20th Feb 2014 10:26
LONDON (Alliance News) - Stock markets are lower across Europe and the euro is also weaker, following a disappointing round of European PMI data. Investor sentiment has turned negative Thursday following the unexpectedly large contraction in the Chinese HSBC manufacturing PMI, and reinforced expectation of further tapering by the US Federal Reserve.
By mid-morning Thursday the FTSE 100 is down 0.6% at 6,759.65, the FTSE 250 is down 0.8% at 16,224.50, and the AIM All-Share is down 0.3% at 879.47.
In Europe, markets are performing poorly in the wake of weaker than expected PMI data. The CAC 40 is down 0.5% and the DAX is down 1.2%
Eurozone composite PMI growth slowed in February, with the Markit index recording 52.7, down from 52.9 in January. Although a PMI reading continues to indicate growth, the two-month low of the index has come as a disappointment as economists were expecting the index to expand further to 53.1.
Regional PMI's had already disappointed earlier in the morning, with the French Markit manufacturing number slipping to 48.5 in February, from 49.3 in January, missing expectations of an improvement to 49.6. The French service industry number was also lower than expected, recording 46.9 in February, from 48.9 in January, again going in the opposite direction to the expectation, which was of an improvement to 49.4.
The only sector to beat expectations in Thursday's numbers was the German service sector, where the PMI expanded to 55.4 in February, from 53.1 in January, exceeding expectations of 53.4. The German manufacturing industry continues to expand, although by less than expected, recording 54.7 in February, up from 54.3 in January. Economists has expected even stronger growth to 56.3.
As well as weighing on equity sentiment, the misses to PMI expectations sent the euro to a weekly low against the dollar of USD1.3684. Against the pound, the euro is just marginally lower, currently trading at GBP0.8230. Despite the morning move, the single currency appears to remain relatively well supported in the absence of any further policy easing by the European Central Bank.
"The European economy is trundling along, too slowly to get unemployment or budget deficits down fast enough or to escape its debt trap, but fast enough to keep the ECB on hold and EUR/USD in the upper end of its USD1.34-USD1.38 range," said Societe Generale senior strategist Kit Juckes.
Commerzbank analyst Christopher Weil says, "Even after today?s data, it is a very close call whether or not the ECB will lower interest rates once more."
In the absence of any UK or US data so far Thursday, the pound is just marginally lower against the dollar, currently at USD1.6655.
The disappointing European PMI's added to negative sentiment following the overnight release of the Chinese Markit/HSBC PMI which dropped further than expected for the second consecutive month, to 48.3 in February, from 49.5 in January. Economists had expected the index to only modestly contract to 49.4.
Within UK equities, the Aerospace & Defence sector has more than reversed Wednesdays gains. After both BAE Systems and Rolls Royce received a boost Wednesday from the announcement that the governments of the UK and Saudi Arabia had reached a deal on the pricing on a BAE order of new planes, BAE has once again sparked concerns over cuts to defence spending. The stock is down 9.0%, leading the sector and the FTSE 100 lower, after reporting a sharp drop in its full-year results and warning over the impact spending cuts running in to 2014.
Rexam shares are down 4.7% after the packaging company announced its full-year results, with analysts concerned over comments made by others in the sector over falling demand in North America. Demand from the region fell by 4% in 2013 and the trend may continue into 2014, analyst say.
Petrofac is the stand out blue chip gainer, up 3.5% after the company said it has been awarded a contract by BP, worth roughly USD1.2 billion for work at the central processing facility for the Khazzan gas project in Oman.
William Hill shares are up 1.8% after the book maker received an upgrade to Buy from Goldman Sachs, along with an upgrade to Outperform from Exane BNP.
The only piece of UK economic data is still to come Thursday. At 1100 GMT the Confederation of British Industry trends survey is expected to come in at 5, up from negative 2 in January, which would indicate a pick up in industrial orders.
In the afternoon, US CPI inflation and initial jobless claims data is due at 1330 GMT, followed by the US Markit manufacturing PMI at 1358 GMT, and the Philadelphia Fed manufacturing survey at 1500 GMT.
By Jon Darby; [email protected]; @jondarby100
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