LONDON MARKET MIDDAY: Weak Services PMIs Widen Oil-Led Equities Losses

LONDON (Alliance News) - Shares in London were lower Tuesday midday, dragged down by its heavyweight commodity sector after a slump oil prices and service sector activity readings from several European countries that weren't much to write home about.

The FTSE 100 was down 1.3%, or 80.02 points, at 6,084.70. Sentiment was even worse in Europe, with the CAC 40 in Paris down 2.3% and the DAX 30 in Frankfurt down 2.4%.

"As could have been expected, the fallow period between the US jobs report last week and the start of [US] earnings season later in April has left this rally vulnerable to some downward pressure," said IG senior market analyst Chris Beauchamp.

The main culprit for weak trading so far Tuesday was similarly weak crude prices. Oil was initially depressed by a report on Friday stating Saudi Arabia will freeze crude production only if Iran and others do so as well. Bloomberg reported that the kingdom's deputy crown prince, Mohammed bin Salman, signalled in an interview that, if any country raises output, Saudi Arabia will follow suit.

Oil prices made further losses overnight from Monday, with Brent trading at USD37.54 at midday Tuesday, against USD38.03 a barrel at the London stock market close on Monday. Brent hit its highest level of 2016 at USD42.51 in mid-March, ending at that peak the rally that followed January's multi-year lows around USD27.

Oil producers are scheduled to meet in Doha in Qatar on April 17 to complete an accord capping output. Iran is expected to the attend the talks but has ruled out limiting oil supply as it aims to regain market share after sanctions were lifted in January.

London-listed resources stocks were suffering, with miners Glencore, Anglo American and BHP Billiton, all down 4.7%, the worst three blue-chip performers. Oil major Royal Dutch Shell's 'A' shares were down 2.9%, while BP was down 2.4%.

On the economic front, data releases failed to improve the market's mood. The UK's service sector growth accelerated at a slower-than-expected pace in March, survey figures from Markit Economics showed. The Chartered Institute of Procurement & Supply/Markit services Purchasing Managers' Index rose to 53.7 in March from 52.7 in the previous month. FXStreet.com said economists had expected the index to rise to 54.0.

"The March print – still below the long-term average of 55.2 – hardens an impression that growth in the dominant and domestically-facing sector of the economy softened meaningfully since the end of 2015," said analysts at Lloyds Bank.

There also were services PMIs from Germany, France and the eurozone as a whole. Germany's services PMI came in at 55.1 in March, below February's score of 55.5. Economists expected it to come in unchanged. Meanwhile, France's services activity also slowed, with the PMI coming it below 50, meaning contraction, at 49.9. Consensus expected the index to come in unchanged from February's reading of 51.2.

The eurozone services PMI slipped to 53.1 from 53.3 in February, also below the economists estimate of 54.0. Meanwhile, retail sales in the eurozone grew at a slower pace in February as non-food trade dropped for the first time in three months, Eurostat reported. Retail sales climbed 0.2% month-on-month in February following a revised 0.3% rise in January. Economists had forecast sales to remain flat after January's initially estimated 0.4% expansion.

The economic focus now turns to the US, with US trade balance due at 1330 BST, the Redbook index at 1355 BST and Markit's Services PMI at 1445 BST. JOLTS job openings and the ISM non-manufacturing PMI are both at 1500 BST.

In New York, stocks were called for a negative open, with the Dow Jones Industrial Average pointed down 0.7%, the S&P 500 index seen down 0.9% and the Nasdaq 100 pointed down 0.7%.

Elsewhere in London, Tesco was down 2.0%. The supermarket chain saw its sales fall again in the latest Kantar survey data, while its UK grocery market share continued to fall. Tesco sales fell by 0.2% as its market share declined to 28.1% from 28.4%, although the sales decline eased for the fourth month in a row. Of the big four supermarkets, J Sainsbury continued to beat its rivals in the race to achieve sales growth, while Asda and Wm Morrison Supermarkets saw sales decline once again. Tesco shares also suffered a downgrade to Hold from Buy by Deutsche Bank.

Sainsbury's was down 0.4%, while Morrisons was down 1.4%.

London Stock Exchange Group was among the few blue-chip gainers, up 0.5%, on the news that the US's Intercontinental Exchange has secured funding from a trio of banks in preparation for a GBP10 billion takeover bid for LSE, Sky News reported. ICE reached agreement with Morgan Stanley, Wells Fargo and Japan's Mitsubishi UFJ to provide part of the debt needed for an offer, the report said.

Citing insiders, the report said other lenders are expected to be added to the syndicate the coming weeks.

Atlanta-based ICE, which is the owner of the New York Stock Exchange, said in early March it was considering an offer for LSE, which agreed the terms of a GBP21 billion merger with German peer Deutsche Boerse AG later that month. The LSE's traded at 2,800.00 pence Tuesday midday, giving it a market cap of GBP9.75 billion.

The FTSE 250 was down 0.8% at 16,716.35 and the AIM All-Share was down 0.3% at 710.24.

Electrocomponents was the biggest mid-cap riser, up 8.3%, after saying its headline pretax profit for its financial year that ended in March will hit the top end of market expectations after good sales in the UK and Europe. The electronics distributor said headline pretax profit, which removes pension and restructuring costs, will be at the top end of market expectations. For the year to the end of March 2015, headline pretax profit was GBP80.1 million.

Card Factory was up 3.8% after it reported strikingly higher profit in its recently-ended financial year, boosted by revenue growth in both card and non-card offerings. The card and gifts retailer said pretax profit in the year ended January 31 almost doubled to GBP83.7 million from GBP42.7 million the year before, as revenue rose to GBP381.6 million from GBP353.3 million.

Shares in interdealer broker and post-trade risk mitigation provider ICAP were down 3.0% after it reported a drop in average daily volumes on its EBS currency trading platform in March. Average daily volumes on a single-count basis on EBS amounted to USD83.7 billion in March, down 27% year-on-year and 18% from February. EBS and BrokerTec, the fixed income trading platform, together make up the bulk of ICAP's electronic markets business.

In Main Market, Moss Bros Group was up 5.9% after the seller of men's suits increased its dividend, reported an 21% increase in annual pretax profit, and said like-for-like sales continued to improve in the opening nine weeks of its new financial year.

By Daniel Ruiz; danielruiz@alliancenews.com

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