11th Aug 2015 09:40
LONDON (Alliance News) - London shares are mixed at mid morning, as the People's Bank of China's devaluation of the yuan has hit investor sentiment, while Greece has agreed with its international creditors a new debt bailout worth EUR86 billion, its third bailout in five years.
The FTSE 100 is down 0.7% at 6,791.12, the FTSE 250 is down 0.2% at 17,717.55 and the AIM All-Share is up 0.1% at 754.48.
European major indices also are lower, with the CAC 40 in Paris down 1.1% and the DAX 30 in Frankfurt down 1.2%.
Greece early Tuesday reached an agreement with its creditors over the terms of the third bailout, Finance Ministry spokesman Theodoros Mihopoulos reportedly said.
The Greek government has agreed to the outlines of a bailout package put forward by its creditors, according to Greek media reports and government sources Tuesday. The proposal, which still requires some details to be clarified, would lay out the terms for the country's third bailout in five years, expected to be worth EUR86 billion. The Greek government has not yet made an official announcement about the talks.
The deal is expected to set budgetary goals for the coming year that would leave it with a primary surplus of 0.25% of gross domestic product. That figure represents the surplus before interest payments are made and provides an indicator of how an economy is performing. The plan would then call for primary surpluses of 0.5% in 2016 and 1.75% in 2017.
Greece's Parliament is expected to vote on whether to accept the country's latest bailout deal on Thursday, report Greek media citing government sources. Once approved by national parliaments, euro area finance ministers are expected to meet towards the end of the week to finalize the process. Afterwards, funds will be released to Greece to allow it to honour a payment to the European Central Bank due August 20.
"The devil is always in the details, hurdles remain," says Berenberg analyst Holger Schmieding. "Still, if a deal is struck, we are confident that, as usual, the Bundestag will endorse it with a broad majority."
German economic confidence deteriorated sharply to a nine-month low in August, survey data from the Mannheim-based Centre for European Economic Research or ZEW showed Tuesday. The economic confidence index dropped unexpectedly by 4.7 points to 25 in August, the lowest score since November 2014. It was expected to rise to 31.9.
Outside Europe, China devalued the yuan by the most in two decades to cushion its exports as the Chinese economy shows no solid signs of revival after the volatility in the stock market. The People's Bank of China set the value of yuan at 6.2298 a dollar, 1.9% lower than Monday's official fixing rate.
This was the biggest one-day loss since 1994, when it unified the official rate with market rates. The central bank termed it as an one-time adjustment as it strives to keep the yuan stable at a reasonable level. The yuan is allowed to move with in a range of 2% from the central parity rate fixed each day.
"The move has also just put the brakes on a nascent recovery in commodities and equities sentiment has been hit," writes Hantec Markets analyst Richard Perry.
The Shanghai Composite index closed Tuesday flat, while the Hang Seng in Hong Kong was down 0.1%. The Japanese Nikkei 225 closed down 0.4%.
"China has basically acknowledged the US dollar strength in the run up to a likely US Federal Reserve rate hike in September," writes Berenberg's Schmieding. "All in all, this may be a step for China to make its currency a little more flexible and manage it more relative to a genuine basket of other currencies rather than mostly relative to the US dollar."
Federal Reserve Bank of Atlanta President Dennis Lockhart said on Monday the US central bank is close to raising short-term interest rates, potentially sooner than September, as he said the economy is "approaching an acceptable normal", The Wall Street Journal reported.
Lockhart, during a speech at the Atlanta Press Club, said the "point of liftoff is close". He added that "September remains a live possibility" for a first rate rise in the US for nine years.
On the London Stock Exchange, gold miners are up as the gold price improves, standing Tuesday mid-morning at USD1,112.23. In the FTSE 100, Randgold Resources and Fresnillo are the best performers, up 3.5% and 3.2%, respectively.
However, other mining stocks are giving back Monday's gains, with Glencore down 1.8%, BHP Billiton down 1.4% and Rio Tinto down 1.0%. In the FTSE 250, Vedanta Resources is down 1.9% and Kaz Minerals is down 1.1%.
Prudential reported increases in both operating profit and annual premium equivalent sales, beating analyst forecasts in the process. The life insurer said its operating profit based on longer-term investment returns before tax amounted to GBP1.88 billion in the six months to the end of June, compared with GBP1.52 billion in the same half of the prior year, ahead of the GBP1.74 billion analyst consensus estimates provided by the company.
The company increased its interim dividend by 10% to 12.31 pence per share. Prudential shares opened lower and spiked up following the release of the interim results. However, they are now down 0.4% at 1,500 pence.
In the FTSE 250, specialty chemicals company Synthomer is up 1.8% after it said its pretax profit rose in the first half thanks to margin improvements in its North American business and a good operating performance in Asia which offset continued sluggishness in Europe and a hit the group is taking from the weak euro.
It said its pretax profit for the half was GBP36.8 million, up from GBP29.9 million a year earlier, despite its total sales falling to GBP468.7 million from GBP510.1 million, held back by euro weakness as volumes rose by 6.8%. The group said it will increase its interim dividend to 3.2 pence per share, up from 3.0 pence.
Meanwhile, SIG said its pretax profit was higher in the first half of 2015 than a year earlier thanks to lower exceptional costs, but revenue for the group was pulled lower both by a weakening euro and by challenging market conditions in mainland Europe, while the group said margins pressures are likely to offset some of the benefits from its cost-cutting programme.
The building products company said its pretax profit for the half to the end of June was GBP26.8 million, sharply higher than the GBP11.8 million it posted a year earlier, as exceptional costs in the half fell to GBP12.3 million from GBP31.2 million a year earlier. Shares in SIG trade down 6.4%, the worst performer in the FTSE 250.
Still in the economic calendar Tuesday, in the US, unit labor costs and nonfarm productivity are expected at 1330 BST. The Redbook index is expected at 1355 BST, while wholesale inventories are at 1500 BST.
By Daniel Ruiz; [email protected]; and Preten Patel; [email protected]
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
PrudentialSIGKAZ.LRio TintoBHP Billiton PLCSynthomerVedanta ResourcesRandgold ResourcesFresnilloGlencore