(Alliance News) - Stocks in London pulled back Tuesday, as global markets were distilling disappointing data out of Germany and the US.
Germany factory orders and US ISM services data was softer than expected, leading to a sell-off on Wall Street as investors came back from the long weekend in a sour mood.
"European markets have slumped alongside US indices, which appear to be resurfacing from their extended weekend with a largely pessimistic tone," IG's Joshua Mahony said.
The FTSE 100 closed down 64.03 points, or 0.9%, at 7,100.88 Tuesday evening. The mid-cap FTSE 250 index closed down 127.04 points, or 0.6%, at 22,895.36. The AIM All-Share index lost 0.1% at 1,264.36.
The Cboe UK 100 index closed down 1.0% at 706.00. The Cboe 250 lost 0.5% at 20,604.86, and the Cboe Small Companies ended down 0.2% at 15,559.71.
In mainland Europe, the CAC 40 in Paris gave back 0.9% while the DAX 30 in Frankfurt lost 1.0%.
According to German statistics body Destatis, new orders in manufacturing were 3.7% lower monthly in May, having risen 1.2% in April. A chunky 5% rise in new orders was expected in May, according to consensus cited by FXStreet, so the figure strikingly missed market forecasts.
The annual figure also disappointed consensus. New manufacturing orders rose 54% from May 2020, though a greater hike of 75% was expected. In April, they had risen 80% annually.
Oanda's Sophie Griffiths said: "The unexpected decline in factory orders marks the steepest since the first lockdown and highlights the uneven nature of the global economic recovery as supply-chain issues persist."
Wall Street saw a subdued open on its return from the three-day Independence Day weekend. The Dow Jones was down 1.0%, the S&P 500 down 0.6%, while the tech-heavy Nasdaq Composite was 0.1% lower.
Oanda analyst Edward Moya said: "Risk appetite is fleeing as investors return from the long holiday weekend with some jittery headlines on more crackdowns from Beijing, nervousness about the goldilocks period for stocks, and expected further hawkish notes from FOMC minutes that are due on Wednesday."
The Institute for Supply Management services PMI registered 60.1, down from May's all-time high reading of 64.0. FXStreet had predicted a slip to 63.5.
ISM services prices slipped to 79.5 in June from 80.6 in May.
The seasonally adjusted final IHS Markit US services purchasing managers' index business activity index hit 64.6 in June, down sharply from 70.4 in May and slightly below the earlier released flash estimate of 64.8.
Market consensus, according to FXStreet, predicted a 64.8 reading.
"The US service sector is still strong and while pricing pressures remain, this report does not provide any new signals that support the argument that tapering should happen sooner than early next year," Moya added.
Capital Economics said: "The drop in the ISM services index in June suggests that shortages and price increases are becoming an increasing drag on hiring and economic activity. While other forecasters have continued to raise their projections for GDP growth this year to 7% or higher - we suspect the risks to our once well-above-consensus forecast of 6.5% growth this year now lie to the downside."
Adding to the downbeat mood on Tuesday evening was the fallout from OPEC+ cancelling a meeting scheduled for Monday that was supposed to overcome an impasse over crude output levels.
Brent oil was quoted at USD74.74 a barrel on Tuesday evening, down from USD76.94 late Monday. Royal Dutch Shell 'A' shares gave back 2.1%, while the 'B' shares lost 2.0% and peer BP shed 4.2%.
The meeting "has been called off", an OPEC statement said, quoting Secretary General Mohammed Barkindo.
At stake is a proposal that would see the world's leading oil producers raise output by 400,000 barrels per day each month from August to December. But that plan risks being delayed or even failing over a further proposal to extend a deadline on capping output to the end of 2022. Holding out against the new deal is the United Arab Emirates.
Oanda's Moya said: "OPEC+ drama is the icing on the cake for the rally in crude prices that is widely supported on an improving global economic recovery. Everyone knows that the OPEC+ experiment wouldn't last forever, but this somewhat surprise move by the UAE is just a smart posturing on their behalf. It doesn't make sense just yet for the UAE to leave the cartel, but they sure are getting ready for the eventual battle for market share."
"Now that everyone expects crude prices to rise, the question is will Brent crude find resistance at USD85 or even the USD90 level. An agreement could still happen in a week or two, but that uncertainty might be enough to support another surge in oil prices. While the decision to keep output unchanged is what the current agreement says, no one should believe that OPEC+ members won't start increasing output," he added.
In London, Ocado ended up losing 4.0%, giving up strong gains seen earlier in the session, after the online grocer signed a partnership with Auchan Retail to develop Alcampo's online business in Spain.
The online grocery fulfilment business said its new partner, Auchan Retail, has operations across 13 countries and operates the Alcampo brand in Spain via a network of 310 stores with revenue totalling EUR4.5 billion in 2020.
Ocado and Alcampo will initially build a customer fulfilment centre to serve the Madrid region from 2024, with additional automated warehouses to be announced at future dates. The fee structure with Alcampo is similar to that agreed with other international Ocado Solutions partners.
Separately, Ocado said revenue for the half-year to May 30 was GBP1.32 billion, up 21% from GBP1.09 billion a year ago, while the online grocer's pretax loss slimmed to GBP23.6 million from GBP40.6 million.
Property investors were lower, with British Land and Land Securities both down 3.6%, after Jefferies cut the two stocks to Hold from Buy.
"Landsec's and British Land's cost of doing business is rising with earnings dependency on shops and decarbonising costs. We have downsized our dividend forecasts to boost earnings retentions and both stocks are demoted to Hold on reduced price targets," the bank said.
Ahead of the UK government's white paper on energy, which Jefferies expects to become law, it noted that both firms show "much weaker" energy performance data than expected. If this becomes law, then rented non-domestic buildings will have to meet minimum energy standards - but more than 70% of Landsec and British Land's portfolios fall short.
Jefferies said the real estate investment trusts risk becoming "forced developers", with the two facing possible 'greening' costs of around GBP700 million to GBP800 million, versus 2022 dividend costs of GBP209 million for Landsec and GBP147 million for British Land.
Gold was quoted at USD1,804.50 an ounce at the London close on Tuesday, up from USD1,791.50 on Monday.
Sterling was quoted at USD1.3798, soft on USD1.3851 at the London equities close on Monday. The euro traded at USD1.1829 Tuesday evening, lower than USD1.1865 late Monday.
Against the yen, the dollar was quoted at JPY110.57, down on JPY110.84.
In the economic calendar on Wednesday, there is a UK Halifax house price index and German industrial production at 0700 BST, followed by French trade balance at 0745 BST. But the headline is the release of the minutes from the most recent FOMC meeting at 1900 BST.
In the local corporate calendar, there are trading statements from pub operator JD Wetherspoon, ten-pin bowling company Ten Entertainment and miner Ferrexpo, alongside full-year results from auto insurance agency Redde Northgate.
By Paul McGowan; paulmcgowan@alliancenews.com
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