LONDON MARKET CLOSE: Chinese Data, 11-Year Low For Brent Hit Stocks

LONDON (Alliance News) - London stocks ended down Wednesday, as the market contended with another round of weak economic data from China, Brent oil dropping to an 11-year low, and reports that North Korea has tested a hydrogen bomb.

The FTSE 100 continued its volatile start to 2016 and ended down 1.0% at 6,073.38. The FTSE 250 closed down 0.9% at 17,058.98 and the AIM All-Share ended down 0.1% at 734.05.

European stocks similarly ended lower. The CAC 40 in Paris closed down 1.3%, and the DAX 30 in Frankfurt down 0.9%.

Wall Street joined the sell-off when it opened, with the DJIA trading 1.0% lower at the London close, the S&P 500 down 0.8% and the Nasdaq Composite down 0.6%.

The dollar, meanwhile, appreciated against other major currencies as US private sector employment increased more than expected in December.

Data from the payroll processor ADP showed that private sector employment jumped by 257,000 jobs in December after climbing by a revised 211,000 jobs in November. Economists had expected employment to increase by about 190,000 jobs compared to the addition of 217,000 jobs originally reported for the previous month.

This contributed as the pound continued its recent decline against the dollar, trading at USD1.4620 at the London close, compared to USD1.4651 on Tuesday. The euro made up some ground on the dollar following some upbeat services and composite purchasing managers' index scores. At the close it was quoted at USD1.0759 compared to USD1.0725 on Tuesday.

Despite the positive employment data from the US, markets were unable to stem losses. The day began in the wake of weak Chinese services data overnight which put European equity markets under pressure.

The Caixin China General Services purchasing managers' index came in at 50.2, a 17-month low and down from 51.2 in November. However, it remained above the 50.0 mark, which separates expansion from contraction. The composite index recorded a score of 49.4 in December, down from 50.5 in the previous month, turning to contraction.

The data followed a poor Caixin PMI reading of the manufacturing sector in China, on Monday, which came in at 48.2.

There were also fears of a currency war as the Chinese yuan plunged to a five-year low against the dollar in offshore trading after the People's Bank of China set the central parity rate for yuan at CNY6.5314 per dollar, compared to Tuesday's reference rate of CNY6.5169.

"The central bank isn't being shy about its intention to lower the yuan's value and has probably been encouraged to do so at an even quicker pace after the latest weak manufacturing data," said Jasper Lawler, market analyst at CMC Markets.

China-exposed stocks dominated the worst performers in the FTSE 100. Miners BHP Billiton, down 4.9%, Rio Tinto, down 4.8%, and Anglo American, down 4.5%, led the fallers, while Asia-focused banks Standard Chartered and HSBC Holdings traded down 3.1% and 2.7% respectively.

Investors also reacted negatively to North Korea's claim that it has successfully performed the republic's first hydrogen bomb test. North Korean state television said the test of the miniaturised device meant the communist nation has joined the ranks of advanced nuclear states.

If that wasn't already enough to destabilise markets, Brent oil fell to its lowest level in over 11 years. Brent hit a low of USD34.24 a barrel, its lowest level since July 2004. At the London close Brent was quoted at USD34.59 a barrel, compared to USD36.36 on Tuesday.

Joshua Mahony, market analyst at IG, says there doesn't seem to be an end to the oil price rout in sight due to the fallout between Iran and Saudi Arabia.

"With two of the major OPEC members in Saudi Arabia and Iran butting heads on both a political and religious basis, the idea that we could see any form of compromise to cut production seems foolhardy at best. Iran will relish the chance to pump as much oil as possible to make up for years of sanctions, and with Saudi Arabia unwilling to lose market share, global production only seems to be heading in one direction," Mohony said.

Midcap oil-related stocks were hurt the most by the oil price decline. Premier Oil was the worst performer in the FTSE All-Share, down 16%. Tullow Oil closed down 7.1% and oil services company Hunting down 6.9%.

Gold continued to remain resilient and traded at USD1,090.80 an ounce at the close Wednesday, compared to USD1,078.11 on Tuesday. The price of gold supported precious metal miners, with Randgold Resources closing up 1.7% and Fresnillo up 0.3%.

BAE Systems, up 3.7%, topped the handful of blue-chip gainers after RBC Capital upgraded to its Top Pick in the European aerospace and defence sector. RBC said the defence contractor offers an interesting mix of improving defence market fundamentals, an attractive valuation and a healthy dividend.

Royal Mail rose 1.3% to 443.00 pence after again benefiting from a broker upgrade, this time by Barclays. The bank upgraded the postal service operator to Overweight from Equal Weight and hiked its price target to 575p from 440p. Cantor Fitzgerald had upgraded the postal operator to Buy from Hold on Tuesday.

Barclays said it expects a new pay deal to be negotiated by Royal Mail in the first quarter of 2016 and for the company to resolve the issues around its defined-benefit pension scheme by the second half. The bank also said it was confident the cost-cutting measures Royal Mail is taking will keep costs broadly flat, allowing any rise in revenue to feed through to the bottom line.

Still ahead in the economic calendar at 1900 GMT, is the release of the US Federal Reserve's minutes from its most recent monetary policy meeting in December, at which it raised interest rates for the first time since June 2006.

On Thursday, German factory orders are at 0700 GMT, before a series of releases from the eurozone at 1000 GMT including unemployment, consumer confidence, retail sales and business climate surveys. In the afternoon the European Central Bank releases its monetary policy meeting accounts at 1230 GMT, before US initial and continuing jobless claims at 1330 GMT.

In the UK corporate calendar, there are trading statements from high street bellwether Marks & Spencer Group, housebuilder Persimmon, discount retailer Poundland Group and wine maker Majestic Wine. Investment manager Rathbone Brothers issues a fourth-quarter trading update, while precious metals miner Centamin and iron ore company Ferrexpo both provide production updates. EasyJet will also release December traffic statistics.

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

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