26th Oct 2015 16:55
LONDON (Alliance News) - The FTSE 100 closed lower Monday, ending the day in the red for the first time in four sessions, after comments from Chinese Premier Li Keqiang over the weekend added to ongoing concerns about growth in China, weighing heavily on investor sentiment.
Premier Li said that his government would not "defend to the death" its goal of 7.0% economic growth this year, adding to deep-seated market fears that economic growth in the world's second largest economy is slowing.
Li's remarks came after the Chinese central bank on Friday cut interest rates and its required reserve ratio to help stimulate the country's economy in the wake of weak economic growth figures issued earlier last week.
"The [European Central Bank] and Chinese central bank turned decidedly dovish last week, but some of the enthusiasm created by this has waned following comments from China's premier that the 7% growth target was becoming less important," said Chris Beauchamp, senior market analyst at IG.
"Essentially, we should read this as China's government admitting that 7% is now too optimistic as a target, with Premier Li's remarks acting as an indication that we should all adjust ourselves to the reality of weaker growth in this hitherto unstoppable powerhouse," Beauchamp added.
London's heavyweight mining sector lost ground as a result, with Anglo American, Glencore and Fresnillo all among the biggest blue-chip losers, closing down 3.1%, 2.7% and 1.5%, respectively. The FTSE 350 mining sector index as a whole ended the day down 1.4%.
The FTSE 100 index itself closed down 0.4% at 6,417.02 points, ending three days of gains, while the mid-cap FTSE 250 lost 0.4% to 17,178.66 and the AIM All-Share index was flat at 747.46.
The French CAC 40 index in Paris closed down 0.5%.
However, the German DAX 30 in Frankfurt closed up 0.1%, following some better-than-expected Ifo business sentiment survey results from Europe's largest economy.
Germany's business confidence weakened by less than expected in October, as expectations unexpectedly improved, survey results from the Ifo institute showed. The business climate index fell to 108.2 from September's reading of 108.5, but the score was above the 107.8 economists had forecast.
Furthermore, the expectations index of the survey rose to 103.8 in October, defying forecasts for a decline to 102.3. In the previous month, the reading was 103.3. The current conditions index, however, dropped to 112.6, which was worse than the 113.5 economists had predicted and the September score of 114.0.
"While companies do appear concerned about the current climate, particularly in manufacturing, they remain optimistic about future conditions," said Craig Erlam, senior market analyst at OANDA. "When you consider the number of headwinds currently facing German companies, notably the slowdown in emerging markets and the VW [Volkswagen] scandal, it's encouraging to see that businesses are still bullish," he added.
In the US, at the UK stock market close, the NASDAQ Composite traded up 0.1%, while the DJIA and S&P 500 both were down 0.2%.
"There is nothing close to the kind of headline-grabbing [US] earnings beats seen last week to help justify pushing shares even higher on Monday, but equally nothing to suggest the rally can't continue," said Jasper Lawler, market analyst at CMC Markets, referring to strong results reported last week by Alphabet, Microsoft, and Amazon.
"The surprisingly big drop in new home sales coupled with falling oil prices were enough to nudge stocks lower," Lawler added.
A report released by the US Commerce Department showed that new home sales in the US fell by much more than anticipated in the month of September. The report said new home sales tumbled 11.5% to an annual rate of 468,000 in September from the revised August rate of 529,000. Economists had expected new home sales to edge down just 0.5% to a rate of 549,000 from the 552,000 originally reported for the previous month.
In the forex market, the dollar moved lower against its major rivals in the immediate aftermath of the data. At the UK equity market close, the pound traded at USD1.5360, while the euro traded at USD1.1047.
In the commodities market, at the close of the UK equity market, gold traded at USD1,166.22 per ounce, while Brent oil was quoted at USD47.90 a barrel.
At the individual UK stock level away from the mining sector, WPP was among the biggest fallers in the FTSE 100 Monday, closing down 2.2%.
Shares in the advertising and media buying company fell sharply even though it predicted a strong end to 2015 after seeing revenue rise in its third quarter, as concerns about digital advertising and the economic slowdown in China cast shadows across the future.
Analysts largely greeted the results positively, with many noting that WPP's results helped show that weak results from rival Publicis Groupe last week remain specific to Publicis and were not indicative of the wider marketing space. Last Thursday the French advertising group slashed its organic growth target for 2015, following flat sales in September.
WPP reconfirmed its outlook for the year, continuing to expect an operating margin improvement of 0.3 margin point at constant currency. For the first nine months, WPP's operating margin was up 0.3 margin point at actual exchange rates, and up 0.5 margin point at constant currency.
Although it is still formally reviewing its forecast following the quarter, WPP currently expects higher revenue, excluding acquisitions and disposals and at constant currency, in its fourth quarter compared to the first nine months of the year, against weaker comparatives.
However, some analysts noted that WPP's results missed expectations by a few measures, and several analysts suggested they remain cautious about ad agencies moving into 2016 based on wider structural concerns in the sector.
At the other end of the spectrum, Aberdeen Asset Management, closing up 2.9%, was the biggest riser in the blue-chip index.
The Financial Times on Sunday said the group has started sounding out potential buyers for the company as the emerging-markets-focused fund manager attempts to stem a recent slump in profitability, its share price and its assets under management. People familiar with the process said Martin Gilbert, the chief executive of the company, had made informal approaches to a number of rivals in recent months, the newspaper said.
Gilbert, who also founded the business, declined to comment to the FT, while a spokesman for Aberdeen denied the reports to multiple media outlets on Monday.
In the FTSE 250, Senior was one of the biggest risers, ending up 3.3%.
The manufacturing company, which makes components for the aerospace and automotive industries, was upgraded to Buy from Hold by Investec as the broker said the company is currently undervalued. Investec said that while the growth story for Senior has paused, the company's programme positions, operational flexibility, consistent cash generation and strong balance sheet are attractive and undervalued at current share price levels.
TalkTalk Telecom Group, closed down 12%, making it the biggest faller in the mid-cap index and leaving the stock down almost 30% in the month of October.
The telecommunications company reported some progress was made on dealing with its cyber attack over the weekend, with significantly fewer customers affected than originally anticipated. TalkTalk hired defence contractor BAE Systems to investigate the incident, though it is understood to be facing rising calls for compensation related to the incident.
In the UK corporate calendar Tuesday, FTSE 100-listed St James's Place and BP are scheduled to be joined by FTSE 250-listed International Personal Finance in releasing third-quarter updates. Providing trading statements are retailers Carpetright and Shoe Zone. In the US, Apple and Twitter are expected to report earnings after the Wall Street closing bell.
In the data calendar, preliminary readings of UK third-quarter gross domestic product are expected at 0930 GMT. According to FXStreet.com, economists' expectations are for the annual figure to come in at 2.4%, unchanged from the level posted in the second-quarter, while the quarterly reading is forecast to come in at 0.6%, marginally lower than the 0.7% posted in the previous quarter.
In the US, durable goods data are scheduled for 1230 GMT, with the latest Redbook index figures and S&P/Case-Shiller home prices indices data expected shortly after at 1255 GMT and 1300 GMT, respectively. US Markit services and composite purchasing managers' index readings are expected at 1345 GMT, followed by US consumer confidence data at 1400 GMT.
Also in the calendar Tuesday, the US Federal Reserve begins its two-day monetary policy meeting, with the outcome of the meeting due to be published after the UK market close on Wednesday.
CMC Markets' Lawler said he believes that "a rate hike seems almost impossible at this week's meeting...There's no press conference to explain the decision and if it does happen, it will have been one of the most poorly signalled moves in Fed history."
Nevertheless, central banks from around the world will continue to be a key focus for investors, with the Bank of Japan's interest rate decision and monetary policy statement on Friday.
"Although not much is expected to come out of the Federal Reserve’s policy statement on Wednesday, the Bank of Japan’s meeting could be an interesting one to watch on Friday as there is a possibility it will either announce its intentions to or expand the bond buying programme," said Fawad Razaqzada, technical analyst at Forex.com.
"If seen, this will likely further depress Japanese bond yields and force more yield-seekers into the equity markets even if valuations might appear expensive in some places, though the lack of other real alternatives means investors do not have a lot of choice," he added.
By James Kemp; [email protected]; @jamespkemp
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
SeniorAnglo AmericanFresnilloWPPGlencoreTALK.LADN.L