U.K. Stocks Drop on Yellen Rate Comments as Glaxo Slides

U.K. stocks dropped for a second day after Federal Reserve Chair Janet Yellen indicated that interest rates will rise six months after the central bank’s monthly bond purchases come to an end.

BP Plc lost 1.8 percent for the biggest drag on the FTSE 100 Index. GlaxoSmithKline Plc fell 1.6 percent after a cancer treatment failed to meet two goals in a late-stage trial. Next Plc added 2.3 percent after the clothing retailer reported annual profit that beat analysts’ estimates. Mulberry Group Plc rallied the most in four months after saying Bruno Guillon has stepped down as chief executive officer.

The FTSE 100 slipped 30.69 points, or 0.5 percent, to 6,542.44 at the close in London. The benchmark has dropped 4.7 percent from its 14-year high on Feb. 24, taking its decline so far this year to 3.1 percent, as Russia annexed Crimea after protests prompted Ukrainian President Viktor Yanukovych to flee the country. The FTSE All-Share Index also slid 0.5 percent today, while Ireland’s ISEQ Index fell 0.3 percent.

“The Fed’s shift in discourse was surprising and European markets are reacting negatively to Yellen’s hawkish comments,” said Steven Santos, a broker at X-Trade Brokers DM SA in Lisbon. “Today’s drop shows that risky assets have been supported by easy liquidity and that investors may think the market’s high valuations are no longer justified.”

Interest Rates

Yellen sought to clarify how long the central bank will wait before increasing interest rates. Asked to specify what the Fed meant by leaving rates near a record low for a “considerable time”, she said, “This is the kind of term it’s hard to define, but, you know, it probably means something on the order of around six months or that type of thing.”

Fed officials predicted that their benchmark rate will rise to 1 percent at the end of 2015 and 2.25 percent a year later, higher than they previously forecast. The central bank left the rate at 0.25 percent, where it has rested since December 2008, and said it will reduce its monthly bond purchases by $10 billion to $55 billion.

BP fell 1.8 percent to 468.3 pence, its lowest price in three months. The company submitted 31 bids, 24 of which were the highest, for leases to drill oil and natural gas in the Gulf of Mexico, said Tommy Beaudreau, director of the Interior Department’s Bureau of Ocean Energy Management. A winning bid would mark the first for BP in the area in almost two years.

Glaxo lost 1.6 percent to 1,629 pence after saying its MAGE-A3 treatment failed to help lung cancer patients live longer without the disease recurring. The pharmaceutical company had tested the drug’s effects against a placebo. Glaxo will continue to study the treatment in a smaller group of patients who may respond better to the drug because of their genetic makeup, it said in a statement.

Next Rises

Next added 2.3 percent to 6,730 pence, extending its rally this year to 23 percent. The clothing chain said underlying pretax profit rose 12 percent to 695.2 million pounds ($1.1 billion) in the year ending January, more than the 694 million-pound average of analyst estimates compiled by Bloomberg.

Mulberry jumped 5.3 percent to 670 pence, paring its decline in 2014 to 30 percent. Guillon left the maker of Bayswater handbags with immediate effect after two years in which it has lost two-thirds of its market capitalization. Former CEO Godfrey Davis will become executive chairman until Mulberry finds a replacement, it said in a statement.

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