LONDON (Alliance News) - Stock prices in London were broadly lower midday Tuesday with China again at the heart of a dive in global equities after weak economic data, while the pound was hit by a worse-than-expected UK manufacturing purchasing managers' index score.
The FTSE 100 index was down 2.1% at 6,114.19, the FTSE 250 was down 1.2% at 16,907.51, and the AIM All-Share was down 0.3% at 732.37.
In Europe, the CAC 40 in Paris was down 2.0% and the DAX 30 in Frankfurt was down 2.4%.
US index futures also were significantly lower. The Dow Jones Industrial Average was pointed down 2.0%, the S&P 500 down 2.1% and the Nasdaq 100 down 2.2%.
With London closed for a bank holiday on Monday, Wall Street declined in the wake of US Federal Reserve Vice Chairman Stanley Fischer's comments at the Jackson Hole symposium in Wyoming. On Saturday, the Fischer left the door open to a US interest rate hike in September, at a time when most analysts had started to believe that a change in the US monetary policy would be delayed until later in the year as a consequence of concerns about economic growth in China.
Fischer said the Fed should not wait until US inflation reaches its 2% goal to begin increasing rates. He added that here were good indications that inflation would rise. However, he also said US central bankers were looking at the international situation, particularly developments in China, as they consider their next move.
"We need to consider the overall state of the US economy as well as the influence of foreign economies on the US economy as we reach our judgement on whether and how to change monetary policy," he said.
On Tuesday the focus was again on China, after the country's manufacturing sector contracted at a faster rate in August, according to the latest survey from Caixin, as its PMI hit a six-year low reading of 47.3.
That's higher than the flash estimate of 47.1, but it's down sharply from 47.8 in July. It moves further beneath the line of 50 that separates expansion from contraction. Caixin also said its services PMI sank to 51.5 from 53.8 in July, while its composite index fell to 48.8 from 50.2.
Meanwhile, the NBS manufacturing PMI, released by the China Federation of Logistics and Purchasing, fell into contraction for the first time since February. The index fell to 49.7 in August, which was in-line with consensus but down from 50.0 seen in July.
"The importance of today's announcement is that the slowdown is hitting the larger state-backed firms who typically take longer to feel the pain than the SME's covered by the Caixin measure, which has been in contraction since February," said Joshua Mahony, market analyst at IG.
In the UK, manufacturing expansion slowed in August, defying expectations for a modest improvement, according to survey figures from the Chartered Institute of Procurement & Supply and Markit Economics.
The PMI fell to 51.5 from 51.9 in July. Economists had expected a score of 52. The latest UK figure was also well below the 54.2 average of the current near two-and-a-half year sequence of expansion, the survey said.
Growth was subdued as the continued strength of the UK consumer goods sector was again offset by lackluster output growth at intermediate goods producers and the ongoing downturn in the capital goods industry, the survey noted.
Export orders dropped for a fifth straight month, and companies attributed this to the sterling exchange rate, weak sales performance to the Eurozone, and the slowdown in China.
"Lackluster manufacturing activity is worrying for hopes that UK growth can become more balanced and less dependent on the services sector and consumer spending," IHS Global Insight economist Howard Archer said.
Markit Economist Rob Dobson added: "The sector looks unlikely to make much of a contribution to the solid gain in broader GDP growth expected for the third quarter."
Eurozone factory expansion slowed marginally in August, while the pace was estimated to have remained unchanged earlier, final data from Markit Economics showed. The PMI for the manufacturing sector dropped to 52.3 from 52.4 in July. In the preliminary report, released earlier, the PMI score was shown to have held steady at the previous month's level.
On the London Stock Exchange, Meggitt was the sole gainer in the FTSE 100, up 0.3%, while miners were again amongst the worst performers following the manufacturing weakness seen in China. Glencore was down 4.9%, BHP Billiton was down 4.4%, and Anglo American was down 4.3%.
That same sentiment helped send shares in luxury goods company Burberry Group lower, down 3.5%, given its sales to the Chinese market. Standard Chartered, an emerging markets-focused bank with a heavy exposure to China, also was down 3.6%.
In the FTSE 250, Rentokil Initial was up 2.2% after the business services company said it has agreed a USD425.0 million deal to acquire US-based pest control company The Steritech Group. Rentokil said the deal will strengthen its position as the third-largest pest control services provider in the US market and will make it the third-largest player in the Canadian market.
The purchase of Charlotte, North Carolina-based Steritech means Rentokil's North American operation now generated revenue of USD800 million per year and is its largest division
Restaurant Group was up 2.1% after Deutsche Bank upgraded the restaurant operator, which owns the Frankie & Benny's, Garfunkel's and Chiquito chains, to Buy from Hold. The bank said the company looks better positioned than others in the restaurant sector to cope with the margin pressures resulting from expanding estates and the UK National Living Wage.
In AIM, Arian Silver Corp was the worst performer, off 46%. The miner said the commissioning of the La Tesorera processing plant in Spain is behind schedule and will not be completed until the fourth quarter of 2014, meaning it will need to secure additional short-term funds to keep going.
Arian is in discussions with several groups about securing additional working capital after the company reported a low cash balance, but the company has generated its first revenue from the plant.
African Potash, up 21%, said it has entered into a memorandum of understanding to supply over 50,000 metric tonnes of fertiliser to a Malawian company under its previously signed agreement to build a production and distribution platform for fertiliser in Africa.
The company said it will deliver its first batch of fertiliser to the unnamed company in autumn 2015, subject to a definitive agreement being signed beforehand. Its shares were up 20%.
Still ahead in the economic calendar, the US Redbook index is due at 1355 BST, while the Markit manufacturing PMI for the US is at 1445 BST. The US ISM manufacturing PMI and US construction spending are both due at 1500 BST.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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14 Sep 2015 15:33
