LONDON MARKET MIDDAY: Weak Chinese Inflation Knocks Back Equities

LONDON (Alliance News) - Weak inflation figures from China were hitting London stocks Wednesday midday, while Wall Street was called for a negative open ahead of a busy day in terms of US company earnings.

The FTSE 100 index was down 0.7% at 6,297.98 points, the FTSE 250 down 0.4% at 16,828.72, and the AIM All-Share down 0.3% at 732.58. In Europe, the French CAC 40 and the German DAX 30 were down 0.5% and 0.8%, respectively.

Wall Street was seen lower, with the Dow 30 index pointed down 0.1%, the S&P 500 down 0.1% and the Nasdaq 100 down 0.2%.

The US corporate earnings season started last week, and Wednesday is set to see financial stocks Wells Fargo and Bank of America release third-quarter updates before the US market open.

On Tuesday, JPMorgan Chase reported a drop in revenue but higher net income in the latest quarter. Revenue was off 6.4% to USD23.5 billion in the third quarter from the year-ago period for the biggest US bank. The company attributed the decline to weaker performance from mortgage banking and other units. Net income was up 22%, reaching USD6.8 billion compared to a year ago. Chief executive Jamie Dimon attributed the revenue drop to "the impact of a challenging global environment and continued low rates reflected in the wholesale businesses' results."

Meanwhile, internet streaming media company Netflix and Delta Air Lines also are expected to issue updates.

In the US economic calendar, retail sales, due at 1330 BST alongside producer price index, are set to attract the market's attention.

Societe Generale analyst Brian Jones said the release of the retail sales data for September will allow economists to take a big step toward finalizing their projections for third quarter consumer spending growth.

"Constrained for a third straight month by a price-induced decline in gasoline purchases, retail sales likely dipped by 0.1% last month – the first pullback since June," estimated SocGen's Jones. "The top-line print is expected once again to mask significant strength in other spending categories that are used by government statisticians to estimate nominal goods spending in the National Income and Product Accounts, however."

Meanwhile, the US producer price index for September is expected to decline 0.2% month-on-month, while it is called to fall 0.7% on a yearly basis.

In the UK, the unemployment rate dropped to its lowest since 2008 in the three months to August and the employment rate hit a record high, data from the Office for National Statistics showed.

The ILO jobless rate fell to 5.4% in three months to August from 5.6% in March to May period. The rate was expected to be at 5.5%. During June to August, the employment rate was 73.6%, the highest since comparable records began in 1971.

Average weekly earnings including bonuses also rose, but by less than the expected 3.1% uplift, gaining 3% in the three months to August.

CMC Markets chief markets analyst Michael Hewson said that the earnings data maintains "the balance between weak price pressures, which could delay a UK interest rate rise by the Bank of England, and strong wage growth, which could still prompt an earlier move by the Monetary Policy Committee."

The pound spiked higher following the data to USD1.5359, standing at USD1.5282 prior.

However, the real reason for a lack of confidence among stock investors Wednesday was weak data from China. The country's National Bureau of Statistics showed inflation eased in September, reflecting a slowdown in food inflation, and producer prices extended their downward trend, adding to fears of deflationary pressure amid moderation in economic growth.

China's consumer price inflation slowed to 1.6% in September from a 12-month high of 2% seen in August. It was forecast to fall to 1.8%, while the government aims to achieve around 3% inflation this year. Month-on-month, consumer prices gained 0.1%, slower than the 0.5% increase seen in August.

In response to the data, stocks in China ended lower, with the Hang Seng index in Hong Kong down 0.7%, and the the Shanghai Composite down 0.9%. In Japan, the Nikkei 225 index in Tokyo also closed in the red, down 1.9%.

On the London Stock Exchange, Hargreaves Lansdown, up 4.8%, led the blue-chip index gainers after it reported a positive first quarter in the face of weak markets.

The company reported higher net new business inflows, client numbers and net revenue, though assets under administration were down 11% in a quarter hit by lower stock markets and weakness in investor confidence. Net new business inflows amounted to GBP1.43 billion in the quarter ended September 30, compared with about GBP970 million the corresponding quarter the prior year.

Intertek Group was up 2.5% after it agreed to buy Professional Service Industries for USD330 million in cash. US-based PSI provides testing and assurance services to commercial and civil construction markets.

Intertek Chief Executive André Lacroix said the acquisition will expand the testing, inspection and certification services company's presence in adjacent US growth markets. The company will finance the acquisition with debt facilities already in place. Net debt will rise to about 1.8 times earnings before interest, tax, depreciation and amortisation at the end of the 2015 fiscal year, it said.

Standard Chartered was down 1.3% at 729.60 pence. UBS cut its price target on the emerging markets bank to 800p from 1,200p, keeping a Neutral stance, with analysts factoring in a "more comprehensive" balance sheet restructuring.

New Chief Executive Bill Winters is expected to set out his strategy for Standard Chartered before the end of 2015, with UBS calling on him to address the bank's asset quality and to lay out a clear path to higher returns after a tough couple of years. One key question for Winters is whether the bank will raise equity capital in its turnaround effort.

In the FTSE 250, Al Noor Hospitals Group was the top gainer, up 18%. A deal has been reached on a possible reverse takeover by South Africa's Mediclinic International, which would value Al Noor at around GBP1.36 billion.

The move stands to create an international private healthcare group in Southern Africa, Switzerland and the UAE, as well as having exposure to the UK market through its minority stake in Spire Healthcare Group, up 2.3%.

Rival bidder and London-listed peer NMC Health, up 1.2%, quickly said however that it remains committed to its offer for Al Noor.

Domino's Pizza Group was up 13% at 1,006.00 pence, having earlier touched an all-time high of 1,064p. The takeaway pizza company said it now expects its full-year results to be ahead of expectations following a solid start to the fourth quarter.

On AIM, Sula Iron & Gold was off 30% at 0.349p. The miner conditionally raised GBP500,000 from a large, discounted placing to allow it to conduct a detailed drilling programme ahead of a potential deal with "one of the world's largest gold producers".

It issued over 166.6 million new shares at 0.3p per share, and said for every two placing shares issued it will also issue a warrant for one further new share at an exercise price of 0.6p per share.

Equiniti Group said it hopes to raise GBP315 million by floating in London, with the share registrar set to be valued at between GBP495 million and GBP600 million by market capitalisation, making it one of the largest IPOs of 2015.

Meanwhile, UK retirement housebuilder McCarthy & Stone also said it plans on listing on the Main Market of the London Stock Exchange, with the ambition of raising about GBP70 million.

By Daniel Ruiz; danielruiz@alliancenews.com

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