LONDON MARKET MID-MORNING: FTSE 100 Held Back By Resource Stocks

Mon, 03rd Aug 2015 09:43

LONDON (Alliance News) - UK stock indices are lower mid-morning Monday, weighed down once again by the resource sector, as another set of weak economic data from China weighs on commodity prices.

The FTSE 100 trades down 0.2% at 6,684.63, the FTSE 250 down 0.3% at 17,619.10, and the AIM All-Share index down 0.2% at 749.48.

In Europe, the CAC 40 trades up 0.2% and the DAX 30 in Frankfurt is up 0.4% at 749.26, after a largely upbeat set of eurozone manufacturing purchasing managers' index readings.

Germany's manufacturing sector expanded by more than initially estimated in July, data published by Markit showed. The Markit/BME final PMI came in at 51.8 in July, above the flash score of 51.5, but down from 51.9 in June. A reading above 50 indicates expansion. French manufacturing PMI came in-line with the flash reading, showing contraction once again. The index scored 49.6 in July from 50.7 in June.

The manufacturing sector in the euro area as a whole continued to expand in July despite deep contraction in Greece, final data from Markit showed. The manufacturing PMI came in at 52.4 in July, slightly above the flash estimate of 52.2, but down from June's 14-month high of 52.5. Greece's PMI fell to an all time low of 30.2 in July from 46.9 in June.

The Greek stock exchange opened Monday after a month and immediately fell by just short of 23%.

"The eurozone manufacturing economy showed encouraging resilience in the face of the Greek debt crisis in July," says Chris Williamson, chief economist at Markit.

"The impact of the Greek crisis, and in particular the bank closures, had a striking though not surprising impact on that country?s economy, with the Greek PMI signalling the steepest downturn ever seen in the survey?s 16-year history. It is clear that Greece?s recession deepened significantly in the second quarter," Williamson adds.

Meanwhile, the UK manufacturing sector expanded by more than expected in July. The Markit/Chartered Institute of Procurement & Supply PMI rose to 51.9 in July from a 26-month low of 51.4 in June. It was forecast to rise marginally to 51.5.

The downturn in China's manufacturing sector intensified as renewed declines in orders and production took the latest level of operation to the weakest since July 2013.

The Caixin Purchasing Managers' Index dropped to a two-year low of 47.8 in July from 49.4 in June, and the score was below the neutral 50.0 mark for the fifth successive month, results from Markit revealed. It was also weaker than the flash score of 48.2.

"Another shoddy manufacturing figure from China, the latest in a long line of weak data from the world's second largest economy, meant that Brent crude and copper couldn't escape the bearish trading that blighted them in that commodity-averse July," says Connor Campbell, financial analyst at Spreadex.

Glencore trades down 2.8%, having hit a new all-time low during morning trade. Anglo American trades down 2.9%, and BHP Billiton trades down 2.5%.

Brent oil also hit a new six month low USD50.83 a barrel, while West Texas Intermediate hit its lowest level in four months at USD46.23 a barrel.

BP is amongst the biggest fallers in the FTSE 100, trading down 1.5%, while in the FTSE 250, Nostrum Oil & Gas is down 5.7%, Premier Oil is down 5.7% and Tullow Oil is down 2.8%.

Whilst the commodity price slump continues to restrain the FTSE 100's gains, Michael Moran, chief economist at Daiwa Capital Markets says it may not necessarily signal slow global growth.

"Given the high degree of volatility in commodity prices, we do not view the recent shifts as pronounced enough to signal a marked change in global economic environment," Moran says.

Elsewhere on the London Stock Exchange, Intertek Group is the biggest blue-chip gainer, with its shares trading up 10%. The inspection, testing and certification services company said its pretax profit rose in the first half of 2015 on the back of margin improvements and better revenue.

The company 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, driven by its revenue edging up to GBP1.06 billion from GBP1.02 billion and by an improvement in its margins, with its operating margin up to 14.5% from 12.8% in the half.

Rolls-Royce Holdings shares are also continuing their recent run of gains, up 4.8%, after the Financial Times reported Friday that San Francisco-based activist hedge fund ValueAct has become 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.

HSBC Holdings, up 0.5%, said that its pretax profit increased by 10% in the first half, as a strong showing in Asia more than offset a USD1.14 billion charge for settlements and provisions in connection to legal matters, and that it has agreed to sell its Brazilian operations to Banco Bradesco for USD5.2 billion.

HSBC 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.

The results come nearly two months after the global banking giant revealed plans to save between USD4.5 billion and USD5.0 billion per year by 2017, cut risk-weighted assets by a quarter, and redeploy freed up capital to more profitable business, and sell its loss-making operations in Brazil and Turkey.

Fidessa Group leads the fallers in the FTSE 250, trading down 9.9%. 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.

Still ahead in the economic calendar is US personal income, consumption and expenditure data at 1330 BST, before the Institute for Supply Management manufacturing PMI at 1500 BST, alongside US construction spending. US Markit manufacturing PMI is at 1445 BST.

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