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LONDON MARKET MIDDAY: China recovery fears cap further FTSE 100 gains

5th Sep 2023 11:59

(Alliance News) - Stock prices in London struggled to make substantial gains at midday on Tuesday, with market mood tempered by fresh worries for the beleaguered Chinese economy.

"Nagging worries about the Chinese economy are a big contributing factor to the change in mood – the latest PMI reading from the services sector painting a shocking picture," said Russ Mould, investment director at AJ Bell.

The FTSE 100 index was up 9.46 points, or 0.1%, at 7,462.22. The FTSE 250 was down 20.86 points, or 0.1%, at 18,503.28, and the AIM All-Share was up just 0.54 of a point, or 0.1%, at 741.13.

The Cboe UK 100 was up 0.2% at 743.12, the Cboe UK 250 was down 0.2% at 16,139.10, and the Cboe Small Companies was up 0.1% at 12,999.81.

Growth in China's services sector slowed in August, according to survey data on Tuesday, with companies reporting less export demand.

The Caixin services purchasing managers' index fell to 51.8 points in August from 54.1 in July. Slipping closer towards the 50-point no-change mark, it signals a more modest expansion in activity.

The composite PMI, which measures the manufacturing and services sector, fell to 51.7 points in August from 51.9 in July.

"The poor PMI data from China highlights how fragile the second biggest economy in the world remains, seriously denting hopes of a recovery in the region as most investors now expect more downtrend to come," said Pierre Veyret, technical analyst at ActivTrades.

Adding to the downbeat market mood on Tuesday, survey data showed that the UK economy fell into contraction in August, led by a fall in the service sector.

The UK seasonally adjusted composite PMI posted 48.6 points in August, down from 50.8 in July and below the crucial 50.0 no-change value for the first time since January.

"Reduced volumes of business activity were recorded in both the manufacturing and service sectors during August, with the former posting a much faster rate of decline," S&P said.

More positively for the UK economy, the latest British Retail Consortium and KPMG sales monitor showed UK retail sales bounced back last month following a poor performance in July.

Total UK retail sales increased 4.1% on an annual basis in August, picking up sharply from the 1.8% rise recorded in July.

July's rise was the weakest year-on-year growth in retail sales since August 2022, according to the BRC. Meanwhile, August's rise was above the three-month average growth rate of 3.6%.

However, Helen Dickinson, chief executive of the BRC, cautioned that sales growth may fall in the coming months, even if volume growth does not, as the rate of price rises falls amid easing inflation.

In London, B&M European Retail was the worst performer in the FTSE 100 at midday, down 2.7%.

The variety goods value retailer said it has entered an agreement with the joint administrators of the failed Wilko chain to buy 51 properties for up to GBP13.0 million.

In August, Sky News reported that Wilko's administrator was in talks to divide up parts of the household goods and homewares seller's 400-store estate. At the time it said that B&M was mulling taking on between 40 and 50 stores.

In the FTSE 250, Lancashire Holdings added 3.2% after Morgan Stanley raised the insurer to 'equal-weight' from 'underweight' and raised its price target to 692 pence from 627p. The stock is currently trading at 589.50p.

Caledonia Investments climbed 2.7% as it announced it has agreed terms for selling its majority stake in retail wealth manager Seven Investment Management.

The investment trust said the cash received from the sale to the Ontario Teachers' Pension Plan Board for around GBP255 million will be held on deposit for future investment.

Caledonia first bought the stake in Seven Investment Management in 2015. At the end of March, Caledonia's holding in 7IM was valued at GBP187.2 million, excluding a GBP13.2 million sum it plans to invest into the business before completion.

Elsewhere in London, EnQuest dropped 16% after it announced a sharply lower interim profit and said it has applied to delist from the Nasdaq Stockholm.

For the first half of 2023, the UK and Malaysia-focused oil and gas producer reported a pretax profit of USD112.9 million, down 38% from USD182.6 million a year prior. Revenue declined 22% to USD732.7 million from USD943.5 million.

The company also said it has applied to delist its shares from the Nasdaq Stockholm due to the UK's departure from the EU.

"EnQuest has no legal or physical presence in Sweden and is therefore reliant on external support to ensure compliance with Nasdaq Stockholm listing requirements. This has created a source of additional unexpected compliance cost for the company," it explained.

On AIM, GetBusy fell 13% despite reporting higher revenue and a narrowed loss in the first half of 2023.

The document management and productivity software provider reported a pretax loss of GBP603 million, narrowed from GBP724 million the year prior.

Revenue rose 16% from GBP9.1 million a year earlier, while recurring revenue - which comprises of 96% of GetBusy's total revenue - rose to GBP10.1 million from GBP8.5 million

In European equities on Tuesday, the CAC 40 in Paris was down 0.3%, while the DAX 40 in Frankfurt was down 0.1%.

In the fight against persistently high inflation in the eurozone, European Central Bank Chief Economist Philip Lane sees light at the end of the tunnel.

"Our calculations are basically that there were very strong price increases a year ago, which will fall out of the data this autumn. So we do expect to see this famous core inflation come down throughout the autumn," Lane told Irish magazine The Currency in an interview published on Tuesday.

"The latest data show that inflation is standing at 5.3% overall, which remains high, but in terms of looking for signals of momentum and signals of directional change, I would underline the fact that there has been some easing in goods inflation and services inflation, which is a welcome development," he said.

His remarks fuelled speculation that the ECB might pause its rate hikes at next week's policy meeting.

Stocks in New York were seen largely lower on Tuesday as US markets returned to trading after the labour day public holiday. The Dow Jones Industrial Average was seen flat, the S&P 500 index down 0.1%, and the Nasdaq Composite down 0.3%.

The pound was quoted at USD1.2561 at midday on Tuesday in London, down from USD1.2620 at the London equities close on Monday. The euro stood at USD1.0746, lower against USD1.0791. Against the yen, the dollar was trading at JPY147.23, higher compared to JPY146.46.

Brent oil was quoted at USD88.37 a barrel at midday Tuesday, down from USD89.01 late Monday. Gold was quoted at USD1,931.91 an ounce, sharply lower against USD1,938.92.

By Heather Rydings, Alliance News senior economics reporter

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