LONDON (Alliance News) - Weak Chinese import data continued to weigh on UK stocks midday Tuesday, pulling down the FTSE 100 despite a sharp rise in the share price of SABMiller, which agreed to a GBP71.28 billion takeover offer from Belgian-American beer giant Anheuser-Busch InBev.
The FTSE 100 index traded down 0.8% at 6,321.53, the FTSE 250 was down 0.4% at 16,918.32 and the AIM All-Share was down 0.3% at 732.60.
Without the same M&A boost, European stocks were performing even worse than London, with the CAC 40 in Paris down 1.4% and the DAX 30 in Frankfurt down 1.1%.
US futures point to a lower open on Wall Street, with the Dow 30 index expected to open down 0.4%, the S&P 500 down 0.5% and the Nasdaq 100 down 0.6%. US earnings season continues to pick up pace, with JPMorgan Chase reporting third quarter results along with health care company Johnson & Johnson and semiconductor manufacturer Intel.
Stocks in London were pinned into negative territory after China reported that imports plunged due to a drop in commodity prices and subdued domestic demand. At the same time, exports declined at a moderate pace in September as the devaluation of yuan kept exports from falling sharply amid weak global demand.
On a yearly basis, imports logged a sharp 17.7% contraction in yuan-denominated terms after falling 13.8% a month ago, the General Administration of Customs reported. This was the eleventh straight annual decline in imports. Imports were expected to decline 15%.
Meanwhile, exports slid 1.1% in September, compared to a 5.5% decline seen in August. Economists had forecast exports to drop at a faster pace of 6.3%.
The trade surplus totalled USD60.34 billion, bigger than a USD48.2 billion surplus expected by economists.
"Overall, the trade data point to a mild improvement in external demand and weak domestic investment demand, with some distortion arising from exchange rate changes and last September’s FX inflows," explained analysts at Nomura, who maintained their forecast for 6.7% year-on-year growth in Chinese third quarter GDP, which is released next Monday. The Chinese government aims to achieve 7% annual growth, so further stimulus seems likely.
"Given the dim growth outlook, we expect moderate fiscal stimulus and continued monetary easing, with one 50bp reserve requirement ratio (RRR) cut in Q4" by the Chinese central bank, Nomura added.
Mining stocks in London were worst hit by the news, with China being the world's biggest consumer of metals. Glencore traded down 4.9%, Anglo American was down 2.9% and BHP Billiton was down 2.1%.
In domestic economic news, UK inflation turned negative again in September, causing more doubt about the likelihood of a interest rate hike by the Bank of England.
Data from the Office for National Statistics showed that consumer prices dropped 0.1% year-on-year in September, after staying flat in August. Economists had expected prices to remain flat. Consumer prices last declined in April, when they declined 0.1%. On a monthly basis, consumer prices slid 0.1%, confounding expectations for a flat change.
Core inflation that excludes energy, food, alcoholic beverages and tobacco, remained unchanged at 1% in September, having been expected to rise to 1.1%.
Craig Erlam, senior market analyst at Oanda, said that while the reading is in-line with the Bank of England's recent analysis which warned that inflation will remain below 1% until Spring next year, investors continue to peg back their UK interest rate hike expectations.
"I remain unconvinced that the BoE will wait that long to raise rates, especially if wage growth continues to rise at the pace it has been this year. The argument remains that raising later and faster poses a greater threat than earlier and slower. If wage growth eases, there may be more reason to hold," Erlam added.
Meanwhile in Germany, economic confidence dropped to a one-year low in October, survey data from the Mannheim-based Centre for European Economic Research or ZEW showed.
The investor confidence index fell to 1.9 in October from 12.1 in September. This was the lowest score since October 2014, when it stood at -3.6.
At the same time, current assessment deteriorated in October. The corresponding index fell to 55.2 from 67.5 in September. The reading was the lowest since March 2015, when the score was 55.1.
"The exhaust gas scandal of Volkswagen and the weak growth of emerging markets has dampened economic outlook for Germany," said ZEW President Clemens Fuest. "However, the performance of the domestic economy is still good and the Euro area economy continues to recover. This makes it rather unlikely that the German economy will slide into recession."
On the London Stock Exchange, SABMiller shares were up 9.0% to 3,948.50 pence after it finally agreed to an improved takeover offer by AB InBev.
AB InBev lifted its offer to GBP44 per share, and its smaller rival said it will be willing to recommend a bid at that price to its shareholders. The previous offer valued Anglo-South African brewer at GBP43.50 per share.
A formal offer at the recommended price would value SABMiller at GBP71.28 billion, with the combination of the two companies to create a global beer giant with a roughly GBP280 billion market cap. AB InBev now has until 1700 BST on October 28 to decide whether to make an firm offer or walk away.
In the event of an offer, AB InBev would agree to a "best efforts" commitment to secure regulatory approvals required for the deal to go through. A USD3 billion break fee would be paid to SABMiller in the event that an agreed deal fell through due to a failure to obtain regulatory clearances or the approval of AB InBev shareholders.
Royal Mail was the worst performer in the FTSE 100, down 5.8% to 445.00 pence after the UK government said it has sold the majority of its 14% stake in Royal Mail for around GBP591.0 million under an accelerated bookbuilding process announced the previous day.
The government sold a 13% stake in Royal Mail, comprising around 130.0 million shares, at a placing price of 455.0 pence per share. The remaining 1% stake, equivalent to about 10.0 million shares, will be "gifted" to Royal Mail employees in the UK, marking the government's final disposal of shares.
Barclays traded down 2.9%, making it one of the biggest blue-chip fallers. The bank reportedly plans to name JPMorgan investment banker Jes Staley as its new chief executive, with confirmation to come in the next two weeks depending on regulatory approval.
Such a move would put a high profile investment banker in charge at a time when there are big questions about the role of Barclays' investment banking division. Under the ousted Antony Jenkins, a retail banker, Barclays had set about reducing its overall reliance on the division as a source of earnings.
Bellway was one of the best midcap performers, up 3.6%. The housebuilder said it should be able to grow volumes by up to 10% in its current financial year, as it reported a 44% jump in pretax profit to GBP354.2 million in the year ended July 31 and raised its dividend to 77.0 pence from 52.0p.
In the AIM All-Share index, audio-visual products company Mediazest said it has secured new business worth a cumulative GBP1.0 million since announcing full-year results in August. It also had won new clients including Diesel SpA, Molson Coors Brewing and the John Lewis Partnership, and signed new business with existing clients, such as Hyundai Motor, Adidas and the Post Office. The company's shares were up 28%.
Meanwhile, Auhua Clean Energy traded down 17% after Chairman David Sumner resigned due to "increasing demands on his time from his other business commitments". Raphael Tham has assumed the role of non-executive chairman. Tham was previously vice-chairman.
Still ahead in the economic calendar, US Redbook index is due at 1355 BST while after the close of the London equity market, US monthly budget statement is at 1900 BST.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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24 Mar 2016 18:42
