.27.

The Australian dollar, meanwhile, which fell nearly 15 per cent against the US dollar in 2013, climbed 1 per cent to $0.8991.

 

Sterling and the euro were both about 0.1 per cent lower against the dollar at $1.6441 and $1.3652 respectively.

 

Meanwhile, US government bond prices reversed earlier losses with the yield on the 10-year Treasury down a further 1 basis point to 2.98 per cent, even after the release of encouraging US factory data.

 

The Institute for Supply Management’s index of manufacturing activity edged back to 57 last month from November’s two and-a-half year high of 57.3.

James Knightley, an economist at ING, said that, in spite of the slight dip in the headline reading, the report suggested the manufacturing sector was in good shape heading into 2014.

 

“The data also offer encouragement for a decent payrolls number next week, which will help to support market expectations that the Federal Reserve will continue to taper its asset purchases at coming Federal Open Market Committee meetings.”

Gold remained the early 2014 star of the commodities market. After losing almost 30 per cent last year, the precious metal has put on 2.2 per cent in the first two trading sessions of the new year to $1.231.71 an ounce, after hitting a two-week high of $1,238.70.

 

Source : FT

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