FTSE LIVE: China economic gloom dampens market mood

| October 3, 2012 | 0 Comments

By
This Is Money Reporters

02:36 EST, 3 October 2012


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10:16 EST, 3 October 2012

15.55: The FTSE 100 is up 12.8 points at 5,822.23 as we near the end of today’s session.

The Dow Jones is ahead 8.8 points at 13,491.1, while U.S. investors absorb jobs figures and a better-than-expected services sector survey.

Spain’s debt plight continues to worry investors as its prime minister Mariano Rajoy delays asking for help.

Shares fallout: Government West Coast fiasco was caused by the failure of civil servants to account properly for inflation and risk in their assessment of FirstGroup's bid

Shares fallout: Government West Coast fiasco was caused by the failure of civil servants to account properly for inflation and risk in their assessment of FirstGroup’s bid

Ishaq Siddiqi of ETX Capital said: ‘Although uncertainty over the timing of Spain’s bailout continues to unnerve investors, the general feeling is that financial assistance for Spain is almost inevitable given that borrowing costs remain stubbornly high and the country has moved toward conditionality [meeting the rules] set by EU nations.

‘We await further developments on the Spanish bailout front with the European Central Bank policy meeting tomorrow likely to shed some light on how policymakers view Spain’s delaying tactics.

‘Yesterday, the Spanish prime minister denied the country will request a full bailout as early as next weekend, but his government will remain under significant pressure to take action due to the dire state of economic affairs there.’

Michael Hewson, senior market analyst at CMC Markets, said weak eurozone services data released today pointed to a second quarter of contraction in Europe and a recession.

He said this increased the likelihood that at some point Spain will have to ‘bite the bullet and request a bailout’.

Hewson added: ‘In anticipation of just such a request Spanish bond yields [interest rates] have fallen back in the past week, though they are starting to edge higher again.

‘This particular paradox is giving Spanish PM Rajoy some breathing room to avoid asking for a bailout as pressure on yields subsides particularly at the short end [short maturity government bonds].’

14.40:

The Dow Jones has opened flat, up just 0.8 points at 13,483.1.

The latest monthly private sector employment report beat expectations, but U.S. investors remain cautious ahead of the more influential non-farm payrolls jobs figures due this Friday.

Back in London, the FTSE 100 has risen 17.4 points to 5,826.9.

13.25:

FirstGroup shares have slumped 19 per cent after Whitehall blunders dashed its hopes of taking over the West Coast franchise from Virgin this December.

The stock was 48.2p lower at 195.75p as investors sized up the fall-out from the Government fiasco, which was caused by the failure of civil servants to account properly for inflation and risk in their assessment of FirstGroup’s bid.

But while FirstGroup suffered, one of the defeated parties in the earlier West Coast bidding process saw its shares rally 2 per cent.

Stagecoach has a 49 per cent stake in Virgin Rail Group and is expected to be back in the frame when the franchise comes up for grabs again next year. Its shares were 6.75p higher at 290p, while Southern operator Go-Ahead was 3p cheaper at 1337.5p.

The FTSE 100 was up 7.3 points at 5,816.7 in lunchtime trading.

12.00: The FTSE 100 has edged 6.7 points into the black at 5,816.1 as investors gear up for the latest round of jobs data from the U.S.

Wall Street stock futures are up ahead of monthly private sector employment figures due out at lunchtime. The even more closely-watched non-farm payrolls number is scheduled for Friday.

‘Markets are entering their traditional quiet period in advance of non-farm payrolls,’ said Chris Beauchamp, market analyst at IG.

‘Fortunately we have the West Coast mainline fiasco to divert us from quiet markets. Transport firm FirstGroup slumped 20 per cent this morning as investors scrambled to react to the news that the government had changed its mind on awarding the franchise to the company.

‘Doubtless Sir  Richard Branson is pleased, but the news throws the entire process into doubt, the government having previously said that it saw no problems arising with the deal.’

Traders are also pondering Spain’s bailout denials, as the indebted country’s 10-year interest rate remains at an elevated 5.68 per cent.

‘European woes persist and the Spanish Prime Minister’s insistence that a bailout will not be sought has thrown another spanner in the works,’ said Simon Denham of Capital Spreads.

‘Investors had been gearing up for a bailout and many officials in the country have mentioned the preparations that have been going on behind the scenes. Of course the major signal was last week’s budget which saw greater than expected austerity proposed and most saw this as the biggest indication that a bailout request was imminent. 

‘It looks as though for now that the German paymaster, who is heavily opposed to a Spanish bailout of course, has been able to assert its pressure and prevent it from happening.

‘The problem with this of course is that the markets don’t like it and it has sent Spanish borrowing costs higher this morning. The longer Spain is left to its own devices the more the uncertainty will build and we will see markets just oscillate backwards and forwards as investors think, yes they will, no they won’t.’

Denham added: ‘It isn’t just Spain that we have to worry about as they continue to drag their feet.  Italy is another big ticking time bomb, but these are the least of the eurozone’s concerns when you consider that the big beast of France could well be targeted in the not too distant future.’

10.20:

FirstGroup saw 22 per cent wiped off its value today after the Government reversed a deal which would have seen the transport giant run the West Coast franchise.

The u-turn, which was due to significant technical flaws in the handling of the bid process, came just a day after FirstGroup told the City that it hoped to start services on the London to Scotland rail line from December 9.

With bidding for the potentially lucrative franchise now subject to a re-run next year, shares in the FTSE 250 company were 52.2p lower at 191.8p. Read more here. 

Attention was also focused on the supermarket sector after figures from both Tesco and Sainsbury’s today.

Tesco was under pressure after its profits dropped for the first time in nearly 20 years. Its tentative return to sales growth in the UK was overshadowed by a downturn in Asia and Europe. Shares fell 4.85p to 331.85p. Read more here.

Sainsbury’s shares were flat at 346.65p after a 1.9 per cent rise in like-for-like sales in the 16 weeks to September 29, better than earlier in the summer. Read more here.

Low-cost airline easyJet jumped 3 per cent, up 17.75p to 611.75p, after it upped profits guidance for the year to September 30 to between £310million and £320million. It was helped by strong post-Olympics demand for holidays.

The FTSE 100 is dowm 8.2 points at 5,801.2.

8.40: The FTSE 100 has opened 15.6 points lower at 5,793.9 amid gloomy economic news from China and confusion over Spain’s intentions over a bailout.

There was fresh evidence of a slowdown in China, as the services sector struggles in the world’s second largest economy. It coincides with political uncertainty in Beijing, where its president and other longstanding leaders are set to hand over their main party posts next month.

‘The Chinese economic readings are close to reaching a level where the government will have no other choice than putting substantially more stimulus in the economy, but there is the risk that until the power struggle is resolved Beijing will be a bit of a lame duck,’ said Markus Huber, a senior trader at ETX Capital.

Meanwhile, Spanish prime minister Mariano Rajoy poured cold water on speculation Madrid was close to applying for a bailout, saying any request was not imminent.

His comments followed a report the country could apply for aid as soon as this weekend. Madrid needs to ask for international help to trigger European Central Bank assistance to bring down its sky-high borrowing costs.

The FTSE 100 closed 11 points lower at 5,809.45 yesterday as weakness in banks and miners overpowered gains for companies such as Babcock and Tesco.

Economy watch: China's services sector is struggling, prompting speculation that more stimulus measures are on the way

Economy watch: China’s services sector is struggling, prompting speculation that more stimulus measures are on the way

Stocks to watch today include:

Tesco: The retailer posted a small rise in quarterly underlying sales in its home market after 18 months of decline, indicating changes introduced after a shock January profit warning were starting to make an impact.

J Sainsbury: The supermarket group posted better than expected quarterly sales growth, boosted by strong take-up of its own label range and the roll out of its convenience stores.

EasyJet: British low-cost airline raised its full year profit guidance after a robust summer performance, helped by strong demand for European beach routes from London.

Britvic: The soft drinks group and Irn-Bru maker AG Barr said the takeover panel had agreed to extend the ‘put up or shut up’ deadline on their £1.3billion merger.

Glencore: The commodities trader has formally notified the European Commission of its $33billion plan to take over miner Xstrata, sources familiar with the matter said.

The move follows months of preliminary talks designed to pave the way for a swift approval.

Bumi and ENRC: Rules aimed at cracking down on dominant shareholders and reverse takeovers have been set out by the City of London watchdog in response to problems raised at miners Bumi and ENRC, the Financial Times reported, quoting the Financial Services Authority.

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