VEC.L Share News (VEC)

LONDON (Alliance News) - Stocks were unable to unshackle their China chains Friday despite strong US jobs growth, after what was a difficult opening week to 2016.

Steep falls in the Chinese stock market and the devaluation of the yuan caused havoc for global stocks across this week, although conditions became less stormy on Friday. In London, the FTSE 100 closed the day down 0.7% at 5,912.44, despite an early boost after China ended the tumultuous week with relative calm, meaning the blue-chip index saw a weekly loss of 5.3%.

The FTSE 250 mid-cap index closed down 0.4% at 16,732.66 and the AIM All-Share ended down 0.1% at 725.62. In Europe, the CAC 40 in Paris ended down 1.6%, and shed 6.5% over the course of the week. The DAX 30 in Frankfurt ended down 1.3% on Friday and down 8.3% on the week.

The relative calm seen in China at the end of the week contrasted with losses back on Monday, which followed weak economic data and concerns about a planned end to a ban on major shareholders selling stock, wiping 7% from the Shanghai market before trading was halted by the country's newly introduced circuit breaker rule. The rule was brought in after the stock market rout in China in summer 2015 sent shockwaves around the world.

On Tuesday, the People's Bank of China moved to restore some stability to the market by injecting CNY130 billion in its seven-day reverse repurchase operation, the biggest such injection since September. Stocks in China were supported Wednesday after state media said the ban on major shareholders selling their stock would remain in place until the China Securities Regulatory Commission implements a new policy to manage the pace of shareholder sales.

However, equities in Europe and the US remained under pressure as the Chinese central bank continued to devalue the yuan against the dollar. Some market participants saw this as an escalation to a currency war, with China moving to make its exports more competitive at a time when the dollar is ascending as US interest rates rise.

On Friday, however, the PBoC helped stocks in Europe get off to a solid start by raising its guidance rate for the yuan for the first time in nine trading days. Reuters reported the PBoC set its daily midpoint rate for the yuan at 6.5636 per dollar prior to the market open. The rate was set at 6.5646 to the dollar on Thursday, compared to 6.5314 on Wednesday.

That helped the Shanghai Composite to close up 2.3% on Friday, but the index ended down 11% on the week.

In addition, late on Thursday, the China Securities Regulatory Commission said the circuit breaker system would be halted starting Friday because it had produced "more negative impact than positive effects". The commission did not say how long the suspension would remain in place. It said it will undertake research and solicit opinions to improve the system.

This came after a second activation of the circuit breaker on Thursday, following just 30 minutes trade on the Chinese stock market.

Despite the hysteria on the markets, Nigel Green, Chief Executive at independent financial consultancy deVere Group, believes China's "seesawing stock market" need to be put in perspective.

"Global investors shouldn't be focusing so intently on the Chinese stock market, as the direct international effect of falling share prices in China is minimal," Green said. "Instead, they should be focusing on the Chinese economy, which is the world's second largest. It's the Chinese economy that ultimately affects the world markets and the world economy."

Green believes the devaluation of the yuan is a necessary step in China's effort to transition from an export-led economy to one driven by consumption and services. The devaluation will boost China's exports, helping its international trading partners, thereby supporting the global economy, he added.

On Wall Street at the US close, the DJIA, S&P 500 and Nasdaq Composite were all down 0.3%.

US indices received an early boost by a strong US jobs report, which showed employment increase by much more than expected in December, according to a report by the Labor Department.

The Labor Department said non-farm payroll employment climbed by 292,000 jobs in December compared to economist estimates for an increase of about 200,000 jobs. The report also said employment in October and November increased by an upwardly revised 307,000 jobs and 252,000 jobs, respectively, reflecting a combined upward revision of 50,000 jobs. The unemployment rate stayed at 5.0%.

The stronger-than-expected job growth in December was led by gains in professional and business services, construction, health care, and food services and drinking places.

However, average hourly earnings disappointed, coming in flat month-on-month versus the consensus estimate of a 0.2% rise.

"The fear now is that such good numbers, even with inflation worries, will encourage the Fed to continue with its planned four hikes this year, putting fresh pressure on equity markets," said Chris Beauchamp, senior market analyst at IG.

The dollar rose following the solid numbers. At the London close, the pound traded the greenback at USD1.4531, compared to the Thursday close price of USD1.4563. The euro was quoted at USD1.0909, higher than Thursday's USD1.0845.

In commodities, gold came off its two month high earlier Friday, and traded at USD1,104.10 an ounce, close to Thursday's price of USD1,103.80.

Brent oil however, slid after a rebound late Thursday and traded at USD32.81 a barrel at the close Friday, versus USD34.23.

On the London Stock Exchange, Sports Direct International was by far the biggest faller in the FTSE 100, down 8.0% at 471.0 pence. The stock fell to 424.00p earlier in the session, its lowest since April 2013.

The sporting goods retailer said it is no longer confident it will meet its adjusted underlying earnings before interest, tax, depreciation and amortisation target for its full financial year to April 26.

Sports Direct said it had taken a hit from a deterioration of trading conditions on the high street and a continuation of unseasonal warm weather over the key Christmas period.

It now thinks it may miss its target of GBP420 million of Ebitda and lowered its expectations to between GBP380 million and GBP420 million in anticipation of similar trading conditions between now and the end of April.

Tesco, up 6.9%, ended as the biggest FTSE 100 gainer after Barclays upgraded it to Overweight from Equal Weight. The bank said while the UK food retail market faces "numerous headwinds", Tesco's valuation is now more attractive and there are a number of positive catalysts for the supermarket chain.

Vectura Group closed as the best performer in the FTSE 250, up 5.3%. The pharmaceutical company said it has completed a clinical trial for VR315 in the US, its generic therapy for asthma, and provided an update on one of its other developments.

On VR506, another asthma treatment programme the company is working on in the US, Vectura has received an initial payment of USD4.0 million and a further USD8.0 million could be received once further development milestones are hit, and the company will also receive a royalty once sales start.

In the economic calendar, on Saturday at 0130 GMT there are Chinese consumer and producer price index readings. On Monday, the Sentix Investor Confidence for the eurozone is at 0930 GMT and US labor market conditions index is at 1500 GMT. Dennis Lockhart, President of Federal Reserve Bank of Atlanta will be making a speech at 1740 GMT.

In the UK corporate calendar for Monday, there are trading statements from housebuilder Taylor Wimpey and recruiter Robert Walters.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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