LONDON MARKET MIDDAY: Investors fret over inflation and China GDP

Mon, 18th Oct 2021 12:03

(Alliance News) - Stock prices in Europe were lower on Monday, starting the week on the back foot after economic growth figures in China fell short of expectations, and after comments from Bank of England chief Andrew Bailey brought inflationary concerns to the fore once again.

The Bank of England governor spoke virtually on Sunday to a meeting of the G30 group of current and former central bankers. Bailey affirmed his view that recent spikes in inflation will be temporary. However, he warned that price increases could last until next year, citing the energy sector in particular.

"That's why we, at the Bank of England, have signalled, and this is another such signal, that we will have to act," Bailey said, according to the FT. "But of course that action comes in our monetary policy meetings."

Bailey's comments come ahead of the latest UK consumer price index numbers on Wednesday. Annual inflation for September is expected to remain unchanged at 3.2%, according to consensus cited by FXStreet. The BoE has an inflation target of 2%.

The FTSE 100 index was down 22.53 points, or 0.3%, at 7,211.50 midday Monday. The mid-cap FTSE 250 index was down 28.25 points, 0.1%, at 22,955.99. The AIM All-Share index was up 5.44 points, or 0.4%, at 1,234.54.

The Cboe UK 100 index was down 0.3% at 715.44. The Cboe 250 was 0.1% lower at 20,719.74, and the Cboe Small Companies was up 0.3% at 15,625.88.

In mainland Europe, the CAC 40 in Paris was down 0.9% while the DAX 40 in Frankfurt was 0.6% lower on Monday afternoon.

"Rising inflation pressures are increasingly putting the pressure on central banks to act, with the Bank of England putting themselves front and centre after hawkish comments from Governor Andrew Bailey," IG markets analyst Joshua Mahony commented.

Mahony noted that markets have now priced in a "65% chance that the bank will raise rates in November". The European Central Bank, meanwhile, is unlikely to follow suit for now, the IG analyst added.

Inflationary fears aside, European traders also had weak economic growth figures from China to mull over.

After a swift coronavirus bounce back, recovery in the world's second-biggest economy is losing steam, with gross domestic product growth coming in at 4.9% year-on-year, China's National Bureau of Statistics said, citing an "unstable and uneven" domestic rebound.

Chinese GDP growth undershot expectations of a 5.2% hike, according to consensus cited by FXStreet. It followed a 7.9% expansion in the second quarter.

China's growth slowdown served to increase risk aversion and boost the dollar on Monday, ActivTrades analyst Ricardo Evangelista said.

The pound was quoted at USD1.3733 midday Monday in London, fading from USD1.3780 at the London equity market close on Friday. The euro stood at USD1.1586, down from USD1.1603. Against the yen, the dollar was trading at JPY114.36, up from JPY114.17.

On equities, Evangelista added: "Investors remain confused by conflicting macro global data and are struggling to anticipate what the short-term outlook is for stocks, which is leading to prices starting the week without any clear direction. The lingering energy crisis, while benefiting miners and other oil and gas related stocks, is otherwise weighing on the overall sentiment."

The London-listed mining sector was higher, with Glencore and BHP Group up 1.7% and 1.4%.

Fresnillo topped the FTSE 100, up 2.5%, while wealth management platform Hargreaves Lansdown was also higher.

UBS raised gold miner Fresnillo to Neutral from Sell, while Hargreaves Lansdown, also up 2.5%, was reversing a share price decline from Friday.

Elsewhere, however, London blue-chips had a tepid session, with marked gains hard to come by.

The travel sector struggled, meanwhile, with British Airways parent International Consolidated Airlines Group down 3.8%, at the foot of the FTSE 100 index. Budget carrier easyJet was down 3.5%, among the worst of the FTSE 250s.

Playtech was by far and away the best mid-cap performer midday Monday, jumping 57% to 672.00 pence.

It agreed a GBP2.1 billion takeover to put the gambling software firm in the hands of Sydney-listed Aristocrat Leisure. Aristocrat finally succeeding in swaying Playtech's management, after noting it made numerous approaches earlier this year.

The 680 pence offer from Aristocrat, which manufactures gambling machines and casino management systems and also publishes mobile games, is a 58% premium to Playtech's 429.2p per share closing price on Friday.

Playtech currently has a market capitalisation of GBP2.05 billion.

"It may not be popular with ESG investors, but gambling is an area in which the London market clearly excels, reflected in the covetous glances UK-listed firms have attracted in recent months from overseas bidders," AJ Bell analyst Russ Mould commented.

Bookmaker William Hill and gaming firm Gamesys both left the London Stock Exchange earlier this year following US buyouts, while Ladbrokes owner Entain is currently "carefully" mulling a GBP16 billion approach from New York-listed fantasy sports and online betting firm Draftkings.

Mould added: "Gaming technology group Playtech becomes the latest name to succumb as its Australian rival Aristocrat Leisure lives up to its moneybags name to swoop in with a cash offer.

At this stage the deal looks like a fait accompli with Playtech's board in favour and the deal pitched at a healthy premium which should be enough to persuade shareholders of its merits, even if the price falls short of the highs the company hit in 2017. The company has up until now been perceived as a victim of industry consolidation as its customer base effectively shrinks."

Elsewhere in the London-listed gambling sector, bookmaker 888 Holdings was up 4.6%, though Entain surrendered earlier gains and was down 0.1%. AIM listing Sportech, which similarly to Playtech provides betting technology, climbed 3.3%.

Although European equities are struggling to make headway, New York futures are higher. The Dow Jones Industrial Average is called up 0.8%, the S&P 500 up 0.4% and the Nasdaq Composite 0.2% higher. The three benchmarks ended last week with solid gains.

In New York, focus this week will remain on corporate earnings. Netflix becomes the first of the 'Faang' stocks to report during the current batch of quarterly reports on Tuesday. Philip Morris International, Johnson & Johnson and Procter & Gamble also report earnings on Tuesday, before electric car maker Tesla's turn on Wednesday, Intel on Thursday and American Express on Friday.

In London, meanwhile, eyes will be on miner Anglo American, lender Barclays and consumer goods firm Unilever, who all report on Thursday.

Brent oil was quoted at USD85.95 a barrel midday Monday, improved from USD84.73 late Friday. Gold stood at USD1,762.27 an ounce, down from USD1,773.75.

A quiet Monday for economic data has September's US industrial production figures at 1415 BST.

By Eric Cunha; ericcunha@alliancenews.com