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LONDON (Alliance News) - UK stock indices are lower Monday as geopolitical risk continues to weigh on sentiment, while the mining stock are providing some support for indices following comments from Chinese Premier Li Keqiang.
By mid-morning Monday, the FTSE 100 is down 0.3% at 6,759.55, the FTSE 250 is down 0.9% at 15,680.00, and the AIM All-Share is down 0.1% at 787.25.
Major European markets also are lower, with the French CAC 40 down 0.5%, and the German DAX down 0.4%.
Mining stocks are performing the best, with the FTSE 350 mining sector up 1.6% and the large cap names providing significant support to the leading index after the Chinese Premier Li Keqiang wrote an open letter in The Times newspaper indicating that further state support of the economy can be expected, propping up demand for the miners' products.
"China?s economy needs to grow at a proper rate, expected to be around 7.5 per cent this year," Li wrote. "Despite considerable downward pressure, China?s economy is moving on a steady course. We will continue to make anticipatory and moderate adjustments when necessary," the premier said.
Most of the top gainers in the FTSE 100 Monday are minings stocks, with Fresnillo leading, up 2.4%, Glencore up 2.1%, BHP Billiton up 1.8%, Anglo American up 1.7%, and Rio Tinto up 1.3%.
"Certainly the mining sector does appear to be more buoyant, on this morning?s comments from the Chinese Premier Li that the authorities would do what is necessary to hit its growth target of 7.5%," said CMC Markets chief market analyst Michael Hewson. "Talk is cheap however and whatever Chinese authorities say they still have to walk a fine line given the problems in their property sector," the analyst warns, referring to concerns that China's property sector is overheating.
The oil producers also are performing well as oil prices remain elevated give the uncertain situation in Iraq. Jihadist militants fighting the Iraqi government have Monday claimed further advances in the north of the troubled country. The Islamic State in Iraq and the Levant said it has captured the northern town of Tel Afar.
The price of Brent oil remains below its Friday peak of USD114.04 per barrel, but remains well supported, currently trading at USD112.80 per barrel. Tullow Oil, Petrofac, and BP all are gainers, up 1.1%, 1.1%, and 0.6%, respectively.
Eurozone consumer price inflation was 0.5% year-on-year in May, a number unrevised from the initial print in early June, confirming that annual price growth slowed from 0.7% in April. On a monthly basis, CPI was revised to negative 0.1% in May from a positive 0.2% reading earlier in the month.
While it's far too early for the monetary policy changes at the European Central Bank to have taken effect yet, the fact that prices are slipping further away from the ECB's target of 2.0% highlight why it was forced to become the first major central bank to introduce negative interest rates earlier this month.
The euro has lost a little ground against the pound and the euro over the morning, currently trading at USD1.3531, and GBP0.7972 respectively. Although the only piece of UK specific data has been a Rightmove house price index, which showed moderating price increases, the pound quietly rallied against the dollar to above USD1.70 earlier Monday for the first time since August 2009. The currency pair now trades a little lower at USD1.6970.
The housebuilders are generally underperforming following the tepid house price survey, which showed prices rising at just 0.1% month-on-month in June, following the 3.6% jump in May. Redrow is down 2.5%, Berkely Group is down 2.3%, and FTSE 100 listed Persimmon is down 1.8%.
Smith & Nephew is the single biggest faller in the FTSE 100, down 2.4% after appearing to have lost out on a potential takeover offer as one of the companies cited as a potential suitor announced its intention to spend its cash elsewhere. Medtronic Inc had previously been identified as a potential suitor for Smith & Nephew. However the US medial device maker agreed late Sunday to acquire smaller rival Ireland's Covidien PLC in a deal valued at about USD42.9 billion, making an offer for Smith & Nephew look unlikely at this stage.
The airline stocks are also under continued pressure, with easyJet down 1.2%, and International Consolidated Airlines down 0.3%, as sentiment within the sector remains negative. Hungarian low cost carrier Wizz Air ensured early Monday that investors remained concerned about the sector by pulling its initial public offering, citing "current market volatility" in the sector after German flag carrier Lufthansa issued a significant profit warning last week.
There's little left in the data calendar Monday, with just the NY Empire State manufacturing index at 1330 BST, and US industrial production data at 1415 BST providing interest. Industrial production is forecast to have expanded at a rate of 0.4% month-on-month in May, after having shrunk by 0.6% in April.
Ahead of the data, US futures indicate a lower open can be expected, with the DJIA and the S&P 500 both currently pointing 0.35% lower.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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