LONDON MARKET MIDDAY: Wall Street Set To Join China-Led Sell-Off

Mon, 04th Jan 2016 11:58

LONDON (Alliance News) - The first trading session of 2016 brought a global equities sell-off Monday, as weak manufacturing data from China put concerns about the Asian giant's economy firmly back at the top of the agenda.

China's manufacturing sector continued to contract in December on weak orders and a renewed fall in output. The Caixin Purchasing Managers' Index fell unexpectedly to 48.2 in December from 48.6 in November, survey data from Markit revealed. It was forecast to rise marginally to 48.9.

At the same time, the official manufacturing PMI came in at 49.7, slightly up from 49.6 in November.

"The fall in manufacturing activity amongst the small and medium enterprises in China tracked in the Caixin survey could offset the expansion in government deficit spending announced in December," said Jasper Lawler, market analyst at CMC Markets.

The subsequent sharp pull-back in the Shanghai and Shenzhen markets caused authorities to invoke the circuit breaker rule, which was put in place after Chinese market volatility sent tremors around the world in the second half of 2015.

"The impending end to a ban on major shareholders selling stock, and possibly the introduction of circuit-breakers themselves, exacerbated the move in [the Shanghai Composite]," said Kit Juckes, strategist at French bank Societe Generale.

The index was down 6.9% when trade was frozen. Elsewhere in Asia, the Nikkei 225 index in Tokyo closed down 3.1%, and the Hang Seng in Hong Kong ended down 2.7%.

It was a sea of red in the FTSE 100 by midday, with China exposed equities leading the decliners. Blue-chip miners were the heaviest hit, with Glencore, down 6.5%, Anglo American 6.5% and Antofagasta 4.1%.

Standard Chartered, an emerging markets-focused bank, was down 5.5%, while Prudential, a life insurer expanding in Asia, was down 4.3%. Burberry Group, a luxury goods for which mainland China and Hong Kong are key markets, was down 3.9%.

The FTSE 100 index traded down 2.4% at 6,092.29 points, the FTSE 250 was down 1.6% at 17,154.61 while the AIM All-Share index was up 0.3% at 737.51.

Stock indices in mainland Europe were performing even worse. The CAC 40 in Paris was down 2.6% and the DAX 30 in Frankfurt down 3.7%.

Futures indicated Wall Street will join the sell-off, with the DJIA and the S&P 500 both pointed down 1.7% and the Nasdaq 100 down 1.9%.

While the focus was on China's manufacturing data, there also was some disappointment in the UK. Growth in UK manufacturing slowed unexpectedly in December, due to a further slowdown in growth of output and new orders, survey data from Markit Economics showed.

The Markit/Chartered Institute of Procurement & Supply Purchasing Managers' Index for manufacturing fell to 51.9 in December from 52.5 in the previous month. Economists had expected the index to improve to 53.0.

In Europe, the data was more upbeat, with manufacturing PMI scores from Germany and the eurozone as a whole both beating estimates.

Grainger was one of the best performers in the FTSE 250, up 3.3%. The residential landlord said it agreed with Turbo Group Holdings to sell its Equity Release division for a total consideration of GBP325.0 million, including debt.

Grainger said the sale of its retirement products unit to Turbo, owned by Patron Capital Partners and Electra Private Equity, will allow it to focus on its residential lettings business, following the sale of its wholly-owned and joint venture assets in Germany.

The sale consideration will include GBP175.0 million in cash and the transfer of GBP150.0 million in debt to the buyer and will cut Grainger's net debt position by an estimated GBP325.0 million.

Oil company Cairn Energy was up 1.6%. Cairn said it received positive results from tests carried out on the SNE-2 appraisal well offshore Senegal as the company moves onto its third and final well on the field before updating its resource estimates.

Cairn said drill-stem testing was carried out on the SNE-2 well over a 12.0 metre interval which produced a stabilised but constrained flow rate of 8,000 barrels of oil per day of high quality pay. The company said the result confirmed the "high deliverability" of the main reservoir in the well.

Bagir Group was one of the best small-cap performers in London, up 20%. The formalwear tailor said it has successfully amended its debt repayment schedule with its banks, which also have agreed to waive the testing of the company's financial covenants until the second half of 2016.

Leumi Bank and Discount Bank have agreed to amend the tailor's repayment schedule, which will see the company pay back its USD11.2 million loan back over the next five years rather than the next two years.

Following the waivers, the covenants will be tested every six months, but Bagir Group said a revised set of covenants have been agreed on "more favourable terms" to the company than previously agreed.

Still ahead in the economic calendar, consumer price inflation data for Germany in December are expected at 1300 GMT, with US personal income, personal spending and personal expenditure data due at 1330 GMT. December's reading of US Markit manufacturing PMI is scheduled for release at 1445 GMT, ahead of the US ISM manufacturing PMI reading and US ISM prices paid readings for December at 1500 GMT. US construction spending data for November also are due at 1500 GMT.

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