LONDON (Alliance News) - The early optimism from the Chinese central bank's intervention to stabilise stocks faded by midday in London Tuesday, while UK retailer Next led blue-chip decliners after a disappointing Christmas trading update.
The fashion and homeware chain traded down 5.2% after it reported a rise in sales in the year to January 2, although growth was below the bottom end of its prior guidance, and said it expects full-year profit to remain within its previously guided range.
Next said total brand sales rose 3.7% in the year to January 2, with Next Retail up 2.1% and Next Directory up 6.1%. This was below its previously guided range of between 4% and 6% growth for total sales. In the 60 days from October 26 to December 24, total brand sales grew 0.4%, as a 2% increase in Next Directory offset a 0.5% decline in Next Retail.
The company said its performance in the fourth quarter was "disappointing" due to unusually warm weather in November and December, while Next Directory was hit by poor stock availability from October onwards.
Shore Capital analysts George Mensah and Clive Black said the disappointing sales and profit performance from Next will be taken as an early indicator that trading for apparel retailers was challenging in the final quarter of 2015.
SuperGroup traded down 4.7%, Debenhams down 2.1% and Marks & Spencer Group down 0.3%.
The FTSE 100 fell after a strong open to trade down 0.1% at 6,086.66 points. The mid-cap FTSE 250 was down 0.1% at 17,107.26 and the AIM All-Share down 0.3% at 733.88.
European stocks also all gave up their early gains, with the French CAC 40 down 0.7% and the German DAX 30 down 0.8%. The DAX's losses were made despite data from the Federal Labor Agency showing German unemployment declined by more than expected in December.
The number of people out of work declined by 14,000 compared to an expected drop of 8,000. The jobless rate came in at 6.3% in December, the same as in November and matched expectations.
Wall Street was called for another lower open after heavy losses on Monday. Futures pointed the Dow 30, S&P 500 and Nasdaq 100 all down 0.7%.
The early gains in Europe came after the People's Bank of China announced a liquidity boost Tuesday to stabilise stock selling after sharp declines on Monday triggered the circuit breaker rule on the Chinese stock market.
The People's Bank of China injected CNY130 billion in its seven-day reverse repurchase operation, the biggest such injection since September.
"As in August, state-directed buying of stocks is competing with individual selling of equities, but China's latest attempt to 'buck the market' is likely to end as well as its efforts last year," said Chris Beauchamp, senior market analyst at IG.
Chinese authorities introduced the circuit breaker rule, which came in effect on Monday, after sharp moves in Chinese stocks in the summer of 2015 sent tremors around the world.
Meanwhile, the pound benefited temporarily after survey data from Markit showed the UK's construction sector strengthened by more than expected in December.
The Chartered Institute of Procurement & Supply/Markit Purchasing Managers' Index rose to 57.8 in December from a seven-month low of 55.3 in November, beating forecasts of a rise to 56. A score above 50 indicates expansion.
The pound briefly rose against the dollar after the data, but went on to continue its downward trend, reaching a new eight and a half month low of USD1.4658.
Elsewhere in the FTSE 100, Aberdeen Asset Management traded down 3.8% after Barclays cut the emerging markets-focused asset manager to Underweight from Equal Weight, claiming concerns about the company go beyond a simple macroeconomic call on weak investor sentiment toward emerging markets.
Barclays said it holds concerns about equity performance, the challenging outlook for investment flows, and "poor" dividend cover.
The bank said other areas exposed to potential outflows include Aberdeen's underperforming global equities desk, high yield in fixed income, the life book of the Scottish Widows Investment Partnership business acquired from Lloyds Banking Group in April 2014, and the multi-asset area of its Solutions arm.
Tesco was up 1.7% after Deutsche Bank upgraded the supermarket to Buy from Hold following a recent fall in its share price and on confidence it will be able to outpace its rivals on margin progression despite its lacklustre like-for-like sales performance. Despite a disappointing top-line, Deutsche said Tesco has the strongest valuation support among the UK supermarkets.
Royal Mail, up 1.5%, also was benefiting from a broker upgrade. Cantor Fitzgerald upgraded the postal operator to Buy from Hold, arguing that markets have underestimated the strength and value of the group's brand and network and have overstated concerns about its wage negotiations, future pension costs and regulatory risks.
Royal Mail currently trades at 10.5 times 2016 earnings estimates, compared to 15.1 times for the wider mail and logistics sector. Though the business faces challenges in the next couple of years, it looks better prepared to meet these than before, analyst Robin Byde said, and the benefits of its established brand and networks are not fully appreciated.
Still ahead in the economic calendar, US Redbook index is at 1355 GMT, and the ISM New York index is at 1445 GMT.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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14 Jul 2016 11:23
