31st Jul 2014 09:50
LONDON (Alliance News) - UK stocks are trading in the red Thursday, with investor sentiment weighed down by a number of global issues including sanctions on Russia, a warning from the International Monetary Fund over Chinese growth, Argentina defaulting on its debt for the second time in thirteen years, and a continued weakening of inflation in the eurozone.
By mid-morning Thursday, the FTSE 100 is down 0.3% at 6,757.50, the FTSE 250 down 1.1% at 15,453.48, and the AIM All-sharedown 0.2% at 770.78.
Within European majors, the French CAC 40 is down 0.8% and the German DAX down 1.0%.
Amid a busy morning of UK corporate updates, the FTSE 250 is being heavily weighed upon by oil and gas explorer Afren, which has seen its shares tumble more than 30% since announcing that its board suspended its chief executive and chief operating officer pending an investigation into alleged evidence of unauthorised payments that were potentially for the benefit of the executives.
"These payments were not made by the company. The investigation has not found any evidence that any other board members were involved," Afren said in a morning statement.
Construction groups Balfour Beatty and Carillion also are weighing on the FTSE 250, down 6.4% and 3.9% respectively after Balfour said it had pulled out of merger talks because Carillion had demanded that Balfour halted its planned sale of US project management business Parsons Brinckerhoff, a demand it called unexpected and contrary to early agreements. The shares of both companies have retraced near to the levels they were at before the companies were confirmed to be in talks last week.
"Judging by the share price reaction of Balfour Beatty shares this morning there could be a good chance that the shares could well give up their recent premium, and head back to their 2008 lows," said CMC Markets chief market analyst Michael Hewson.
In the FTSE 100, the energy companies are providing the only support, following some well-received updates from BG Group and Royal Dutch Shell. Shell is up 3.9% after the oil major said its second-quarter pretax profit increased 70% to USD9.12 billion for the three months ended June 30 from USD5.37 billion the previous year. Shell also increased its second quarter dividend by 4% compared to the previous year, to USD0.47 per share.
BG Group is up 1.9% after saying its pretax profit jumped 47% to USD2.13 billion for the three months ended June 30 from USD1.45 billion the previous year. The profit was driven by a strong performance at its liquified natural gas division, and allowed the group to increase its dividend by 10%.
Stock indices had gotten off to a positive start after the Federal Reserve managed to calm markets nerves that Wednesday's bumper US GDP print will lead to a shorter rate-rise timeline. However, any positivity towards equities has been undone by a wide range of concerning global events that are keeping the markets cautions.
To start with, the IMF said that China should give up its ambition of 7.5% GBP growth and instead target 6.5% to 7% in 2015, and only deploy stimulus if growth were to slow significantly below the target.
"Bond markets are starting to price in higher rates in the short to medium term and with the IMF calling for China to downgrade its growth target, you have to ask yourself whether stocks are good value at current valuations in an environment which is starting to put a slightly higher premium on risk," said CMC Markets chief market analyst Michael Hewson.
Eurozone consumer price inflation is continuing to slow, nearly two-months after the European Central Bank introduced negative deposit rates for the single currency block in an effort to boost prices. Eurozone CPI fell to 0.4% year-on-year in July from 0.5% in June. Core price growth remained stable at 0.8%.
"A further drop is a big worry for the central bank and Mario Draghi has made it clear that they are ready to act swiftly with further monetary policy easing," said UFX.com Managing Director Dennis de Jong. "However, the increasing geopolitical tensions in Ukraine and the Middle-East remain a big threat to the stability of the Eurozone and the ECB have plenty more tough decisions ahead."
Indeed those geopolitical issues also continue to weigh on sentiment, with Russia late Wednesday saying that the latest sanctions imposed on it by the EU and the US are "destructive and short-sighted" and will lead to higher energy prices. The Kremlin also announced a ban of fruit and vegetable imports from Poland and said it could extend the ban to the whole EU.
Meanwhile, Israeli Prime Minister Benjamin Netenyahu has said the military will continue to destroy the tunnels dug by Hamas in Gaza, "with or without a ceasefire", suggesting that there is no resolution in sight to that conflict.
Adding to the increasingly risky environment, Argentina has defaulted on its debt payment for the second time in thirteen years, as last minute talks failed, with officials failing to come to an agreement with holdout bond investors.
It's a quieter day in the US data calendar Thursday, with initial jobless claims at 1330 BST providing the main interest. Futures trading indicates that the global concerns will lead to a much lower open on Wall Street, with the DJIA, S&P 500, and Nasdaq Composite currently all pointing between 0.6% to 0.7% lower.
By Jon Darby; [email protected]; @jondarby100
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