(Alliance News) - Stocks in London lagged European counterparts on Thursday amid fears over a slowdown in global growth as China inflation accelerated, adding to pressure on global consumer prices.
China's factory gate inflation jumped in August to a 13-year high, with data on Thursday showing a surge in commodity prices as the global emergence from the pandemic sees demand picking up but supplies limited.
The producer price index, which measures the cost of goods at the factory gate, rose to 9.5% last month from 9.0% in July, the National Bureau of Statistics said. The reading was above forecasts for 9.0% and is the highest since 2008, when the figure hit 10%.
The FTSE 100 index ended down 72.91 points, or 1.0%, at 7,022.62. The mid-cap FTSE 250 index closed down 48.95 points, or 0.2%, at 23,799.94. The AIM All-Share index lost 5.00 points, or 0.4%, to 1,295.66.
The Cboe UK 100 index ended down 1.1% at 698.50 The Cboe 250 ended down 0.2% at 21,577.60, and the Cboe Small Companies shed 0.5% to 15,423.60.
In mainland Europe, the CAC 40 stock index in Paris closed up 0.2% and the DAX 30 in Frankfurt closed up 0.1%.
CMC Markets analyst Michael Hewson said: "European markets started the day very much on the back foot today as concerns over the growth outlook and higher prices and wages initially weighed on valuations, with the DAX hitting its lowest levels since late July, before rebounding in the aftermath of today's ECB rate decision, which saw the central bank only modestly slow its PEPP program.
"The FTSE 100 on the other hand has shown little sign of a similar recovery off its lows, slipping towards the 7,000 level, and while it has recovered a little it is still the worst performing market in Europe today, while both the DAX and CAC40 have returned to positive territory.
"Over the past 24 hours we've seen China factory gate prices hit a 13 year high of 9.5% in August, while yesterday's Fed Beige Book survey showed that US economic activity was decelerating, raising concerns that rising prices and slower growth, will coincide with a slowing of stimulus from global central banks."
In the FTSE 100, Melrose Industries closed down 3.3%, Polymetal International down 3.2% and Avast down 0.7%. The stocks went ex-dividend meaning new buyers no longer qualify for the latest payout.
In the FTSE 250, IP Group finished as the best performer, up 5.6%, after its investee Oxford Nanopore Technologies unveiled plans to launch an initial public offering on London's Main Market.
Details of a date or issue price for the float were not provided, although last week Reuters reported that the life sciences company is eyeing to build on the GBP2.48 billion valuation it achieved during a funding round in May, citing two sources familiar with the matter.
Intellectual property-focused investor IP Group has around a 15% stake in Oxford Nanopore.
At the other end of the midcaps, easyJet ended the worst performer, down 10%, after the budget airline said it was planning to raise GBP1.2 billion in a fully underwritten rights issue from investors to bolster its finances to withstand a more prolonged downturn in the travel sector.
Alongside the issue, easyJet has secured new bank financing commitments to boost liquidity. It has agreed a new four-year senior secured revolving credit facility of USD400 million.
In addition, easyJet also said that it recently rejected an unsolicited preliminary takeover offer, saying the approach was low premium, highly conditional and undervalued the company. The unnamed bidder has since confirmed it is no longer considering a deal, the company added.
The Financial Times on Thursday reported the identity of the bidder was FTSE 250-listed peer Wizz Air Holdings, citing a person briefed on the matter. Wizz Air ended down 1.3%.
Genus closed down 7.6% after the animal genetics firm reported a rise in annual earnings, but warned it may fall short of its medium-term goals as it faces headwinds from a volatile Chinese market.
Genus noted revenue of GBP574.3 million in the year ended June 30, up 4.2% from GBP551.4 million a year earlier and 18% higher than the GBP488.5 million reported two years prior.
The company's pretax profit jumped to GBP55.8 million in the same period, rising 21% year-on-year from GBP46.3 million. But pretax profit remained 8.5% below the GBP61.0 million reported in the 2019 financial year.
However, the company warned that "recent volatility in the Chinese porcine market" - a major market for Genus - will only get worse.
Wm Morrison Supermarkets lost 0.3%. The supermarket chain posted a profit fall in its first half, juggling price pressures and tough comparatives, as it moves one step closer towards going into private hands as rival suitors look set to go to auction.
Morrisons in August accepted a GBP7.0 billion takeover offer from Clayton, Dubilier & Rice, though on Wednesday, the Bradford-based chain said it has begun talks with the Takeover Panel over the prospect of arranging an auction to resolve a bidding battle, with Softbank Group Corp-owned Fortress also interested in acquiring the company.
Morrisons said its pretax profit in six months to August 1 fell 43% to GBP82 million from GBP145 million a year earlier. Pretax profit before exceptional items and adjusted for business rates relief a year earlier was higher, however, up 42% to GBP105 million and GBP74 million. Morrisons had GBP93 million in rates relief waived in the same period a year earlier.
The company, which paid a 2.04 pence payout a year earlier, decided against a dividend due to it being under offer.
The pound was quoted at USD1.3840 at the London equities close, up sharply from USD1.3745 at the close Wednesday, reacting positively to comments from the Bank of England about the outlook for interest rates next year.
On Wednesday, BoE Governor Andrew Bailey told UK lawmakers that at its last monetary policy meeting the central bank was closer to raising interest rates than previously anticipated.
Bailey said there was a 4-4 split between members of the eight-person Monetary Policy Committee pertaining to whether the UK economy's recovery was sufficient enough to contemplate a rate hike.
The official vote tally from the August MPC meeting showed an 8-0 vote for keeping rates unchanged.
However, Bailey said while four members of the committee viewed the minimum conditions for a rate rise as having been met he said conditions were not yet sufficient.
Bailey, alongside fellow rate-setters Ben Broadbent and Dave Ramsden all told the UK Treasury Select Committee they believed the minimum conditions had been met for a hike.
Analysts at OFX explained: "Bank of England Governor Andrew Bailey delivered some cautiously optimistic comments yesterday, stating that he believed the minimum threshold for monetary tightening in the UK has now been successfully met and we will see interest rates pushed back up in the years to come.
"These comments may have pushed forward market expectations of an interest rate hike in the UK to middle of 2022, but the pound did very little to react. This may have been to do with other comments that Bailey made during the Monetary Policy Report Hearings, stating his fears that we are seeing a slowdown in the economic bounce back from a year of Covid-19 lockdowns, and that he is worried for the numerous companies trying to fill jobs."
The euro stood at USD1.1815 at the European equities close, unchanged from late Wednesday, in the wake of the European Central Bank's interest rate decision.
The Frankfurt-based central bank for the eurozone kept the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and negative 0.50%, respectively, as expected.
In addition, the ECB said it will keep its total pandemic emergency purchase programme envelope at EUR1.85 trillion, though it will conduct PEPP asset purchases at a "moderately lower pace".
At the subsequent press conference, ECB President Christine Lagarde said the bank's decision to slow the pace of its pandemic-emergency bond purchases does not equate to "tapering".
Channelling her inner Margaret Thatcher, Lagarde made a word play on the former UK prime minister's infamous "the lady's not for turning" phrase as she told reporters, "the lady isn't tapering".
Thatcher herself used a pun on Christopher Fry's The Lady's Not for Burning play in her speech to the Conservative Party Conference in October 1980.
Turning to its growth forecasts, the ECB sees real gross domestic product to rise 5.0% in 2021, 4.6% in 2022 and 2.1% in 2023. The 2021 forecast contrasts with the previous 4.6% growth outlook, while 2023's predicted 2.1% GDP hike is unchanged from June. However, 2022's growth prospects were cut from 4.7% previously.
The ECB also raised its inflation projections. Consumer price index inflation is now forecast to accelerate to 2.2% in 2021 and then pull back to 1.7% in 2022 and 1.5% in 2023. Eurosystem staff projections in June predicted inflation to tick up to 1.9% in 2021, ease to 1.5% in 2022 and then decline to 1.4% in 2023.
Analysts at ING commented: "Tapering in the eurozone will definitely look differently from tapering in the US. As with so many things, it will be more complicated in the eurozone. Judging from today's decisions, any hints on tapering should not be looked for in the PEPP but rather in the ECB's plan for the APP. The ECB does not deem it necessary to extend the PEPP beyond the planned March 2022, given that the ECB expects the eurozone economy to have returned to its pre-crisis level by the end of this year.
"The long-awaited acknowledgement of potentially higher inflationary pressure also implies that the PEPP will not be extended but that the APP will be increased. The moment to announce details of the rotation out of PEPP and into APP will be the December meeting... All in all, today's meeting can be best summarised as the ECB finally catching up with reality, on asset purchases and more importantly on inflation. ECB watchers can take a break in October. It's the December meeting which will be the mother of all ECB meetings."
Against the yen, the dollar was trading at JPY109.78, down from JPY110.40 late Wednesday.
Stocks in New York were higher at the London equities close after official data showed US initial jobless claims fell to a fresh post-pandemic low.
The DJIA was up 0.3%, the S&P 500 index up 0.2% and the Nasdaq Composite up 0.4%.
For the week ended September 4, figures from the US Department of Labor showed initial claims fell to 310,000 from 345,000 the week before.
As well as beating market forecasts for a more moderate decline to 335,000, the latest reading marked the lowest level for initial claims since the March 14, 2020 figure of 256,000.
Brent oil was quoted at USD72.91 a barrel at the equities close, up from USD72.35 at the close Wednesday.
Gold was quoted at USD1,791.00 an ounce at the London equities close, little changed from USD1,791.85 late Wednesday.
The economic events calendar on Friday has UK industrial production and a monthly gross domestic product reading at 0700 BST, Germany inflation data at 0700 BST and US producer prices at 1330 BST.
The UK corporate calendar on Friday has no events scheduled.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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