Fidelity China Special Situations PLC Share News (FCSS)

LONDON (Alliance News) - The FTSE 100 ended lower for a sixth consecutive session Tuesday, dragged down by mining stocks, while the pound rose sharply against other major currencies after better-than-expected UK inflation data.

The blue-chip index ended down 0.4% at 6,526.29. However, the mid-cap FTSE 250 closed up 0.1% at 17,616.94, and the AIM All-Share also finished up 0.1% at 751.18.

European major indices closed lower, with the CAC 40 in Paris and the DAX 30 in Frankfurt both down 0.2%.

The pound spiked against other major currencies after UK inflation surprised to the upside. UK consumer prices rose unexpectedly in July and core inflation reached a five-month high, data from the Office for National Statistics showed. Consumer prices advanced 0.1% in July from last year, while the index was expected to remain flat, as it did in June.

Meanwhile, consumer prices declined 0.2% month-on-month after showing no change in June. This was the first fall in six months but was slightly slower than the expected 0.3% decrease. Core inflation accelerated to a five-month high of 1.2% in July from 0.8% in June. Economists had forecast it to rise marginally to 0.9%.

The retail price index, on which next year's UK rail fares will be based, rose 1.0% year-on-year, unchanged from June.

The pound shot higher against the dollar as the rise in inflation suggested the Bank of England may raise interest rates sooner than some analysts had expected. When European equity markets closed, sterling was quoted at USD1.5659, having reached a high of USD1.5716 in earlier trade. Meanwhile, against the euro the pound was trading at EUR1.4198, after hitting a high of EUR1.4231 earlier.

The next BoE rate decision is scheduled for September 10. Before that, on Wednesday at 1900 BST, the US Federal Reserve releases the minutes from its last monetary policy meeting.

Despite some analysts saying a September interest rate hike by the Fed is now a closer call, UBS analyst Drew Matus still expects it.

"We believe the Federal Open Market Committee will announce the first Fed funds target rate increase in more than nine years at its September 16-17 meeting," Matus said. "However, the Fed funds rate increase will be only one of the interest rate levers to be pulled the day the Fed begins its rate hike cycle."

Investors are focusing on US economic indicators as the Fed has repeatedly said that any changes in US interest rates will be "data dependent". In this context, while the US Commerce Department released a report on Tuesday showing that housing starts in the US edged up to a nearly eight-year high in July, the report also showed a sharp drop in building permits.

The report said housing starts inched up by 0.2% to an annual rate of 1.206 million in July from the revised June estimate of 1.204 million. Economists had expected housing starts to climb to a rate of just 1.180 million from the 1.174 million originally reported for the previous month.

However, the Commerce Department said US building permits, an indicator of future housing demand, plunged 16% to an annual rate of 1.119 million in July after jumping to an eight-year high of 1.337 million in June. Building permits had been expected to pull back to a rate of 1.230 million from the 1.343 million originally reported for the previous month, reflecting an 8.4% decrease.

Daiwa Capital Markets analyst Michael Moran said the jump in housing starts could be viewed as a rebound from slow results in the prior two months, "but the change pushed single-family starts to their highest level of the current expansion and reinforced the upward trend that began in the second half of last year".

Meanwhile, the analyst calls the buildings permits figures "less impressive". Nevertheless, Moran blames the "unusually strong" reading in June and says the July level of permits is still compared favourably with other recent readings.

On the London Stock Exchange, mining stocks weighed on the FTSE 100 as copper prices continue to trade near six-year lows. Antofagasta was the worst blue-chip performer, down 2.6%, while BHP Billiton and Anglo American both ended down 2.4%. In the FTSE 250, Lonmin was the biggest decliner, down 7.6%, having touched a new all-time low, and Evraz closed down 4.4%.

Oil stocks also are under pressure after US benchmark West Texas Intermediate fell to a new six-and-a-half year low at USD41.41 a barrel. WTI slightly recovered afterwards and when the European stock markets closed it was at USD42.19, while Brent oil prices were still close to year-lows at USD48.56 a barrel.

Royal Dutch Shell 'A' shares closed down 1.6%, BP finished down 1.2%, and BG Group was down 1.0%.

Separately, the US government gave Shell the green light on Monday to begin exploratory oil drilling in the Arctic Ocean off Alaska. The Department of Interior earlier this year granted preliminary approval of Shell's plans, but drilling hadn't begun because a key piece of emergency equipment was not on hand.

Outside commodity-related stocks, Persimmon lost 1.5%. The FTSE 100-listed housebuilder said its pretax profit surged in the first half as it boosted margins, sold more homes and did so at higher prices, all while saying that its performance thus far in the traditionally slower summer selling season still looks robust.

However, analysts at Shore Capital, Numis and The Share Centre all said the valuation on Persimmon shares looks stretched at the moment and concerns about this appear to have trumped the robust results.

Fidelity China Special Situations ended amongst the worst mid-cap performers, down 4.5%, after a heavy fall in Asian equities. The Shanghai Composite close down 6.2%, while the Hang Seng in Hong Kong ended down 1.4%. The falls in Asian stock markets came after figures from the National Bureau of Statistics showed that home prices in majority of the Chinese cities increased in July. On a monthly basis, home prices rose 31 out of 70 cities surveyed by the government. Prices dropped in 29 cities but remained flat in 10 cities.

"Data showing a monthly rise in house prices could hamper the ability of the People’s Bank of China to cut interest rates for risk of blowing air back into a housing bubble," commented Jasper Lawler, market analyst at CMC Markets.

In the economic calendar Wednesday, the eurozone current account is due at 0900 BST. In the US, alongside the FOMC minutes, due at 1900 BST, the US consumer price index and EIA crude oil stocks are expected at 1430 BST and 1530 BST, respectively.

In the UK corporate calendar, Glencore, Admiral Group, Hikma Pharmaceuticals, Mincon Group, Inspired Energy, Hochschild Mining, and EnQuest release half-year results. Imperial Tobacco Group issues a third-quarter interim management statement.

By Daniel Ruiz; danielruiz@alliancenews.com

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