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LONDON (Alliance News) - UK stocks traded firmly in the red midday Wednesday, as Brent oil slumped to a new 11-year low and further concerns about the health of the Chinese economy spooked market participants.
Stocks in London had a shaky open before going into free-fall as oil prices sharply declined. The weak start came after data from China pointed to a slowdown in the growth of its service sector.
The Caixin China General Services purchasing managers' index came in at 50.2, a 17-month low and down from 51.2 in November. However, it remained above the 50.0 mark which separates expansion from contraction. The composite index recorded a score of 49.4 in December, down from 50.5 in the previous month, turning to contraction. The Caixin PMI reading of the manufacturing sector in China, published on Monday, was 48.2.
Despite the data, the Shanghai Composite index ended up 2.2% after state media said a ban on short selling of shares, due to expire on Friday, would remain in place until the China Securities Regulatory Commission implements a new policy to manage the pace of shareholder sales.
James Hughes, chief market analyst at GKFX Financial Services, said that while Chinese equities performed well, it was the Chinese currency which had taken the full brunt of investor jitters.
The yuan plunged to a five-year low against the dollar in offshore trading after the People's Bank of China set the central parity rate for yuan at CNY6.5314 per dollar, compared to Tuesday's reference rate of CNY6.5169.
"The central bank isn't being shy about its intention to lower the yuan's value and has probably been encouraged to do so at an even quicker pace after the latest weak manufacturing data," said Jasper Lawler, market analyst at CMC Markets. "The worry for Europe and the [European Central Bank] is that China and the PBOC beat them at their own game of currency devaluation to boost exports."
China-exposed stocks again dominated the worst performers in the FTSE 100. Miners BHP Billiton, down 5.7%, Anglo American, down 5.2% and Rio Tinto, down 4.8%, led fallers, while Asia-focused banks Standard Chartered and HSBC Holdings traded down 3.5% and 2.9% respectively.
The US dollar, meanwhile, continued to move higher against other major currencies as investors searched for a safe haven. The strong greenback, alongside the weaknesses seen in China, saw dollar-denominated Brent oil plunge to an 11-and-a-half year low. Brent fell to a low of USD34.81 a barrel Wednesday morning, its lowest level since July 2004.
Midcap oil-related stocks were hurt the most by the oil price decline. Premier Oil was the worst performer in the FTSE All-Share, down 17%. Oil services company Hunting was down 7.9% and AMEC Foster Wheeler was down 7.6%.
There could be further volatility in oil prices later in the afternoon, when the US Energy Information Administration releases its crude oil stocks figures at 1530 GMT.
The FTSE 100 index was down 1.6% at 6,041.38 points, the FTSE 250 down 1.4% at 16,968.28 and the AIM All-Share down 0.1% at 733.59.
In Europe, the CAC 40 in Paris was down 1.6% and the DAX 30 in Frankfurt down 1.7%. This was despite largely upbeat European services PMI readings.
The Markit services PMI for the eurozone remained unchanged at 54.2 in December, but above the preliminary reading of 53.9, while German PMI rose to 56 in December from 55.6 in November, its strongest growth since July 2014.
UK service sector growth slowed in December, survey data from Markit and the Chartered Institute of Procurement & Supply revealed. The PMI score fell slightly to 55.5 in December from 55.9 in November but remained above the long-run survey trend of 55.2.
Ahead of the open on Wall Street, US futures pointed lower. The DJIA was indicated down 1.5%, the S&P 500 down 1.6% and the Nasdaq 100 down 1.7%.
In individual stock news, Royal Mail was one of the few blue-chip gainers, up 1.3% at 443.00 pence, after again benefiting from a broker upgrade, this time by Barclays. The bank upgraded the postal service operator to Overweight from Equal Weight and hiked its price target to 575p from 440p. Cantor Fitzgerald had upgraded the postal operator to Buy from Hold on Tuesday.
Barclays said it expects a new pay deal to be negotiated by Royal Mail in the first quarter of 2016 and for the company to resolve the issues around its defined-benefit pension scheme by the second half. The bank also said it was confident the cost-cutting measures Royal Mail is taking will keep costs broadly flat, allowing any rise in revenue to feed through to the bottom line.
ARM Holdings traded down 2.9%, making it one of the worst performers in the FTSE 100. The company, which designs semiconductors that are used in Apple's iPhones, was hit by a report in Japan's Nikkei Asian Review on Tuesday, which said Apple is expected to reduce the output of iPhone 6s and 6s Plus models by around 30% in the January-March quarter compared with its original plans.
The report said inventories of the two models, which launched last September, have piled up at retailers in markets ranging from China and Japan to Europe and the US amid lackluster sales. Customers saw little improvement in performance over the previous generation, while dollar appreciation led to sharp price hikes in emerging markets.
Still ahead in the economic calendar, US ADP employment change for December is at 1315 GMT and the US trade balance at 1330 GMT. Markit services and composite PMI readings for the US are at 1445 GMT, before ISM non-manufacturing PMI at 1500 GMT, the same time as factory orders.
At 1900 GMT, after the London close, the Federal Reserve will release the minutes from its most recent monetary policy meeting in December, at which it raised interest rates for the first time since June 2006.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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3 Aug 2023 20:57