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LONDON MARKET MIDDAY: Weak China And UK Manufacturing Data Hit Shares

[ 03 May 2016 12:14 ]

LONDON (Alliance News) - UK stocks traded lower midday Tuesday, with the resource sector hurt by weak Chinese manufacturing data, whilst the UK manufacturing sector fell into contraction for the first time since 2013.

UK factory activity contracted for the first time in three years in April, survey data from Markit showed. The Chartered Institute of Procurement & Supply Purchasing Managers' Index fell unexpectedly to 49.2 in April from revised 50.7 in March. It was forecast to rise to 51.2 from March's originally estimated value of 51. The reading fell below the critical 50.0 mark, which separates expansion from contraction for the first time since March 2013.

The headline index was dragged lower by lacklustre trends in UK production and new orders and declines in both employment and stocks of purchases.

Rob Dobson, a senior economist at survey compilers Markit, said: "On this evidence manufacturing production is now falling at a quarterly pace of around 1%, and will likely act as a drag on the economy again during the second quarter and putting greater pressure on the service sector to sustain GDP growth."

Lloyds Bank was concerned that the poor UK manufacturing performance came at a time of an improving backdrop.

"The nearly 9% decline in the sterling effective exchange rate since last November, alongside a recent easing in concerns about global growth, have not provided an overall boost to export orders whose index fell further to 49.5," Lloyds said.

However, the bank noted that manufacturing output only accounts for around 10% of UK GDP and growth will depend on the services sector which has a nearly 80% share.

The pound dived after the PMI result. Having traded at USD1.4770 before the data, its highest level since early January, sterling dropped to trade at USD1.4670 by midday.

The FTSE 100 index was down 1.3%, or 78.33 points, to 6,163.56.

The index also was hit by weak Chinese manufacturing data which remained in contraction in April, the latest survey from Caixin revealed, with a Purchasing Manager's Index score of 49.4. That missed forecasts for 49.8, and it was down from 49.7 in March. It also moved further beneath the line of 50 that separates expansion from contraction.

"The slowdown in Chinese manufacturing has prompted weakness in the basic resource sector of the FTSE 100," commented Jasper Lawler, markets analyst at CMC Markets.

Anglo American was the worst performer, down 9.9%. Glencore was down 6.6% and BHP Billiton down 5.1%.

Also in London, the mid-cap FTSE 250 index was down 0.4% to 16,727.75, while the AIM All-Share was up 0.1% at 728.58.

In Europe, the CAC 40 in Paris was down 1.6% and the DAX 30 in Frankfurt down 1.8%.

Futures ahead of the US open indicated a lower start for Wall Street. The Nasdaq 100 was pointed down 0.8%, while the S&P 500 index and Dow Industrials were both down 0.7%.

Ahead of the New York open, there are first quarter earnings from pharmaceutical companies Pfizer and CVS Health.

HSBC Holdings, the biggest bank by market value traded in London, said its first-quarter pretax profit fell by 14%, hurt by tough conditions in the banking sector at the start of 2016.

Pretax profit fell to USD6.11 billion in the three months ended March 31, HSBC said in a statement, from USD7.06 billion the corresponding quarter a year earlier. The quarterly profit marked an improvement on the USD858 million pretax loss in the three months ended December 31.

Loan impairment charges, adjusted for currency translation, jumped to USD1.16 billion from USD469 million. HSBC maintained its first-quarter dividend at USD0.10. Its common equity tier one ratio was unchanged compared to the end of 2015, at 11.9%.

Amid uncertainty due to fears about China's economic slowdown, global growth and low oil prices, "extreme" market volatility in January and February, hit HSBC's ability to generate revenue in its markets and wealth management business.

The stock traded down 1.4% at midday.

RSA Insurance Group was the top blue-chip performer in London, up 2.9% after the insurer was upgraded to Overweight from Equal-Weight by Barclays.

The bank said RSA has set out its intentions to become the benchmark performer in each of its core markets in the UK, Scandinavia and Canada by 2018.

"While we acknowledge that it is rare for a mid-of-the-pack insurer to become a 'best in class' insurer, we do believe RSA has set out a realistic plan to get there," Barclays said.

In the FTSE 250, emerging markets focused asset manager Aberdeen Asset Management was the biggest faller, down 9.7%. The company said first-half pretax profit almost halved amid fragile investor sentiment towards emerging markets, although the "strength" of the group's balance sheet allowed for investments such as bolt-on acquisitions.

Pretax profit fell to GBP98.8 million in the six months ended March 31, Aberdeen said in a statement, from GBP185.4 million in the corresponding half a year earlier. Aberdeen's interim dividend of 7.5 pence per share was unchanged.

Assets under management amounted to GBP292.8 billion as of March 31, up from GBP283.7 billion six months earlier.

On the gainers' side, Just Eat was top mid-cap performer, up 7.4% after it raised its guidance for full-year revenue and earnings following a successful first quarter, a move which it also made twice in 2015.

The online takeaway delivery company said it achieved 57% growth in orders in the first quarter of 2016 year-on-year to 31.5 million, up 41% on a like-for-like basis. It said each of its segments delivered strong growth, particularly in the UK which saw a 40% increase in orders.

As a result of this, Just Eat increased its full-year revenue guidance to GBP358 million from GBP350 million, while raising its underlying earnings before interest, tax, depreciation and amortisation target to between GBP102 million and GBP104 million from between GBP98 million and GBP100 million.

Office provider Regus was up 5.4% after the company said it traded in line with management expectations in its first quarter, reporting improved margins, increased revenue and strong profit growth thanks to cost efficiencies and following the development of 554 locations in 2015.

Regus said its revenue grew to GBP532.5 million for the three months to March 31, compared with GBP452.3 million for the same period a year earlier, representing an increase of 15% at constant currency rates or 18% at actual rates, as prevailing exchange rates provided a "modest tailwind".

In the AIM market, SimiGon said it signed a five-and-a-half year, USD7.9 million deal to deliver its SIMbox training services to an Asian civilian aviation training services provider, which it did not name.

The simulation technology company said it will book around USD1.4 million in revenue from the contract in 2016 and said the deal will improve its revenue visibility beyond this year. SimiGon said this marks another major contract outside the defence industry and sees it continue to diversify its product offering and addressable market.

The stock traded up 31%, making it the best performer in the AIM All-Share index.

Still ahead in the economic calendar, the US Redbook index is due at 1355 BST, while the ISM New York index is at 1445 BST. The American Petroleum Association weekly crude oil stocks data are out after the London stock market close at 2130 BST.

By Neil Thakrar;; @NeilThakrar1

Copyright 2016 Alliance News Limited. All Rights Reserved.

LONDON MARKET MIDDAY: Weak China And UK Manufacturing Data Hit Shares - Alliance News

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