Legal & General Share News (LGEN)

LONDON (Alliance News) - UK shares closed a sluggish trading session lower on Monday, as weak manufacturing purchasing managers' index readings from the eurozone and China outweighed positive figures from the UK and US.

The FTSE 100 closed the day 0.9% lower at 6,487.97, the FTSE 250 down 0.3% at 15,453.15, and the AIM All-Share flat at 719.94.

European stocks also closed lower, with Paris's CAC 40 closing down 0.9% and Frankfurt's DAX 30 down 0.8%.

US trading was fairly mixed at the close of London trade. The DJIA was down 0.2%. The S&P 500 was flat, after having hit a record high earlier in the session. The Nasdaq Composite was up 0.3%.

Stocks across Europe had opened lower following a slight slowdown in growth of the Chinese non-manufacturing sector. The non-manufacturing business activity index decreased to 53.8 in October from 54 in September. However, the HSBC manufacturing PMI came in at 50.4 in October, confirming the flash estimate and the expectations of economists. This was slightly higher than 50.2 in September, but still showing only marginal growth.

Markit manufacturing PMI readings from European countries also disappointed. The eurozone number come in at 50.6, up from 50.3 in September, but lower than the previous flash estimate of 50.7.

Germany's manufacturing sector was confirmed to have returned to expansion in October, after briefly flirting with contraction in September, with a reading of 51.4, up from 49.9, although that was also lower than the flash estimate of 51.8. Italy slipped back into contraction with a reading of 49.0, while France actually improved to 48.5 from the flash reading of 47.3, although that leaves it still firmly in contraction.

Adding further to its woes, Italy downgraded its economic outlook sharply for 2014, citing subdued domestic demand and weaker-than-expected world trade. The statistical office Istat said Monday that the economy will shrink 0.3% this year, instead of the 0.6% expansion projected in May.

In UK, by contrast, the Markit manufacturing PMI showed an unexpected improvement, with the reading rising strongly to 53.2 in October from 51.6 in September, marking a three-month high and beating expectations for a print of 51.2.

"Weakness in the eurozone triggered by rising geopolitical tensions has slowed UK manufacturing growth from its rapid early-2014 growth pace, an effect that showed up in another fall in export orders this month, but solid domestic demand growth is keeping the economy in solid expansionary territory," said Berenberg's chief UK economist Rob Wood.

"The risk to the UK from the eurozone is not the direct impact of weak exports, which Britain could easily ride out, but rather the potential for uncertainty to infect UK domestic demand as companies perhaps put off investments," Wood added.

The story was similar in the US where the Institute for Supply Management manufacturing PMI showed an unexpected acceleration in the pace of growth in activity. The ISM index climbed to 59.0 in October from 56.6 in September. The increase came as a surprise to economists, who had expected the index to dip to 56.0.

However, the country's construction sector unexpectedly decreased in September, according to a report released by the Commerce Department on Monday, with the drop largely reflecting a notable decline in spending on public construction. The report said construction spending fell 0.4% to a seasonally adjusted annual rate of USD950.9 billion from the revised August estimate of USD955.2 billion. Economists had expected construction spending to increase by about 0.6%.

On the London Stock Exchange, it was a good day for airlines. easyJet, up 2.7%, was the best performing FTSE 100 stock, while International Consolidated Airlines Group, owner of British Airways, gained 1.4%. Both were boosted by a positive statement from peer Ryanair Holdings. The Irish airline raised its guidance for the current financial year, after reporting strong growth in profit and revenue in the first half, driven by higher passenger numbers, average fares and lower fuel costs. Ryannair shares ended 8.0% higher in London.

Banks weighed on London indices, though, with the Royal Bank of Scotland the biggest faller out of the bunch, down 2.0%. The company was downgraded by Investec to Sell from Hold, but its price target was raised to 370.00 pence from 360.00p. Investec said there are short-term selling opportunities on the stock. RBS closed the day at 380.20p.

HSBC Holdings declined 0.2% after it reported a rise in pretax profit in the third quarter, but also joined peers in reporting large provisions for UK customer redress and regulatory investigations into alleged manipulation of the foreign exchange market.

In the FTSE 250, Betfair Group performed well, up 3.3%, after the online bookmaker said revenue in the three months to October 31 rose 22% to GBP119 million, and revenue was up 13% when normalised for unusually high gross win margins. The period was boosted by an increase in customer numbers after a strong World Cup.

The economic focus before London stocks begin trade on Tuesday will be the Japanese Nomura/JMMA manufacturing PMI for October at 0135 GMT. UK construction PMI for October will be released at 0930 GMT, followed by the release of European Commission's growth forecasts at 1000 GMT.

In the afternoon, US trade balances for September and US factory orders for October, at 1330 GMT and 1500 GMT respectively, will be the highlights. The US also holds mid-term elections Tuesday, with control of the Senate at stake.

Tuesday also will be busy on the corporate front on Tuesday, with interim management statements from miner Glencore, engineering company Weir Group, water company United Utilities Group, and life pensions and investment company Legal & General.

There will also be full-year results from Associated British Foods and Imperial Tobacco Group.

By Neil Thakrar; neilthakrar@alliancenews.com

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