12th Aug 2015 06:36
LONDON (Alliance News) - UK stock prices are set to open lower Wednesday, continuing their losses from Tuesday as the Chinese yuan continues to fall against other major currencies following a second devaluation by Chinese authorities.
IG says futures indicate the FTSE 100 to open lower at 6,612.0. The index closed down 1.1% at 6,664.54 on Tuesday, after the surprise decision by the Chinese central bank to devalue to the yuan weighed on commodities and the shares exporters to China.
On Tuesday, the People's Bank of China had 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 reduction in value since 1994 and was an attempt to make the official exchange rate more market-determined and support the country's weakening exports.
China's central bank on Wednesday devalued the yuan for the second time in two days, to aid a slowing economy. It unexpectedly adjusted its daily reference exchange rate by a further 1.6%, setting it at 6.3306 to the US dollar. The yuan currently trades at 6.434 a dollar, having been at 6.347 a dollar, its lowest level in four years.
Addressing market concerns Wednesday, China's central bank said there was no basis for a sustained depreciation of the yuan given international and domestic economic conditions.
The concerns over China weighed on the share prices of exporters to China Tuesday, particularly luxury goods stocks, and on commodity prices, sending shares in London-listed miners lower. Oil markets also were hit by concerns about demand from the world's second biggest economy and because of oversupply in the market. Ahead of the London open Wednesday, Brent oil trades at USD48.97 a barrel and West Texas Intermediate is at USD43.04 a barrel.
"For a small economy which has only a limited impact on global supply and demand for metals, then, there is no reason for the 'world' price of the metal to change post a fall in its currency, and therefore all the adjustment should come via a higher local currency price," say analysts at Macquarie.
"But China is not a small economy ? it is the largest consumer of almost all metals, and the largest producer of many. So changes in its local currency price will have a big impact on global supply and demand, and therefore a proportion of the adjustment is likely to come on the US dollar price," the Macquarie analysts add.
In Asia, the Japanese Nikkei closed down 1.6%, the Hang Seng trades down 2.1% and the Shanghai Composite is down 0.1%.
More signs of weakness were seen in the Chinese economy Wednesday. The country's industrial production growth eased by more than expected in July, data from the National Bureau of Statistics showed. Industrial production expanded 6.0% year-on-year in July, slower than June's 6.8% increase and 6.6% rise forecast by economists. Retail sales growth slowed marginally to 10.5% from 10.6% in June. The growth rate was expected to remain unchanged at 10.6%.
"Today's July core activity data are consistent with signals from earlier July data (such as the [purchasing managers' index], trade and [producer price index] deflation data), confirming our view of a soft patch in the economy in July. This suggests that headwinds to growth remain strong and we expect monetary policy to remain accommodative, with more proactive fiscal measures to be rolled out in H2," say analysts at Nomura.
On Wall Street Tuesday, the DJIA closed down 1.2%, the S&P 500 ended down 1.0% and the Nasdaq Composite closed down 1.3%.
Also in focus on Wednesday will be UK unemployment data, expected at 0930 BST. The consensus according to FXStreet.com is for the ILO unemployment rate to stay steady for the three months to June at 5.6%, the same as what was seen in the three months to May.
Simultaneously released will be UK earnings data which are expected to grown 2.8% year-on-year excluding bonuses for the three months to June, matching the growth seen in the three months to May.
Elsewhere in the economic calendar, there is eurozone industrial production at 1000 BST, and US Energy Information Administration crude oil stocks at 1530 BST. After the close of London equity markets, there is the US monthly budget.
Pearson said it has struck a deal to sell its 50% stake in The Economist Group for GBP469 million in cash. The FTSE 100-listed education and publishing company, which recently sold the Financial Times newspaper to Japanese publisher Nikkei, is selling the stake to Exor SpA, the investment vehicle run by Italy's Agnelli family, and to The Economist publisher itself.
Under the deal, Exor will acquire 27.8% of The Economist Group's shares for GBP227.5 million, along with all of the B special shares for GBP59.5 million from Pearson. In addition, The Economist Group will acquire the rest of Pearson's shares for GBP182 million.
FTSE 100-listed outsourcing firm G4S said its pretax profit fell in the first six months of 2015 on the back of restructuring and impairment charges, but its revenue edged higher despite a decline in the UK and Ireland. The group said its pretax profit fell to GBP70 million in the first six months of the year, down from GBP80 million a year earlier as a rise in revenue was offset by restructuring charges and goodwill impairments it booked in the half.
Construction and support services company Balfour Beatty scrapped its interim dividend as it posted a substantially wider pretax loss for the first half of 2015 thanks to writedowns of onerous contracts in its UK construction arm.
The FTSE 250-listed group said its pretax loss for the six months to the end of June was GBP150 million, sharply wider than the GBP58 million loss it posted a year earlier. As a result of the drop in profit, the company said it won't pay an interim dividend, having paid 5.6 pence per share a year earlier.
By Neil Thakrar; [email protected]; @NeilThakrar1
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