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(Alliance News) - Stocks in London ended Thursday covered in red, with a new lockdown in China and disappointing PMI prints around the world sending investors for cover.
"The runaway train of losses has rattled further down the track today, as the gloom among investors deepens," IG analyst Chris Beauchamp said. "Investor pessimism has returned with a vengeance over the past week, and fears of a recession across the globe, and not just in Europe means that a return to, and drop below, the June lows now seems likely for a host of markets."
The FTSE 100 index closed down 135.65 points, or 1.9%, at 7,148.50 on Thursday. The mid-cap FTSE 250 index ended down 570.01 points, or 3.0%, at 18,493.74. The AIM All-Share index closed down 20.71 points, or 2.4%, at 862.02.
The Cboe UK 100 index closed down 2.1% at 713.13. The Cboe 250 closed down 3.3% at 15,850.17, and the Cboe Small Companies closed down 1.3% at 13,746.86.
In mainland Europe, the CAC 40 in Paris was down 1.5% while the DAX 40 in Frankfurt was down 1.6% on Thursday.
Markets were gloomy following news around 16 million people in the Chinese city of Chengdu will be effectively under lockdown from Thursday as authorities race to snuff out a new Covid-19 outbreak.
China has stuck fast to its zero-tolerance virus strategy despite disruptions caused by the fast-spreading Omicron strain and concern that the approach is stifling its post-pandemic economic recovery.
These worries were heightened by survey data on Thursday that revealed China's factory sector unexpectedly slipped into contraction in August.
The Caixin manufacturing purchasing managers' index slipped past the no-change mark of 50.0, as the reading fell to 49.5 points in August from 50.4 in July, indicating a marginal decline. Consensus, as cited by FXStreet, had been expecting a reading of 50.2.
Closer to home, the final eurozone manufacturing purchasing managers' index for August came in at 49.6 points, down from July's 49.8. With August's reading moving further below the no-change mark of 50.0, the latest data signals a deterioration in manufacturing conditions. It also come in below the flash reading of 49.7.
In the UK, the S&P Global/Chartered Institute of Procurement & Supply manufacturing purchasing managers' index fell to 47.3 in August from 52.1 in July.
The reading, dropping dramatically to below the no-change mark of 50.0, indicates the sector tumbled into contraction territory last month. "This is the first sub-50.0 PMI reading since May 2020," said S&P Global.
However, the reading beat the even more pessimistic flash estimate of 46.0.
The pound fell to USD1.1534 on Thursday evening, down from USD1.1638 at the London equities close on Wednesday. The euro traded at USD0.0044, down from USD1.0064 late Wednesday.
In London, Glencore and Admiral, dropping 6.6% and 3.7%, were two of the biggest fallers as the stock went ex-dividend. In the midcaps, there were more ex-dividend stocks, including PageGroup, down 12%, Redde Northgate, down 8.9%, and LondonMetric, down 7.1%.
CMC Markets Michael Hewson added: "Today's losses have been broad-based, as recession fears grow, against a backdrop of central banks who are determined to raise rates at the expense of growth. with little in the way to cheer apart from the utilities sector with Centrica and SSE eking out minor gains."
Centrica added 1.0%, while SSE closed up 1.2%.
Reckitt Benckiser dropped 4.8% after saying Chief Executive Officer Laxman Narasimhan is stepping down to relocate back to the US.
He will be replaced for now by Senior Independent Director Nicandro Durante while the company "evaluates and selects" the future leadership. Durante has previous experience heading up a FTSE 100 listing, having been the boss of British American Tobacco for eight years before leaving in 2019.
In AIM, Israel-based network data processing technology provider Ethernity Networks slumped 22%.
It said a contract with an "Israeli international wireless connectivity vendor" for the provision of its Universal Edge Platform module was cancelled. Ethernity noted that the cancellation is due to customer claims of delays in product delivery, an allegation it "strongly rejects".
Ethernity said the contract was for an initial total of USD930,000, of which it has so far invoiced USD107,000 and had budget for a further USD240,000 to be invoiced and delivered in 2022.
"These amounts had been factored into the company's contracted revenue figures for 2022 and 2023 provided in the 2021 full year results, announced on April 8, and these figures are now expected to reduce commensurately as a result of the contract cancellation," it added.
The picture was not any brighter on Wall Street. The Dow Jones was down 0.5%, the S&P 500 down 1.1%, and the Nasdaq Composite lost 2.2%.
The US manufacturing sector dropped to a two year low in activity in August, but remained above neutral levels as input cost inflation was at its slowest pace since 2021, data from S&P Global showed on Thursday.
The S&P Global US manufacturing purchasing managers' index was revised higher to 51.5 points in August from a preliminary reading of 51.3, but was down from 52.2 points in July.
The latest index reading was the lowest since July 2020, and signalled muted operating conditions in the manufacturing sector.
Focus in the US now shifts to the all-important nonfarms data.
Matt Weller, global head of research at FOREX.com and City Index, said: "Last month's NFP report blew expectations out of the water, showing more than half a million jobs created - the highest in five months - and average hourly earnings rising 0.5% month-over-month.
"In the handful of weeks since that release, Federal Reserve policymakers have uniformly spoken out against the dangers of declaring the fight on inflation over, and traders have taken note, driving expectations for another 75bps interest rate increase from the central bank above 70%."
For the August NFP report, consensus expectations are for 295,000 net new jobs and average hourly earnings projected to rise by 0.4% month-over-month.
Against the yen, the dollar was quoted at JPY139.94 on Thursday, up from JPY138.75.
Brent oil was trading at USD92.53 a barrel, down sharply from USD97.05 late Wednesday. Gold was quoted at USD1,694.00 an ounce, lower than USD1,720.40 on Wednesday.
In the international economic calendar on Friday, there is German trade data at 0700 BST and eurozone producer prices at 1000 BST.
In the local corporate calendar, there is full-year results from emerging markets Ashmore Group.
By Paul McGowan; paulmcgowan@alliancenews.com
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