22nd Sep 2014 16:23
LONDON (Alliance News) - The FTSE 100 closed at its lowest level so far in September Monday, as stocks across the world came under pressure and metals prices continued to fall after fears grew about China's economic growth prospects.
Tesco, meanwhile, was the worst-performing stock on the blue-chip index, hitting an 11-year low after it admitted that its first-half profit had been overstated by GBP250 million.
The FTSE 100 ended the day down 0.9% at 6,773.63, the FTSE 250 closed down 0.7% at 15,744.61 and the AIM All-Share was down 0.4% at 759.77.
The FTSE 350 mining sector index fell by 3.8% due to the concerns over the weakness in the Chinese economy. The concerns had risen after China's finance minister, Lou Jiwei, said over the weekend 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.
The comments sent the price of Chinese iron ore futures down 4% to a multi-year low of CNY558 per tonne before European markets opened on Monday, while precious metal prices also 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.
Mining companies dominated the FTSE 100 fallers, with Glencore ending down 4.9%, BHP Billiton down 3.3%, Rio Tinto down 3.2%, and Anglo American down 3.1%.
The impact was felt in stock markets across the world. In Europe, the CAC 40 closed down 0.4% and the DAX down 0.5%.At the close of European trade, US indices were also lower, with the DJIA down 0.5%, the S&P 500 down 0.8% and the Nasdaq Composite 1.3% lower.
Shares in Tesco ended down 11.6% after it said it had overstated its first half pretax profit guidance by GBP250 million, and it has suspended four executives while it undertakes a thorough investigation into the issue.
In its first public announcement under new Chief Executive Dave Lewis, Britain's biggest supermarket chain said the profit overstatement for the six months to August 23 was due to commercial income being recognized in its accounts too early while some costs that should have been included in the first half were delayed.
This means Tesco's profit for the first half ended August 23 will be only around GBP850 million, well below the GBP1.1 billion it had guided last month. That was its most recent profit warning, following profit expectation downgrades earlier in the year. Tesco made a GBP3.32 billion trading profit in the whole of its last financial year, and GBP1.59 billion in the first half of that year.
"We have asked four people in the organisation to step aside. I want to confirm that has nothing to do with disciplinary. I am not going to talk about named individuals," Lewis told journalists. He said that the problem with the audit figures was uncovered on Friday, after an "informed employee" bought it to the attention of the general counsel.
"Lewis is not responsible and has seemingly acted on the front foot since learning of the news but wider questions are being asked of [former CEO Phillip] Clarke and the Board of Directors including Chairman Richard Broadbent," said CMC Markets market analyst Jasper Lawler.
"The more immediate worry for investors than the resulting investigation is that this is the third profit warning in two months for Tesco who in the last quarter lost almost 1.5% of market share particularly to discounters newcomers Aldi and Lidl," the analyst added.
Tesco's profit warning comes ahead of the latest grocery market share figures from Kantar Worldpanel. The results, for the 12 weeks ending September 14, will be released Tuesday at 0930 BST.
The FTSE 350 food and drug retailer index was the second-worst-performing sector index. Peers J Sainsbury and Wm Morrison Supermarkets also fell, ending down 2.1% and 1.7%, respectively.
Away from London, European Central Bank President Mario Draghi reiterated that the ECB remains ready to use additional unconventional tools to counter risks to the inflation outlook and to boost the eurozone economy.
In introductory remarks in a testimony to the economic and monetary affairs committee of the European Parliament in Brussels, Draghi said,"the Governing Council remains fully determined to counter risks to the medium-term outlook for inflation."
"Therefore, we stand ready to use additional unconventional instruments within our mandate, and alter the size and/or the composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of low inflation."
Draghi also said the eurozone economic recovery is losing momentum and there is no indication that the sharp decline in economic activity seen in August has stopped.
In Tuesday's economic calendar, the Chinese HSBC manufacturing purchasing managers index for September is released at 0100 BST and will determine the opening of London indices. The reading is expected to slow to 50.0, highlighting further pressure on the Chinese economy.
German and eurozone Markit manufacturing and services PMIs will also be released. The German figures will be released at 0830 BST and the eurozone data at 0900 BST. In the afternoon, the focus will turn to the US, particularly the housing price index for July at 1400 BST.
In the corporate calendar, FTSE 100-listed cruise operator Carnival will report third-quarter results while FTSE 250-listed Close Brothers Group will post full-year results and fellow FTSE 250 member PZ Cussons will release an interim management statement.
By Neil Thakrar; [email protected]
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