20th Aug 2015 11:19
LONDON (Alliance News) - UK stocks trade lower Thursday midday, while US stocks are called for a negative open, as investor sentiment takes another hit from further declines in Chinese stock markets, despite hints from the latest Federal Reserve minutes that the US central bank will not be ready to hike rates in September.
The FTSE 100 trades down 0.5% at 6,373.21, the FTSE 250 is down 0.7% at 17,269.07, and the AIM All-Share is down 0.5% at 744.55. In Europe, the CAC 40 in Paris is down 0.9% and the DAX 30 in Frankfurt is down 0.8%.
Wall Street is called for lower open, with the DJIA, the S&P 500 and the Nasdaq 100 all pointed down 0.7%. On Wednesday, US major indices closed lower for a second consecutive session, with the DJIA ending down 0.9%, and the S&P and the Nasdaq both down 0.8%.
Volatility in Chinese equities continues to weigh on investor confidence elsewhere.
China share prices dropped again on Thursday with the benchmark Shanghai Composite Index falling 3.4% to 3,664.291 points, while the Hang Seng in Hong Kong lost 1.8% to 22,757.47, having touched its lowest level of 2015. The declines came amid continuing concerns about China's economy despite another round of cash injections by People's Bank of China.
Furthermore, uncertainty over the implications of China's yuan devaluation linger despite the country's central bank setting the yuan midpoint once again marginally higher than the prior setting.
IG market analyst David Madden says that the People's Bank of China's decision to intervene in the currency market has done little to restore confidence in the Chinese stock market, with dealers dreading that more intervention will be required. Madden highlights that the great worry is that China will undergo a dramatic drop in the rate of growth, and the knock-on effect to Europe will damage the recovery.
"It used to be just Australia that would catch a cold when China sneezed, but the Chinese selloff is far more infectious than initially thought," says Madden. "We won’t see the impact of the Chinese currency devaluation for a few more months, and when it does trickle down, it will be painful."
Meanwhile, the International Monetary Fund said it won't add the yuan to its basket of reserve currencies for at least a year, giving markets more time to adjust to the possible addition of China's yuan as part of a review of global reserve currencies.
In the US economic calendar, initial and continuing jobless claims are due at 1330 BST, before Conference Board leading indicators, Philadelphia Fed manufacturing survey and existing home sales, all at 1500 BST.
Lloyds Bank says the highlight will be the Philadelphia Fed’s survey for August, following Monday's "seemingly anomalous decline" in the New York Empire State manufacturing survey for August.
"Markets will be searching for reassurance from today’s geographically broader measure of business sentiment that US growth prospects remain solid. We anticipate a rise in the index from 5.7 in July to 8.0 in August," says the bank.
The data will come a day after the minutes of the July 28 and 29 Fed meeting, released Wednesday, revealed that most members of the Federal Open Market Committee believed conditions for raising interest rates were approaching but not yet achieved. While meeting participants said the US labour market had improved notably since early this year, many saw scope for further improvement. Some members also expressed concerns about the outlook for inflation and whether it would support an interest rate hike.
Notes from the meeting said that one member of the committee "indicated a readiness to take that step at this meeting but was willing to wait for additional data to confirm a judgement to raise the target range." Overall, the panel "concluded that, although it had seen further progress, the economic conditions warranting an increase in the target range for the federal funds rate had not yet been met."
CMC Markets analyst Jasper Lawler comments: "What the Fed is doing at the moment is almost the worst of both worlds for markets; it’s saying it wants to tighten monetary policy but the economy is not strong enough". As a result, Lawler says the markets currently have neither the prospect of sustained loose monetary policy nor economic strength to fall back on.
Crude oil prices extended overnight losses after data from the US Energy Information Administration showed Wednesday that crude oil stocks rose by 2.62 million barrels in the week ending August 15. Stocks were forecast to fall by 777,000 barrels.
West Texas Intermediate fell to a new six and a half year low on Wednesday at USD40.39 a barrel and currently trades at USD40.61 a barrel. Brent oil also is under pressure, hitting its lowest level since mid-January at USD46.33 a barrel, and currently trades at USD46.39 a barrel.
An initial payment of EUR13 billion has been transferred to the Greek government by the European Stability Mechanism, the agency reports. The payment was part of an initial EUR26 billion tranche approved by the ESM and is to be used for further financing needs. The remaining money will be distributed at a later point, also for financing needs, as well as to help with bank recapitalisation.
A number of media outlets are also reporting that Greece has subsequently made its EUR3.2 billion loan repayment to the European Central Bank.
On the UK domestic front, retail sales grew only marginally in July, data from the Office for National Statistics showed. Retail sales including auto fuel gained 0.1% month-on-month in July, but reversed a 0.1% drop in June. It was slower than the expected growth of 0.4%. On a yearly basis, retail sales including auto fuel advanced 4.2%, the same rate of growth as seen in June. Sales were expected to expand 4.4%.
Excluding fuel, retail sales increased 0.4% following a 0.3% drop seen a month ago and coming in line with expectations. Annual growth in sales excluding auto fuel improved to 4.3% in July, as expected, from 4.1% a month ago.
Meanwhile, UK manufacturers' order books recovered in August, the monthly Industrial Trends Survey from the Confederation of British Industry showed Thursday. The order book balance rose to -1 in August from -10 in July. It was better than the expected score of -10.
About 33% of firms reported growth in output in the three months to August, while 20% said it decreased giving a balance of +14. It was well above the long-run average of 3%.
On the London Stock Exchange, FTSE 100-listed miners are rebounding from Wednesday's losses. The FTSE 350 Mining Index is currently the best performing sector, up 2.1%, following seven consecutive sessions ending down. Anglo American is up 3.9%, Fresnillo is up 3.5% and Randgold Resources is up 2.7%. In the FTSE 250, Lonmin is up 16%.
Kaz Minerals is the best mid-cap performer, with its shares up 17%. The miner's share price was given a boost after Kazakhstan said it will allow its currency to float freely, which saw the tenge devalue sharply against the dollar.
All of Kaz Minerals' operations are in Kazkakhstan, and the devaluation of the tenge will drive down costs at its operations, while sales are denominated in dollars. The recent devaluation in China and the decline in Russia's currency from ongoing sanctions also are significant to Kaz as both countries are major trading partners with Kazakhstan.
Kaz also said it swung to a tiny pretax profit in the first half of the year, though saying the Bozshakol mine will not be commissioned on schedule before the end of the year due to the recent fire at the site. This has been pushed back until early 2016.
Rank Group is up 2.9% after it reported growth in profit in its recently-ended financial year, boosted by strong sales in its venues and digital businesses, and said that trading since the year-end has been in line with management expectations.
The bingo club and casino operator said pretax profit multiplied in the year ended June 30 to GBP74.5 million from GBP14.4 million the year before, as its revenue grew 4% to GBP738.3 million from GBP707.7 million, comprising 2% growth in venues revenue and 21% growth in digital.
In the AIM All-Share, Vast Resources is up 12%. The miner said it has commissioned the ball mill and carbon in leach plant for the Pickstone-Peerless Gold Mine in Zimbabwe. Vast said this will allow the start of gold absorption and marks a further milestone for the company in transitioning to becoming a cash generative mining company. The first gold production from the site is being targeted for the end of this month.
Sula Iron & Gold shares are down 33% at 0.567 pence. The miner said it will raise GBP400,000 via a discounted share placing. Sula said it will issue 66.7 million shares at 0.6 pence per share. Sula said it will use the net proceeds from the issue for working capital purposes and to fund a scout drilling programme at the Ferensola gold project in Sierra Leone.
Sill ahead in the economic calendar is the Confederation of British Industry Industrial Trends survey at 1100 BST.
By Daniel Ruiz; [email protected]
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