LONDON MARKET MIDDAY: Chinese Market Freeze Chills Global Investors

LONDON (Alliance News) - Frozen Chinese stock markets and downhill sledging oil prices were creating a winter of discontent for London equities midday Thursday, while US shares were called lower, adding to losses seen on Wednesday.

"US indices are poised for another woeful session on Thursday after circuit breakers were once again triggered in China overnight, the knock-on effect of which has pushed global equity markets deep into negative territory and prompted a surge in safe-haven flows," said Oanda analyst Craig Erlam.

The FTSE 100 index was down 2.6% at 5,914.73 points, the FTSE 250 down 2.1% at 16,706.22, and the AIM All-Share down 1.4% at 724.04. In Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were down 2.8% and 2.6%, respectively.

US stock futures pointed to a similarly bleak start for New York, with the Dow Jones Industrial Average and the S&P 500 both seen down 2.3% and the Nasdaq 100 pointed down 3.0%. Initial and continuing jobless claims, due at 1330 GMT, are the only significant data expected in the US economic calendar Thursday.

The losses in Europe followed heavy declines in the Chinese stock market which triggered an automatic "circuit breaker" after just 15 minutes of trading. The Shanghai market was halted for the day after the Shanghai Composite had fallen 7.3%.

Meanwhile, the Nikkei 225 index in Tokyo ended down 2.3% and the Hang Seng in Hong Kong ended down 3.1%.

The declines came after China's central bank set a weaker reference rate for the yuan exchange rate. The People's Bank of China fixed Thursday's central parity rate of the yuan at 6.5646 per dollar, weaker than Wednesday's reference rate of 6.5314.

Miners and other stocks with exposure to China were suffering the heaviest losses in London. Shares in Anglo American were plunging 9.5%, while BHP Billiton was down 4.9% and Antofagasta 4.7%. However, fellow miner Randgold Resources was the only blue-chip in the green, up 1.7%, as spot gold continues its new year's rally.

Gold was quoted at USD1,098.85 at midday, having touched a high of USD1,102.70 earlier in the day. The yellow metal started 2016 at USD1,061.12.

Emerging markets-focused asset manager Aberdeen Asset Manager was down 7.4%. The stock also went ex-dividend, meaning new buyers no longer qualify for the latest dividend payout.

In the FTSE 250, China-focused investment fund Fidelity China Special Situations traded down 6.4%.

Declining crude prices sent oil companies lower, with Royal Dutch Shell 'A' down 4.3%, BP down 4.0%, and BG Group down 3.0%.

Brent breached its Wednesday low of USD34.11 a barrel, to a make a new 11-year low of USD32.14 early Thursday, its lowest level since April 2004. At midday, Brent was quoted at USD33.32. US benchmark West Texas Intermediate similarly fell to a multi-year low of USD32.08 a barrel, priced at USD32.89 at midday.

Elsewhere on the London Stock Exchange, shares in Marks & Spencer were down 1.9%, having been higher at the open, but entering negative territory around mid-morning. The retailer said Chief Executive Marc Bolland will retire from his role this year as it reported a fall in group sales in the third quarter of its financial year. A poor performance from M&S's general merchandise division offset growth in the food division.

M&S said Bolland, who has been at the helm for six years, will step down in April after the close of the group's current financial year. He will be replaced by Steve Rowe, the executive director of the company's general merchandise business, covering its clothing and homewares.

Investec analyst Kate Calvert said Rowe has significant experience across the whole business having also run the food division and store operations, and his appointment is likely to be well received.

The news came as M&S said group sales in the 13 weeks to December 26 fell 0.4% year-on-year, remaining flat at a constant currency basis, as food sales rose 3.7% but general merchandise dropped 5.0%. On a like-for-like basis, food grew 0.4% and general merchandise declined 5.8%.

Poundland Group was by far the worst midcap performer, down 11% to 171.65 pence. The single-price retailer said it expects its pretax profit for the year to March to be at the lower-end of market expectations, as some of the sluggish trading seen in the first half of its current financial year continued into the third quarter.

The company said total sales in the third quarter, covering the 13 weeks to December 27, rose 29%, with revenue growth coming from its current Poundland stores but with the majority of this attributable to the 99p Stores outlets added to its estate following the acquisition of its rival last year.

Investec cut its price target on the retailer to 200 pence from 225p, saying that the company's update was "disappointing and likely to not just be attributable to the weather". Investec and Shore Capital cut its profit estimates for financial 2016 following Poundland's update.

At the other end of the FTSE 250, Home Retail Group was up 3.8%. The former chief executive of Tesco is understood to be considering leading a potential takeover offer for the Argos and Homebase owner to rival the interest in the business shown by J Sainsbury, The Times reported.

Terry Leahy, who stepped down from the helm of Tesco in 2011 having led its transformation into one of the biggest retailers in the world, is thought to be working with private equity investor Clayton, Dubilier & Rice, to which he is a consultant, on a bid for the group.

On AIM, HydroDec Group was up 27%. The industrial oil re-refining company said it has achieved a milestone at its Canton re-refinery in Ohio in the US and has made progress at the re-built site.

HydroDec said the refinery has achieved a '500hr' oil status, which qualifies the oil produced to be high quality transformer oil and which is a pre-requisite for entering the larger power transformer market. The company also said it has hit a production record for Canton of over 94,000 litres per day. The re-refinery produced a total of 10.5 million litres of processed oil in 2015, in line with its expectations.

Still ahead in the economic calendar, the European Central Bank releases its monetary policy accounts of its December 3 meeting at 1230 GMT. The outcome of the meeting had disappointed analysts even though the ECB cut its deposit rate by 10 basis points, deeper into negative territory, to -0.30%. The ECB decided not to increase its monthly asset purchase spending, but it extended its quantitative easing programme until March 2017.

The ECB accounts will be released after an earlier flurry of data from the eurozone. Retail sales declined 0.3% month-on-month in November, following a 0.2% fall in October, revised from a 0.1% drop. Economists had forecast a 0.2% increase. On a yearly basis, retail sales increased 1.4% in November, after a 2.5% growth in October, while economists expected a 2.0% rise.

Meanwhile, the euro area economic confidence and business sentiment strengthened in December, survey results from European Commission showed. The economic sentiment index rose to 106.8 in December from 106.1 in November. It was forecast to fall marginally to 106.

Eurozone's jobless rate fell for a third straight month in November to its lowest level in more than four years, according to figures from Eurostat.

The seasonally adjusted unemployment rate dropped to 10.5% in November, which was the lowest level since October 2011. October's jobless rate was revised down to 10.6% from 10.7% reported originally. Economists had expected the figure to remain steady at 10.7%.

By Daniel Ruiz; danielruiz@alliancenews.com

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