MARKET COMMENT: Stocks Slump, Gold Spikes And Copper Melts On Macroeconomic Concerns

LONDON (Alliance News) - UK and European stocks opened lower Wednesday and continued to slide throughout the day as increased concern over the health of China's economy, unconvincing economic numbers, the ongoing tension in Ukraine, as well as number of large cap stocks going ex-dividend, all helped to send the leading UK index lower for the fourth consecutive day.

The FTSE 100 has closed down 1.0% at 6,620.90, the FTSE 250 has closed down 1.0% at 16,326.70, and the AIM All-Share has closed down 1.0% at 887.24.

Major European markets suffered similar falls, with the CAC 40 closing down 1.0% an the DAX closed down 1.3%.

Chinese credit risk was the main market focus Wednesday, evidenced by a collapse in the price of copper after the countries first ever corporate bond default on Friday, followed by the trade deficit announced at the weekend.

China accounts for about 40% of global base metal demand, and moreover it is reportedly common for Chinese financial transactions to be collateralised by copper, with some analysts estimating that roughly 60-80% of copper imports to China over the past few years have been used as collateral for borrowing.

"As Chinese companies using Copper as collateral default on their obligations, they?re forced to liquidate their assets. The first domestic Chinese bond defaults have provoked a massive down-drift in Copper prices since Friday, with the price falling over 10% in the past four days alone," said DailyFX analyst Christopher Vecchio.

The price of copper slid below USD6,400 per ton on Wednesday for the first time since July 2010. "Doubtless the data to come out of China at the beginning of the week, are to blame for the price slump, along with fears of credit risks in the country after a recent payment default on a corporate bond," said commodity analysts at Commerzbank in a note to clients.

The situation in Ukraine also continues to develop, with the leaders of the G7 nations warning Wednesday that the planned referendum on Crimea's accession to Russia is illegal and threatening more sanctions against Moscow if the vote goes ahead.

The combination of the two major background concerns sending the gold price up to a near six-month high of USD1,370.68, with the yellow metal continuing to push higher after the European equity market close.

In a relatively light economic calendar Wednesday, EU industrial production numbers did little to lift investor sentiment. Production in the eurozone fell by 0.2% in January, after having fallen by 0.4% in December. Economists had expected production to pick up and show a rise of 0.5% over the month.

US equities are in slightly better shape, with the DJIA and the S&P 500 trading just 0.1% lower and the Nasdaq Composite 0.1% higher after the close of European markets.

Within UK equities, Prudential was the stand out blue-chip gainer Wednesday, after the insurance group said it has signed a 15-year agreement with Standard Chartered that will see a wide range of its products distributed through the emerging markets-focused bank's branches. Prudential also released full-year results that showed a fall in pre-tax profits but a 17% rise in operating profit. Prudential shares closed up 2.7%, while Standard Chartered, which went ex-dividend Wednesday, was one of the biggest faller in the FTSE 100, closing down 3.7%.

In fact most of the worst performers on the FTSE 100 Wednesday were stocks that went ex-dividend, including HSBC - down 2.8%, British American Tobacco - down 3.5%, Meggitt - down 3.6%, Land Securities - down 2.9%, Hammerson - down 3.8%, and Hargreaves Lansdown - down 3.3%.

However, the worst performing FTSE 100 stock was G4S, which closed down 5.3% after the troubled outsourcing company said it swung to a loss in 2013 as it booked GBP386 million in charges and restructuring costs related to its problems with UK government contracts.

Two new stocks began conditional trading on the London market Wednesday. Poundland, which priced its IPO at 300 pence, closed up 15% on it's first day at 345.103 pence. Meanwhile, Pets at Home, which priced at 245 pence, closed fractionally lower at 242.52 pence.

In the corporate calendar Thursday, Supermarket Morrison announces its full-year results, along with Home Retail Group, Bwin.Party, F&C Asset Management and Salamander Energy.

The Bank of England will release its quarterly bulletin covering the first three months of 2014 overnight. The bulletin usually contains articles designed to help the understanding of the current economic situation in the UK and is unlikely to announce anything of immediate market interest.

The Royal Institute of Chartered Surveyors Housing Price Balance is also released overnight and is expected to remain at recent high levels. The index hit its recent peak in November 2013, when 58% of surveyors thought that UK house prices would rise in the following month. February's index is expected to come in at 52%, down slightly from 53% in January.

Chinese retail sales and industrial production numbers are also due for release before overnight, as well as Australian unemployment, all of which could effect Asian markets and provide some direction at the UK and European market open, particularly given Wednesday's concerns over China.

French and Italian consumer price inflation numbers, due at 0745 GMT and 0900 GMT, will provide the morning European market focus, along with the European Central Bank's monthly report, released at 0900 GMT.

By Jon Darby; jondarby@alliancenews.com; @jondarby100

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