29th Feb 2016 12:00
LONDON (Alliance News) - UK equities remained in the red midday Monday but had climbed sharply off their morning lows, after the Chinese central bank slashed its bank reserve requirement ratio and inflation in the eurozone slipped back into negative territory, fuelling expectations for a bumper stimulus package from the European Central Bank next week.
At mid-morning, the People's Bank of China released a surprise statement saying the renminbi deposit reserve requirement ratio was reduced by 50 basis points.
The reduction in reserve requirement will help to maintain adequate liquidity in the financial system, guide steady moderate growth of money and credit and boost supply-side structural reforms to improve the monetary and financial environment, the bank said in a statement on its website.
The move followed a 2.9% decline in the Shanghai Composite stock market on Monday.
The stimulus was a shot in the arm for stocks in Europe which came sharply off their lows. The FTSE 100 traded down 0.4%, or 26 points, at 6,072.01 at midday.
However, Mike van Dulken, head of research at Accendo Markets, said the reaction in stocks was somewhat muted compared to what followed previous stimulus announcements.
"Does this signal waning faith in central bank fire power? Or bigger fears over China?" van Dulken questioned.
The FTSE 250 was down 0.3% at 16,511.45, and the AIM All-Share was down 0.1% at 691.80. In mainland Europe, the French CAC 40 was down 0.6% and the German DAX 30 was down 1.4%.
Eurozone consumer prices unexpectedly declined in February, preliminary data from the statistical office Eurostat showed Monday, adding to the deflation worries of the ECB and President Mario Draghi, who is set to announce the bank's latest policy decision next Thursday.
The flash harmonized index of consumer prices in the eurozone fell 0.2% year-on-year following a 0.3% rise in January. Economists had expected a 0.1% gain. The latest decline was the biggest since February last year, when prices fell 0.3%.
Core HICP, which excludes fresh food and energy prices, rose 0.8% annually after a 1% climb in the previous month. Economists had forecast a 0.9% increase.
"Eurozone inflation figures have thrown the gauntlet to Mario Draghi, just ten days before the ECB announce its latest interest rate decision," said IG market analyst Joshua Mahony. "If another return to deflation wasn't enough, the significant fall in core CPI will no doubt worry the ECB given that it reflects slow price growth irrespective of recent oil price shocks."
The euro took a hit following the data and at midday traded the dollar at USD1.0881 compared to USD1.0931 at the London stock market close on Friday.
Ahead of the open on Wall Street, futures pointed the DJIA and S&P 500 down 0.3% and the Nasdaq 100 down 0.5%.
In UK corporate news, Wm Morrison Supermarkets said it has entered a new supply agreement with US online retail giant Amazon.com and has agreed new terms in principle with online grocery delivery company Ocado Group.
Morrisons said it has struck a new supply agreement with Amazon, through which its products will be made available to Amazon Prime and Amazon Pantry, Amazon's food service, customers. Morrisons will provide a wholesale supply services to Amazon, allowing customers of Amazon to access a wide range of Morrisons ambient, fresh and frozen products.
Amazon Pantry currently provides only packaged food.
In addition, Morrisons has been in talks with Ocado to grow its Morrisons.com online grocery business and the pair have now reached an agreement in principle under which Morrisons will take space at Ocado's new Customer Fulfilment Centre in Erith and Ocado will deliver a "stock pick" service to Morrisons.
Shore Capital analyst Clive Black said "there is strategic merit [for Morrisons] in exploring a commercial tie-up with Amazon". But for Ocado, Black said the market may take a "dim view of the re-negotiation" with Morrisons.
This was reflected in the divergence of the two company's share price movements so far on Monday. Morrsions was one of the best FTSE 250 performers, up 4.7%, while Ocado was the worst performer, down 9.8%.
Topping the gainers list in the midcap index was Vedanta Resources, up 6.2%. The India-focused miner won India's first-ever auction of a gold mine, as the nation opens up the mining sector to foreign companies, reported Reuters on Saturday.
Vedanta Ltd, a unit of Vendanta Resources, has been awarded the Baghmara gold mine in Chhattisgarh after outbidding three other bidders, Reena Kangale, the head of the state's Directorate of Geology and Mining told Reuters.
Shares of engineer Senior were down 4.9% after the company said pretax profit sank in 2015 due to mixed aerospace market conditions, though revenue increased and the group pushed up its dividend payout.
The group said pretax profit fell 21% to GBP63.8 million in 2015 from GBP80.6 million the prior year, as margins were hit in its aerospace operations by maturing, older jet programmes and volume reductions.
Senior said the near-term outlook for the company looks challenging, but said it remains confident on its medium-term prospects. It will pay a final dividend of 4.36 pence per share, taking its total dividend up to 6.20p, a 10% rise year-on-year.
On the AIM market, Tangent Communications traded up 26% to 3.0 pence. The printing and digital marketing company said it has withdrawn its recommendation for the bid made for the business by its management team after it agreed a deal with media and marketing investor Writtle Holdings.
Under the terms of the Writtle deal, Tangent shareholders will get 3.0p per share in cash, valuing the company at around GBP8.7 million in total and a 33% premium on the 2.25p per share offer made by the management team's Tangent Holdings UK Ltd vehicle.
Tangent said the new offer from Writtle will provide the most value for Tangent shareholders and withdrew its recommendation for the rival bid.
Delivery company DX Group's shares were down 17% after it said it swung to a big pretax loss for the first half, in line with its revised expectations.
DX said it made a pretax loss of GBP88.4 million in the half to the end of December, compared to a GBP9.9 million profit a year earlier, due to a GBP88.4 million goodwill impairment charge it booked in the period due to challenging conditions in the industry. Revenue fell to GBP141.6 million from GBP147.6 million.
Still ahead in the economic calendar, the Chicago purchasing manager's index is due at 1445 GMT, and US pending home sales are at 1500 GMT.
By Neil Thakrar; [email protected]; @NeilThakrar1
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