FTSE LIVE: China factory woe weighs on market

| September 20, 2012 | 0 Comments

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This Is Money Reporters

02:30 EST, 20 September 2012


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09:44 EST, 20 September 2012

15.40: The Dow Jones has dropped 31.1 points to 13,546.9 as the latest global economic data fails to impress U.S. traders.

In London, the FTSE 100 has slid deeper into the red as the end of the session approaches – it’s down 53 points at 5,835.4.

Economy watch: A survey showed manufacturing activity in China had contracted for the eleventh month in a row

Economy watch: A survey showed manufacturing activity in China had contracted for the eleventh month in a row

13.50:

Dow Jones stock futures are unsurprisingly pointing south as U.S. investors catch up with negative economic updates from Asia and the eurozone.

Japanese trade and Chinese factory figures were weak, while the latest Markit/CIPS data from the eurozone showed a continued squeeze in the manufacturing and services sectors.

‘The eurozone manufacturing and services purchasing managers surveys worryingly and disappointingly showed deeper contraction in activity in September. The only real crumb of comfort was an easing in the rate of contraction in Germany,’ said economist Howard Archer of IHM Global Insight.

‘However, even in Germany overall incoming new business continued to contract appreciably and employment fell, while there was an alarming deterioration in French activity. Furthermore, Markit indicated that output in the other eurozone countries indicated at the fastest overall rate in September since May 2009.’

The FTSE 100 is trading 34.8 points down at 5,853.7 amid the economic gloom.

‘It didn’t take long for the QE3 [U.S. stimulus] effect to wear thin, and once again we see a market that is de-risking,’ said Will Hedden, sales trader at IG Index.

‘An eleventh straight month of contracting Chinese manufacturing PMI has had its usual effect on the FTSE 100.’

He added: ‘BSkyB is likely to grab most of the headlines, as Ofcom declares them a “fit and proper” broadcaster in the wake of the scandals affecting News Corp.

‘This will be a big relief to both employees and shareholders, and should open the stock up to investors scared away by scandal-hit stocks (BSkyB was a contemporary of the banks in this regard).

‘We would not be surprised to  see some re-rating of the stock in the coming days, or at least a fresh look at the numbers by the square mile analysts.’

BSkyB shares were 6.8p higher at 733.8p, a rise of 1 per cent. Read more about the BSkyB ruling here.

Miners are suffering with Evraz dropping by 4 per cent, off 10.8p to 266.7p, Anglo American declining by 75.5p to 1958.5p and Vedanta Resources down 38p to 1042p.

But Imperial Tobacco was in positive territory, up 26p to 2362p, as it shrugged off a disappointing update.

The group has been hit by trade sanctions against conflict-torn Syria and sales weakness in Spain, Ukraine and Poland. Read more here.

Moss Bros missed out on nearly £2million of suit hire business because so many couples delayed their weddings over the busy summer of royal and sporting events. Shares were a penny higher at 46p. Read more here.

Online grocer Ocado was 0.9p lower at 66.3p in the FTSE 250 after a disappointing third quarter update that revealed sales growth slowed to 9.9 per cent from 12 per cent in the first half.

Ocado blamed disruption from the Queen’s Diamond Jubilee celebrations and the Olympics and said customer ordering had now ‘returned to normal’, with hopes for growth to pick up again in the fourth quarter. Read more here.

11.10: 

Spain’s bond auction passed off without incident, which will probably delay the government formally seeking a bailout.

The country’s benchmark 10-year interest rate was almost unchanged at 5.66 per cent afterwards.

The FTSE 100 has trimmed losses a bit, but remains down 38.6 points at 5,849.9.

‘A smooth and relatively well received bond auction by Spain today played right into the hands of the government, stemming the rise of bond yields,’ said Ishaq Siddiqi of ETX Capital.

‘The country managed to exceed its targeted amount at the bond auction, with demand for Spanish paper looking pretty solid.

‘Although it is positive that appetite for Spanish debt remains firm (Tuesday’s bill auction was relatively decent too), financial markets are still not impressed with the country’s government delaying a move.’

Meanwhile, he said markets were being whacked today by global growth fears following the poor Chinese economic figures.

‘The data reinforced fears that the eurozone financial crisis continues to sap Chinese growth, fuelling hopes that the Chinese central bank may follow the likes of the BOJ, Fed and ECB and also fire stimulus measures our way.

‘In Europe however, the feed through of a negative Asian session on the poor China data and the geopolitical tensions between China and Japan over sovereignty of islands has added significant pressure on price action. Your usual suspects are under the cosh, with resources, industrials, autos and energy sectors all posting moderate losses.’

Michael Derks, chief strategist at FXPro, said one of the major explanations for the ‘defensive posture’ of financial markets was an alarming PriceWaterhouseCoopers report concerning China’s debt mountain.

‘The actual contents of PWC’s findings do not appear to have been released publicly, but even so the picture conveyed by these headlines is extremely disturbing. Apparently, overdue loans at China’s top ten banks soared 333 per cent in the first six months of 2012 to CNY489billion (£48billion).

‘Given the state of the economy, a large volume of these loans is likely to become non-performing in coming months.

‘China’s financial regulator (the CBRC) is forcing local banks to come clean regarding under-performing loans; as such, this explosive increase in bad loans is at least in part because of the CRBC’s insistence on greater honesty. Also, bad loans have been soaring because the property bubble in China has burst.

And he added: ‘Many informed commentators worry that China’s debt mountain is unravelling.

‘Meanwhile, the evidence confirming China’s stuttering recovery accumulated further overnight, with a manufacturing PMI survey suggesting that this sector contracted for an 11th straight month in August.’

9.20:

Gloomy developments in Asia are dampening the mood on the markets.

Japanese trade figures showed that the country’s export sector continued to suffer the effects of a slowdown in the eurozone, while there was another month of contraction among Chinese manufacturers.

Tensions between the two powerhouse economies over a disputed group of islands – which have hit business relations and led to factory shutdowns in China this week – are concerning investors too.

Asian markets fell by around 1 per cent overnight, which sparked a 43.3 point drop to 5,845.2 on the FTSE 100 this morning

On the continent, Germany’s DAX was down 42.5 points at 7,348.2 while France’s CAC 40 was 27 points lower at 3,504.8.

Miners were most under pressure in London as Evraz dropped by more than 5 per cent, off 15.45p to 262.25p, and Vedanta Resources declined 39p to 1041p.

A shortened risers board included BSkyB after it was told by regulator Ofcom that it was ‘fit and proper’ to hold a broadcasting licence, despite the phone hacking scandal at a newspaper owned by major shareholder News Corporation. Shares were 6.25p higher at 733.5p, a rise of 1 per cent.

Figures from suit specialist Moss Bros showed flat half-year profits of £2.2million.

The company said this reflected rising raw material costs and the deferral of weddings into the second half of the year due to Britain’s busy summer of royal and sporting events. Shares were flat at 45p.

Meanwhile, investors will be keeping an eye on a Spanish auction of $4.5billion of 10-year government bonds later.

Spain’s benchmark interest rate is hovering at 5.67 per cent this morning.

Michael Hewson of CMC Markets said: ‘The continued decline in Spanish bond yields, along with SP’s decision to state that it would not be downgrading Spain to “junk” any time soon would on the face of it make it much more likely that Spain will defer asking for a bailout in the near future.

‘At one point on Monday yields were above 6 per cent, however since then they have slipped back to close yesterday at 5.693 per cent, still high, but a lot cheaper than at the beginning of the week.

‘One thing is certain, if today’s bond sale gets away alright, then we could face a long wait until Spanish prime minister [Mariano] Rajoy feels compelled to seek help for Spain’s ailing economy.

‘The Spanish government continues to face a deteriorating economic outlook as well as political problems in its regions with Catalonia in particular demonstrating a particular secessionist demeanour.’

8.30: The FTSE 100 has opened down 49.7 points at 5,838.8 after a survey showed manufacturing activity in China had contracted for the eleventh month in a row.

The difficulty faced by China – a key market for Europe – has deepened concerns about the global economic outlook.

The HSBC Flash China manufacturing purchasing managers’ index came in at 47.8, against a 47.6 reading in August. A figure above 50 indicates expansion and one below contraction.

After a lacklustre trading session, the Footsie ended up 20.32 points at 5,888.48 yesterday, holding near six-month highs after Japan became the third major economic player to unveil fresh stimulus measures this month.

UK retail sales figures for August are due out later.

Stocks to watch today include:

BHP Billiton: The miner has shelved plans to build a $3billion coking coal mine in Queensland as part of the spending cuts announced by the world’s largest miner last month, the Australian newspaper reported.

United Utilities: The company says trading is in line with expectations and it is confident of delivering its 2010-15 regulatory outperformance targets.

SkyB: Regulator Ofcom today found the firm ‘fit and proper’ to hold on to its broadcasting licence after its major shareholder News Corp was embroiled in the phone-hacking scandal.

Imperial Tobacco: Price increases helped lift annual revenues to offset a dip in volumes as the world’s fourth largest cigarette group suffered in recession-hit Spain and tough markets in Ukraine and Poland.

Centrica: Russia’s Gazprom could be interested in making a bid for the British utility, according to media reports.

William Hill: The bookmaker could team up with a smaller gaming company to make a joint bid for Sportingbet.

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