LONDON MARKET CLOSE: Miners, Shell And Vodafone Drag Down FTSE 100

LONDON (Alliance News) - London stocks closed lower Monday, with mining stocks heavily sold and Glencore especially hard hit, as renewed concerns over the health of the Chinese economy reduced risk appetite following weak data from the Asian giant.

Shares in heavyweight blue-chips such as Vodafone Group and Royal Dutch Shell also closed deeply in the red, after the communications company terminated talks with Liberty Global without deal and the oil major abandoned exploration in Alaska after a disappointing drilling result.

Meanwhile, SABMiller topped the gainers after The Sunday Times said the Belgian-American brewer Anheuser-Busch InBev could bid GBP70 billion for its Anglo-South African-American rival.

The FTSE 100 index ended down 2.5% at 5,958.86 points, the FTSE 250 down 1.1% at 16,614.16 and the AIM All-Share down 0.8% at 726.72. Europe's major stock indices also ended lower, with the French CAC 40 down 2.8% and the German DAX 30 down 2.1%.

Investors confidence was hit in Europe and the US Monday by weak economic data from China. Industrial profits declined in August as product prices continued to soften, the National Bureau of Statistics reported. Industrial profits fell 8.8% in August from a year ago, following a 2.9% drop in July. Falling product prices, as well as lower return on investment, weighed on industrial profits.

During January to August, industrial profits decreased 1.9% from the corresponding period of last year. Profits from coal mining plunged 65% from last year and oil and gas extraction industry profits decreased sharply by 67%. The decline in automotive industry came in at 4.5%.

On Monday, Hong Kong was closed due to the Chinese Mid-Autumn Festival celebration on Sunday, while the Shanghai Composite index ended up 0.3%. The Japanese Nikkei 225 ended down 1.3%.

Chinese President Xi Jinping was addressing the United Nations in New York at the London close Monday.

London-listed mining stocks dragged down both the FTSE 100 and FTSE 250, hit by the disappointing data from China and a negative note on the sector from Investec.

BHP Billiton, down 5.9%, Antofagasta, down 4.9% and Rio Tinto, down 4.8%, ended among the worst blue-chip performers. In the mid-cap index, KAZ Minerals fell 26%, while Vedanta Resources and Petra Diamonds dropped 5.8% and 4.1%, respectively.

As a result, the FTSE 350 Mining Sector Index closed as the worst performing sector index, down 9.0%, touching lows it hasn't seen since 2008.

Worse hit by far in the FTSE 100 was Glencore, which after finding some support around 100 pence last week plunged 16% on Monday, having set a new all-time low of 66.67p. The Swiss-based miner was followed by Anglo American, down 10% at 552.70p, very close to a record low of 551.25p touched in April 2000.

Investec said it believes nearly all the equity value in mining giants Glencore and Anglo American could "evaporate" if commodity prices remain subdued and the companies do not undertake substantial restructuring measures.

"The challenging environment for mining companies leads us to the question of how much value will be left for equity holders if commodity prices do not improve. We have adopted a price-earnings-based approach to evaluate how the equity value of the major diversified companies might vary over time in proportion to debt and have identified the companies where equity values are most at risk," said Investec analyst Hunter Hillcoat.

"If major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, nearly all the equity value of both Glencore and Anglo American could evaporate," he added.

AIM-listed nickel development company focussed Horizonte Minerals said it has agreed to buy Glencore's Araguaia nickel project in Brazil to enlarge its existing nearby project. Horizonte will pay USD2.0 million once the deal is completed, which will be satisfied through the issuance of 2.0 million shares, and the total acquisition cost is USD8.0 million.

Shares in Horizonte Minerals ended up 3.2%.

"The [FTSE 100] index continues to stand or fall by the performance of its miners, which makes the outlook for the rest of the FTSE’s year quite grim if China fails to turn around soon," said IG senior market analyst Chris Beauchamp.

Away from miners, Vodafone was down 5.1% after it walked away empty-handed from talks with US cable company Liberty Global. Back in June, Vodafone had confirmed talks with Liberty Global, which owns Virgin Media, over a potential exchange of some assets between the two.

However, Deutsche Bank said it believes that, due to the similarities between the two businesses, conversations could be resumed again at some point.

Also in the green were peers in the media sector such as Sky, up 0.7%, and ITV, up 2.2%. Liberty Global is considered to be a potential buyer for the latter, particularly after it increased its stake in ITV to 9.9% in August.

Royal Dutch Shell 'A' shares ended down 2.8% after it said it has plugged and abandoned the Burger J exploration well in the Chukchi Sea in Alaska and said it will stop further exploration activity in the Alaska region for the foreseeable future.

The oil and gas major said the well was drilled to a total depth of 6,800 feet over the summer within a basin which had demonstrated a number of the key features of a major petroleum basin and which is substantially under-explored. But Shell said that while it found indications of oil and gas in the Burger J Well, these were not sufficient to pursue further exploration activity at the prospect and, therefore, the well has been plugged and abandoned.

Leading a short list of blue-chip gainers, SABMiller gained 3.8% after The Sunday Times reported that AB InBev could bid GBP70 billion for the company. Over recent days the world's two biggest brewers have begun "friendly" talks, the newspaper said. The discussions continued into Saturday, with AB InBev expected to make a firm opening offer within days.

Societe Generale upgraded SABMiller to Buy from Hold, saying it is convinced that AB InBev "is serious and will bid for SABMiller, and that SABMiller will sucumb".

Wall Street was lower at the London close. The Dow 30 index was down 1.3%, the S&P 500 was off 1.7% and the Nasdaq Composite was down 1.9%.

Spreadex analyst Connor Campbell said that a mixed set US data provided "little of the insight hoped for, giving no indicator of how the Dow Jones will react to the more important figures released later in the week", including several US job reports and manufacturing Purchasing Manager's indices.

Data released by the US Department of Commerce showed that personal spending rose by 0.4% in August, while economists had expected the figure to rise by 0.3%. Personal Income also increased during the month, coming in at 0.3% in August, but below expectations of a 0.4% increase.

Meanwhile, the US National Association of Realtors revealed that its pending home index fell 1.4% in August. This came as a surprise to economists, who expected a 0.5% increase for the month.

Speaking at New York, the president of the Federal Reserve of New York, William Dudley, indicated that US economy is doing "pretty well", and if the economy continues its present course, there is a strong case for starting raising interest rates.

After the London market close, there also are speeches by Federal Reserve Bank of Chicago President Charles Evans at 1830 BST and Federal Reserve Bank of San Francisco President John Williams at 2200 BST.

In the economic calendar Tuesday, the German import price index is due at 0700 BST, and UK consumer credit is due at 0930 BST. Meanwhile, eurozone industrial and consumer confidence are expected at 1000 BST. The German consumer price index is due at 1300 BST. Bank of England Governor Mark Carney speaks at Lloyds of London at 2015 BST.

In the US, the Redbook index is due at 1355 BST, and consumer confidence is at 1500 BST.

In a busy quarter-end UK corporate calendar, Wolseley publishes full-year results, while Moss Bros, Silence Therapeutics, Personal Group Holdings and Globo release half-year results. Vernalis, MySale Group, James Halstead and Earthport publish full-year results. Boohoo.com, Revolution Bars Group and Outsourcery release half-year results. SCS Group issues full-year results and Toumaz and People's Operator provide half-year results.

By Daniel Ruiz; danielruiz@alliancenews.com

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