22nd Sep 2014 09:39
LONDON (Alliance News) - Stocks across Europe have starter the week lower, with the FTSE 100 Monday giving back all of the gains made on Friday from the results of the Scottish referendum.
The Mining sector has continued its recent downward trend Monday amid a continue slump in commodity prices, underperformed only by the Food & Drug Retailers after troubled UK supermarket Tesco shocked the market by announcing a massive GBP250 million accounting error.
By mid-morning Monday the FTSE 100 is down 0.8% at 6,785.94, the FTSE 250 is down 0.7% at 15,752.95, and the AIM All-Share is down 0.3% at 760.27.
Major European markets are also lower but faring a little better than the London market, with the French CAC 40 down 0.2% and the German DAX down 0.4%.
The London market is predominantly being dragged lower by the large-cap mining stocks, following on from falls in the Asian markets, after the price of Chinese iron ore futures fell 4% to a multi-year low of CNY558 per tonne overnight. Liberum Capital says the fall indicates that the delivered price of iron ore into China should drop below the key support of USD80 per tonne.
The price decline follows weekend comments from China's finance minister, Lou Jiwei, that any weakness in a single economic indicator will not change the government's economic policies, reiterating comments made by Premier Li Keqiang last week and dashing hopes for any short-term stimulus to support demand.
Precious metal prices also have continued lower, with gold reaching USD1,207.76 overnight, its lowest level since January 2, and silver reaching USD17.31 per ounce, its lowest level in more than four-years.
Further weighing on the miners Monday is the upcoming release Monday night of the September Chinese manufacturing PMI from HSBC. Following a reading of 50.2 in August, economists are expecting a print of 50.0 in September, making the market nervous that the Chinese manufacturing sector could well slip below 50.0, meaning into contraction.
The FTSE 350 mining sector is down 2.8%, with Rio Tinto, the worlds biggest iron ore producer, leading the falls, down 3.3%. Glencore is down 3.1%, Vedanta Resources down 3.2%, Anglo American down 3.2%, and BHP Billiton down 2.4%.
AIM-listed London Mining announced Monday that it is in dispute with Glencore over a cash prepayment it claims the FTSE 100-listed group has refused to pay, and said it was considering its options on the offtake agreement it has with Glencore, including potentially terminating the deal. London Mining shares are down 6.5%.
Tesco is the heaviest faller in the FTSE 100 after announcing before the market open that it made a huge mistake when reporting its half-year results back in August. Incoming CEO Dave Lewis used his maiden press release to announce that the UK supermarket overestimated its first half profit by GBP250 million, or almost 23% of the GBP1.1 billion guidance it provided in late August along with a 75% cut to its dividend payment.
Lewis has been in the job for less than a month, so is unlikely to shoulder any blame for the error, although his job to turnaround the struggling brand just got much harder. Tesco has, however, announced that four of its senior executives have been suspended pending an investigation by auditors from Deloitte, while analysts have called for Chairman Richard Broadbent's head.
"We think that the chairman should take responsibility," says Shore Capital analyst Clive Black. The analyst says he is "flabbergasted" by the revelation and finds the Chairman's position untenable.
The market has been ruthless, sending the shares down 11% at the open, wiping of more than GBP2 billion from the value of the company, making the GBP250 million accounting error even more expensive. By mid-morning the shares have recovered a little but Tesco is still the worst FTSE 100 performer, down 8.0% at 210.85p.
Accendo Markets senior trader Marc Kimsey says that "Tesco is no longer a viable investment". "The last two years have tested investors' patience but with the dividend being cut back and today's revelation, justification to hold is non-existent," the trader says.
Rather than providing a boost to its peers, Tesco's news has caused a sell-off across the sector. By mid-morning Sainsbury's is down 2.5% and Morrison is down 2.1%.
The utility stocks are providing the main support to the London market, with Centrica up 0.6%, and National Grid up 0.3%. Petrofac is the single biggest FTSE 100 gainer, up 1.2% after receiving an upgrade to Overweight from Barclays.
Still to come Monday, European monetary policy will be in focus at 1400 BST, when European Central Bank president Mario Draghi speaks from the European Parliament. Last week, the new Targeted Long-Term Refinancing Operation saw only a limited take up, with only EUR82.6 million of the EUR200 million of cheap loans available being taken up by European banks.
Economists had previously indicated that a take up of less that half would be seen as disappointing and would make the ECB more likely to have to implement full quantitative easing. Analysts have also questioned whether banks remain reluctant to lend no matter the cost due to the upcoming asset quality review, which is something that investors will be listening for Draghi's views on before another tranche of the TLTRO in December.
After Draghi, at 1500 BST, the eurozone consumer confidence survey is expected to show a fall to negative 10.75 from negative 10.00.
Following the hype of the Alibaba IPO on Friday, it's a relatively quiet day in the US Monday, with just existing home sales data of note at 1500 BST.
US markets are currently expected to open a little lower, with the DJIA futures pointing down 0.2%, and S&P 500 futures pointing down 0.4%
By Jon Darby; [email protected]; @jondarby100
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