LONDON (Alliance News) - UK shares plunged Tuesday after the latest manufacturing data from China intensified concerns about the world's second largest economy.
Revised estimates released by Caixin showed that the Chinese manufacturing sector contracted by the most in six years in August.
The manufacturing PMI eased to 47.3 in August, down from 47.8 in July but up from the flash estimate of 47.1. 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, which takes data from larger companies as well, 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 official PMI data suggest that growth momentum may have continued to weaken slightly in August," said analysts at Nomura, maintaining their forecast for real GDP growth to moderate slightly to 6.9% year-on-year in the third quarter from 7.0% in the second. "However, given signs of the soft start to [the third quarter] – the sluggish July and soft leading indicators (including PMIs and Nomura's proprietary China indices) for August – we see risks as skewed more to the downside," the analysts added.
The weak Chinese data fed into oil prices which declined after a surge over the long weekend for the London stock market. On Monday, the US Energy Information Administration in a report estimated June US crude output at 9.3 million barrels a day, a decline of 1.1% from the revised May numbers. In addition, the Wall Street Journal reported that Venezuela is pursuing a meeting with the Organization of the Petroleum Exporting Countries to discuss prospects of a production cut to prop up prices.
At the London close, Brent was at USD50.23 a barrel and West Texas Intermediate was at USD45.73 a barrel, both still off their recent six-and-a-half year lows.
The FTSE 100 closed down 3.0% at 6,058.54, the FTSE 250 closed down 1.6% at 16,840.36 and the AIM All-Share fell 0.6% to 730.67.
In mainland Europe, the French CAC 40 ended down 2.4%, as did the German DAX 30.
On Wall Street at the London close, the DJIA and the S&P 500 were both down 1.9%, and the Nasdaq Composite was down 1.6%.
Manufacturing data in the US also disappointed, with activity in the sector growing at its slowest rate since May 2013. The Institute for Supply Management said its purchasing managers index dropped to 51.1 in August from 52.7 in July, although a reading above 50 indicates continued growth in the manufacturing sector. The decrease came as a surprise to economists, who had expected the manufacturing index to inch up to a reading of 52.8.
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.
"Going forward it is set to face headwinds which could further limit its ability to regain ground," said Kallum Pickering, chief UK economist at Berenberg. "We see export weakness as a key risk to UK GDP over the near-term. Strong sterling and weak demand in China and other [emerging markets] is likely to weigh down on overseas demand for UK goods."
On the stock front, there were no gainers in the FTSE 100, with miners among the biggest decliners in the index. Glencore closed down 6.4%, having earlier fallen to a new record low, while Anglo American ended down 5.5% and BHP Billiton closed down 5.6%.
Luxury fashion retailer Burberry Group fell 4.8%, given its sales to the Chinese market, while FTSE 250 peer Jimmy Choo fell 8.5% as the worst performer in the mid-cap index. Standard Chartered, a FTSE 100 emerging markets-focused bank with a significant exposure to Asia, China and commodities, also closed down 5.0%.
Elsewhere in midcap index, Man Group ended down 2.3% after Bloomberg reported Monday that the head of its China unit has been taken into custody to assist with a police probe into market volatility. Li Yifei, the chair of Man Group's China arm, is understood to be assisting with a wider investigation into market volatility in China, meaning she is not facing any charges of wrongdoing.
Business services company Rentokil Initial said it has agreed a USD425.0 million deal to acquire US-based pest control company The Steritech Group Inc, making its North American arm its largest business as it continues to pursue growth in its pest control operations.
The deal marks a continuation of Rentokil's push to expand its pest control division, following on from the 12 bolt-on acquisitions it made for the division in the first half of 2015, including six in the US, and from the deal it announced on Friday to acquire Chicago-based Anderson Pest Solutions. The company's shares closed up 2.3%.
Restaurant Group ended up 1.2% 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 the economic calendar Wednesday, there is UK construction PMI at 0930 BST, before eurozone producer price index at 1000 BST. US ADP employment is released at 1315 BST, while nonfarm productivity and unit labour costs are both released at 1330 BST. Later in the afternoon, US factory orders are at 1500 BST and Energy Information Administration crude oil stocks is at 1530 BST.
In the corporate calendar, equipment rental company Ashtead Group provides first quarter results, technical products and services company Diploma releases a trading statement, and textile-related services provider Johnson Service Group reports half-year results.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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11 Jan 2017 09:36
