LONDON MARKET CLOSE: Weak Commodities Prices Continue To Stifle Stocks

LONDON (Alliance News) - The FTSE 100 closed lower Monday, snapping a run of four consecutive sessions of gains, as weak Chinese economic data and another slump in commodities prices caused London's heavily-weighted resources sector to resume its decline.

The FTSE 100 closed down 0.1% at 6,688.62, and the FTSE 250 ended down 0.1% at 17,651.79, but the AIM All-Share closed up 0.1% at 751.61.

With fewer big miners and oil companies, European stock indices outperformed London. The CAC 40 in Paris ended up 0.8% and the DAX 30 in Frankfurt added 1.2%.

On Wall Street at the London close, the DJIA was down 0.4%, the S&P 500 was down 0.1%, and the Nasdaq Composite was up 0.1%, after some weak economic data in the US as well.

The US manufacturing sector unexpectedly grew at a slower rate in July, the Institute for Supply Management revealed in a report. The ISM said its purchasing managers index dipped to 52.7 in July from 53.5 in June, although a reading above 50 indicates continued growth in the manufacturing sector. The decrease came as a surprise to economists, who had expected the manufacturing index to inch up to a reading of 53.7.

The ISM also said the prices paid index fell to 44.0 in July from 49.5 in June, pointing to lower raw materials prices for the ninth consecutive month. On the other hand, the report said the new orders index inched up to 56.5 in July from 56.0 in June. The production index also climbed to 56.0 from 54.0.

Construction spending in the US increased by much less than expected in June, according to a report released by the Commerce Department. The report said construction spending inched up by 0.1% to an annual rate of USD1.065 trillion in June from the revised May estimate of USD1.064 trillion. Economists had expected spending to climb by 0.6%.

Low commodities prices continued to stifle London stock indices, as more weak economic data was released from China.

Activity in China's vast manufacturing sector contracted further to a two-year low in July, due to renewed declines in total new work and new export orders, the latest survey from Caixin and Markit Economics showed. The final purchasing managers' index reading dropped to 47.8 from 49.4 in June.

The report followed downbeat official PMI figures released by the statistics bureau over the weekend, which showed that growth at big manufacturing firms unexpectedly stalled last month, with the PMI falling to 50.0 in July from June's sluggish growth reading of 50.2.

The manufacturing PMIs weighed on commodities markets, with Brent oil falling to a six-month low of USD50.03 a barrel and metal prices also slumping on the data. Brent oil prices saw a heavy fall in July on the back of concerns about China and expectations of a further supply coming to the market following the signing of the Iranian nuclear deal. The July market decline means that Brent oil prices have fallen 11 out of the last 13 months.

"After being on a Greek leash for a few months, it looks like the FTSE is now in thrall to the most recent wave of negative trading that has blighted the oil and mining stocks since China's market instability began to ramp up," said Connor Campbell, financial analyst at Spreadex.

"If the commodities remain in this deep shade of red it is likely that the construction and services PMIs, on Tuesday and Wednesday respectively, will struggle to be heard, regardless of quality," the analyst added.

In the FTSE 100, Glencore ended down 3.7%, having hit a new all-time low. Anglo American fell 4.0%, BHP Billiton 3.9% and BP 1.0%. In the FTSE 250, KAZ Minerals ended down 5.4%, Premier Oil down 4.5%, and Lonmin down 4.4%. The FTSE 350 mining sector index closed as the worst performing sector, down 3.1%.

Meanwhile, International Consolidates Airlines Group, up 3.8%, and easyJet, up 1.5%, saw their share prices benefit from the fall in oil prices.

Elsewhere, Intertek Group was the stand out performer in the FTSE 100 all day Monday, closing up 11%. The inspection, testing and certification services company said its pretax profit rose in the first half of 2015 on the back of profit margin improvements, better revenue and a boost from favourable foreign exchange rates.

It said its pretax profit for the six months to the end of June was GBP139.1 million, up from GBP119.8 million a year earlier, as its revenue edged up to GBP1.06 billion from GBP1.02 billion and as its operating margin rose to 14.5% from 12.8% in the half.

Rolls-Royce Holdings shares continued their recent run of gains, ending up 5.9%, after the Financial Times reported on Friday that San Francisco-based activist hedge fund ValueAct became the aerospace and engineering group's largest shareholder in a move likely to increase the pressure on the company to improve its performance and accelerate cost-cutting measures.

Rolls-Royce has issued a series of profit warnings in the past year thanks to slowdown on key engine programmes and weakness in defence budgets. However, its interim results on Thursday last week were well received by investors.

HSBC Holdings on Monday reported a 10% increase in first-half pretax profit, driven by its operations in Asia, and offered the first evidence of progress on a strategic plan to exit underperforming businesses with confirmation of a deal to sell its Brazilian business at above tangible book value.

HSBC, the world's third-largest bank by assets, reported a USD13.63 billion pretax profit for the six months to the end of June, up from the USD12.34 billion reported for the first half of 2014. HSBC's interim dividend remained at USD0.20 per share.

Revenue, defined as net operating income before loan impairment charges and other credit risk provisions, increased to USD32.94 billion from USD31.17 billion. Operating expenses were up to USD19.19 billion from USD18.27 billion, and impairment charges for bad loans and other provisions for credit risk fell to USD1.44 billion from USD1.84 billion. The company's shares closed up 0.3%.

Fidessa Group ended as the worst mid-cap performer, down 16%, having touched its lowest share price in nearly a year. The trading, investment and information company said the additional investment it is making in new opportunities is having a "small impact" on its operating margin, and said there may be greater pressure arising going into 2016 from potential consolidation activity amongst its customers.

Ultra Electronics ended up 1.7% after the defence company posted a big fall in pretax profit for the first half of the year, hit by a writedown due to the loss of its contract in Oman and by continued subdued activity in the US and UK defence markets. But despite the loss, the company said its results were in line with its expectations and it said its second half is set to be in line with its guidance.

In the economic calendar Tuesday, there are the UK construction PMI at 0930 BST, eurozone producer prices at 1000 BST, US ISM New York Index at 1445 BST, and US factory orders at 1500 BST.

In the UK corporate calendar, there are half-year results from FTSE 100 constituents Travis Perkins, Meggitt, Standard Life, Direct Line Insurance Group and Fresnillo. There also are interim results from Just Eat, Rotork, Morgan Sindall, Zotefoams, SDL and LSL Property Services.

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

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