4th Jan 2016 16:59
LONDON (Alliance News) - Stocks in Europe concluded a miserable first trading session of 2016 firmly in the red Monday, following sharp declines by Asian equities which saw Chinese stock trading halted.
The Shanghai Composite slid 6.9% prompting authorities to invoke a circuit breaker rule on the very first day it was came into effect and bringing a premature end to trading in the Shanghai and Shenzhen stock markets. The circuit breaker rule was put in place after Chinese market volatility sent tremors around the world in the second half of 2015.
The decline in stocks Monday was in response to a weak Chinese manufacturing purchasing managers' index reading, which pointed to further weakness in the world's second-largest economy.
Jasper Lawler, CMC Markets analyst, said the direction of Chinese stock prices on Tuesday may depend on any intervention by Chinese authorities.
"An interest-rate cut would probably be best-received by markets, but the People's Bank of China may not want to pander to every weak moment in the stock market. Looking further out, a policy response of further devaluation of the yuan to boost manufacturing exports may be outright unfriendly towards international markets," Lawler said.
In London, the FTSE 100 closed down 2.4% at 6,093.43, with only two stocks - both gold miners - ending higher. Amongst the heaviest fallers were stocks exposed to China. Life insurer Prudential, which has been determinedly expanding in Asia, closed down 4.9%, emerging-markets bank Standard Chartered ended down 4.4%, and fashion retailer Burberry Group, for which China and Hong Kong are key markets, ended down 4.6%.
Miners also were hit, as the weakness in China weighed on commodity prices. Anglo American closed as the worst performer in the FTSE 100, down 6.9%. Glencore ended down 5.5% and Antofagasta down 5.0%.
The FTSE 250 index ended 1.8% lower at 17,122.15 while the AIM All-Share managed a 0.1% gain to 735.71 points.
In Europe, the French CAC 40 ended down by 2.5% and the German DAX 30 by 4.3%. There were further losses in Frankfurt after data from Destatis showed German consumer price inflation eased unexpectedly in December.
The consumer price index climbed 0.3% year-on-year following 0.4% increase in November, which was the fastest pace in six months. Economists had expected inflation to continue its positive momentum and post a 0.6% gain.
The harmonized index of consumer prices, which is meant for EU comparison purposes, rose 0.2% year-on-year after a 0.3% climb in November. Economists had forecast a stronger figure of 0.4%.
On Wall Street at the London close, the Dow Jones Industrial Average was down 2.5%, the S&P 500 index down 2.4% and the Nasdaq Composite down 3.0%.
In addition to the negative lead from Asia and Europe, New York was hit by weak US manufacturing data from the Institute for Supply Management, which said its manufacturing index dropped to a six-and-a-half year low.
The ISM said its purchasing managers index edged down to 48.2 in December from 48.6 in November, with a reading below 50 indicating a contraction in manufacturing activity. The modest drop came as a surprise to economists, as the consensus estimate called for the index to inch up to a reading of 49.2.
The unexpected decrease meant the manufacturing index dropped to its lowest level since hitting 45.8 in June 2009.
The pound was largely unchanged against the dollar after the data, seeing no let-up in its gradual depreciation against its US counterpart. At the London close, the pound was quoted at USD1.4670. Earlier in the session, the pound touched its lowest level against the greenback since mid-April at USD1.4662.
It was a similar story for the euro against the dollar, which was quoted at USD1.0791 at the London equities close.
Political tensions in the Middle East also were in the spotlight Monday, after Saudi Arabia's allies Bahrain, the United Arab Emirates and Sudan followed the kingdom's lead in severing or downgrading relations with Iran.
The Saudi government broke off relations with Tehran after protesters had stormed the Saudi embassy there on Saturday night to protest Riyadh's execution of Nimr al-Nimr, a fiery Shiite critic of Saudi authorities.
Al-Nimr was among 47 people executed by Saudi Arabia earlier on Saturday after convictions on terrorism-related charges.
The tensions saw volatility in oil prices due to concerns of disruptions to supply from the oil-rich region. Brent oil reached a peak of USD38.95 a barrel, its highest level since mid-December and at the London close was quoted at USD36.90 a barrel. US benchmark West Texas Intermediate touched a high of USD38.35 a barrel, and was at USD36.48 at the close.
Gold also made notable gains on Monday. The metal was quoted at USD1,074.80 an ounce at the close, compared to USD1,059.56 an ounce at the London equity market close last Thursday. The rise in gold meant that gold miners Randgold Resources, up 2.1%, and Fresnillo, up 0.1%, were the only two gainers in the blue-chip index.
In UK corporate news, Grainger ended as one of the best performers in the FTSE 250, up 4.4%. The residential landlord said it agreed with Turbo Group Holdings to sell its Equity Release division for a total consideration of GBP325.0 million, including debt.
Grainger said the sale of its retirement products unit to Turbo, owned by Patron Capital Partners and Electra Private Equity, will allow it to focus on its residential lettings business, following the sale of its wholly-owned and joint venture assets in Germany.
The sale consideration will include GBP175.0 million in cash and the transfer of GBP150.0 million in debt to the buyer and will cut Grainger's net debt position by an estimated GBP325.0 million.
Oil company Cairn Energy added 1.7%. Cairn said it received positive results from tests carried out on the SNE-2 appraisal well offshore Senegal as the company moves onto its third and final well on the field before updating its resource estimates.
Cairn said drill-stem testing was carried out on the SNE-2 well over a 12.0 metre interval which produced a stabilised but constrained flow rate of 8,000 barrels of oil per day of high quality pay. The company said the result confirmed the "high deliverability" of the main reservoir in the well.
In the economic calendar Tuesday, German unemployment is at 0855 GMT, UK construction purchasing managers' index is at 0930 GMT, as is the Bank of England's credit conditions survey. At 1000 GMT is preliminary eurozone inflation reading for December. The US Redbook index is at 1355 GMT and the ISM New York index at 1445 GMT.
In the UK corporate calendar, there are trading statements from fashion retailer Next and agriculture, food and engineering company Carr's Group.
By Neil Thakrar; [email protected]; @NeilThakrar1
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