LONDON (Alliance News) - London main stock indices ended higher on Monday, with both the FTSE 100 and the FTSE 250 recovering from previous losses on disappointing economic data from China, helped by positive trading on Wall Street.
The blue-chip index ended up 0.2% at 6,730.19, while the mid-cap index closed up 0.5% at 17,744.66. The FTSE 100 came off a low of 6,653.65 touched in early trade, while the FTSE 250 recovered after touching a session low of 17,569.54. Meanwhile, the AIM All-Share closed up 0.1% at 753.52.
European major indices outperformed London, with the CAC 40 in Paris ending up 0.7% and the DAX 30 in Frankfurt closing up 0.9%.
When the European equity markets closed, Wall Street was higher, with the DJIA up 1.2%, the S&P 500 up 1.1% and the Nasdaq Composite up 1.0%. US stocks opened higher on expectations of further economic stimulus in China following disappointing trade and producer price data.
Chinese exports declined at a faster-than-expected pace in July, figures from the General Administration of Customs showed on Saturday. Exports decreased 8.3% year-on-year in July, reversing the 2.8% increase in the previous month. Economists had expected exports to decline 1.5%. At the same time, imports were down 8.1% in July and had been forecast to fall 8%. The trade surplus totalled USD43.03 billion, below the expected surplus of USD54.7 billion.
China's consumer prices increased at a faster rate for the second straight month in July, with inflation exceeding the consensus estimate, figures from the National Bureau of Statistics showed on Sunday. Consumer prices increased 1.6% year-on-year in July following the 1.4% rise in June. In May, prices had risen 1.2%. Economists had expected a 1.5% growth for the month.
However, producer prices fell at a steeper-than-expected pace and declined by the most in six years. In a separate report released by the agency, producer prices were reported to have contracted by 5.4% annually in July, following a 4.8% drop in the previous month.
The Shanghai Composite ended up 4.9% Monday, the biggest rise in a month on expectations the Chinese government will step in with further stimulus.
The weak economic data from China weighed on London's mining stocks. However, most of the FTSE 350 Mining Sector Index constituents did a U-turn to end higher. Fresnillo closed up 1.5%, Glencore up 1.4% and Rio Tinto up 1.8%.
Investec said there are clear signs that the current lower commodity price environment could be the "new normal" and expects miners' share prices to adjust to it. The broker noted that shares in miners have reflected further weakness in underlying commodities prices and appear set for a fifth straight year of underperformance relative to wider equity markets.
The FTSE 350 Mining Sector Index is down by about 20% year to date, still trading close to lows it hasn't seen since 2009.
Oil-related companies continue to feel the pressure from weak oil prices. Brent oil hit a new six-month low overnight of USD48.20 a barrel. It came off lows Monday, trading at USD49.55 a barrel when the European stock markets closed. At the same time, US benchmark West Texas Intermediate traded at USD44.39, having hit a five-month low at USD43.35 a barrel.
In the FTSE 100, Royal Dutch Shell 'A' was down 0.3%, and BG Group fell 0.3%. In the FTSE 250, Petrofac closed down 2.9% and Cairn Energy fell 1.4%.
Outside commodity stocks, London's banking stocks fell following a report in the Sunday Times that they are bracing themselves for potential multi-billion payouts over commissions linked to payment protection insurance. The bill for the payment protection insurance scandal has already cost banks in the UK close to GBP30 billion. The products, which were widely mis-sold to borrowers, were meant to provide cover in the event of injury or illness. It was often the case that borrowers did not need the PPI sold to them.
Barclays, HSBC Bank of HSBC Holdings, Lloyds Banking Group, and Royal Bank of Scotland Group all used their interim results to warn about potential consequences of a ruling by the UK's Supreme Court in November 2014. Lloyds was down 0.9%, HSBC shares fell 0.7%, while RBS was down 1.2%. Barclays gave back previous losses to end up 0.4%.
Joseph Dickerson, an analyst at Jefferies International, told Alliance News it seemed as though weakness in the banks' shares came on the back of the Sunday Times report.
"Several banks have highlighted this case as a further risk. It is nearly impossible to quantify the magnitude of any claims that may or may not arise," Dickerson said.
The case in question was brought by Susan Plevin over a policy sold in 2006. Plevin borrowed money and took out payment protection insurance with the insurer used by Paragon. According to the Supreme Court, 71.8% of the GBP5,780 PPI premium was taken in commission. Plevin was not told which companies were taking commission, nor how much commission was being paid. The broker retained GBP1,870 and Paragon retained GBP2,280.
The Supreme Court ruled that the non-disclosure of commissions and the identity of the recipients made Plevin's relationship with Paragon unfair under the UK's Consumer Credit Act.
Elsewhere on the London Stock Exchange, fund supermarket and stockbroker Hargreaves Lansdown closed up 1.4%. It said it has hired Chris Hill as its new chief financial officer, poaching him from FTSE 250 spread betting and contracts-for-difference company IG Group Holdings and leaving IG nursing the loss of a second key executive in a matter of weeks.
Hill is expected to take up the role at Hargreaves in March 2016, until which time Simon Cleveland will continue to act as interim chief financial officer. Cleveland took over at the end of June following the departure of Tracey Taylor, who had served as chief financial officer for six years at the end of 15 years working at the company. IG ended down 0.5%.
Motor insurer Esure Group was by far the worst performer in the FTSE 250, down 10%. The company cut is interim dividend, as it said its underlying pretax profit dropped in the first half of 2015 despite a rise in gross written premiums and in-force policies in the period. It said its underlying pretax profit, which strips out exceptional gains and costs, fell by 21% to GBP46.5 million in the six months to the end of June from GBP59.1 million a year earlier. As a result of the fall in profit, it cut interim dividend to 4.2 pence per share from 5.1p per share a year ago.
Away from the UK corporate front, Greece and its creditors may be able to conclude their talks over an EUR86 billion bailout deal for the country as early as Tuesday, reports said Monday. The process is hastened so that any deal can go to national parliaments in the euro area for approval. The Greek parliament is expected to pass any possible deal by the middle of the week, reports said citing sources.
Once approved by national parliaments, euro area finance ministers are expected to meet towards the end of the week to finalize the process. Afterwards, funds will be released to Greece to allow it to honour a payment to the European Central Bank due August 20.
In the economic calendar Tuesday, Germany and eurozone ZEW surveys of economic sentiment are due at 1000 BST. In the US, unit labor costs and nonfarm productivity are expected at 1330 BST. The REdbook index is expected at 1355 BST, while wholesale inventories at 1500 BST.
In the corporate calendar, SIG, Synthomer, Ladbrokes, Serco Group, Partnership Assurance, Hargreaves Services and Johnston Press publish half-year results. Meanwhile, Game Digital issues a trading statement, and life insurer Prudential releases half-year results at 0915 BST.
By Daniel Ruiz; danielruiz@alliancenews.com
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