MARKET COMMENT: London Trades Lower As Global Manufacturing Wavers

LONDON (Alliance News) - UK shares trade slightly lower Monday, after disappointing German, French and Chinese manufacturing purchasing managers' index readings outweighed a better-than-expected UK manufacturing performance.

At mid-morning, the FTSE 100 is down 0.1% at 6,741.73. The FTSE 250 is down 0.1% at 16,290.27, and the AIM All-Share is flat at 690.19.

In Europe, the French CAC 40 trades down 0.2% and the German DAX 30 is up 0.2%.

The UK manufacturing sector growth remained strong in January, as the Markit PMI reading came in ahead of economists' expectations. The PMI rose to 53.0 in January from a revised score of 52.7 in December. The score exceeded the expected level of 52.8.

"The big mover in the latest survey was the input prices index, as the recent slump in oil prices saw manufacturers? purchasing costs fall at one of the fastest rates seen over the past 16 years," says Rob Dobson, senior economist at Markit.

"Selling prices also fell for only the second time in five years. Waning inflationary pressures will provide the Bank of England with leeway to push back the first rate increase to late-2015 at the earliest," Dobson adds.

The pound rose against the dollar immediately after the PMI release, reaching USD1.5089, but fell sharply shortly after. It is currently quoted at USD1.5029.

Eurozone's manufacturing activity grew at a faster rate in January than in December, confirming the flash estimate. The final Eurozone Markit PMI, rose to 51.0 in January from 50.6 in December. This was unrevised from the flash estimate. German PMI, however, marginally missed estimates, falling to 50.9 in January from 51.2 in December. Economists were expecting the number to fall to 51.0. French PMI also fell short of expectations, coming in at 49.2 in January compared to the consensus of 49.5. However, it was up from 47.5 in December.

In China, revised estimates showed that the HSBC manufacturing purchasing managers' index came in at 49.7 in January, slightly less than the flash estimate of 49.8. However, the score was marginally more than the 49.6 reading in December. The NBS manufacturing PMI for January, released Sunday, showed the sector fell into contraction in January, with a reading of 49.8, falling from 50.1 in December.

On the corporate front, Irish building materials company CRH leads FTSE 100 gainers, trading up 6.1%. The company said it has agreed a deal with Lafarge and Holcim under which it will buy a range of assets being sold by its French and Swiss rivals as part of the conditions for their merger.

Under the deal, CRH will pay EUR6.5 billion to buy assets from the companies primarily in Europe, Canada, Brazil and the Philippines. It will use EUR2.0 billion of cash from its balance sheet, new bank debt, and the proceeds of a share placing to fund the deal, which it expects to result in EUR90 million of synergies by year three after completion. It also expects the deal to boost earnings per share by about 25% in the first full year of ownership of the assets.

Crude oil continued its good performance from Friday following news reports of a sharp decline in US rig counts in response to the supply glut. Brent is trading at USD52.37 a barrel.

"With BP to announce major spending cuts in its earnings release tomorrow, last Friday?s boost may have been a minor blip rather than any kind of resurgence," says Spreadex Financial analyst Connor Campbell.

BG Group, is another big blue-chip gainer, trading up 2.9%, Tullow Oil is up 1.9%, Royal Dutch Shell 'B' is up 1.7%, and BP is up 0.6%.

In the FTSE 250, Ophir Energy, up 4.8%, Premier Oil, up 3.8%, and SOCO International, up 1.7% were all amongst the biggest gainers.

Kingfisher, down 2.2%, Fresnillo, down 2.2%, and Randgold Resources, down 2.0%, are all amongst the worst performers in the FTSE 100 after being handed downgrades by UBS.

Afren shares have soared 53%, making them by far the biggest gainer in the FTSE 250. The oil and gas company said late Friday it has struck a deal with the lenders on its USD300 million Ebok facility for the deferral to February 27 of a USD50 million amortisation payment that had been due on Saturday.

Still ahead in the economic calendar is income and consumption data from the US at 1330 GMT and Markit and ISM manufacturing PMI at 1445 GMT and 1500 GMT, respectively.

Futures indicate a largely lower opening for the US, with the DJIA pointed flat, while the S&P 500 and Nasdaq 100 are both indicated down 0.1%.

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

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