LONDON MARKET CLOSE: Stocks Mixed As Pound Shrugs Off UK PMI Data

LONDON (Alliance News) – Stocks in London ended mixed on Tuesday, with the FTSE 100 losing momentum as the pound rose against the dollar despite a weaker UK services Purchasing Managers’ Index reading, as the greenback was weighed on by Sunday’s escalation of nuclear tensions.

The Markit UK services PMI hit an 11 month low of 53.2 in August from 53.8 in July, with economists having expected the reading to fall to 53.5.

Any score above 50 indicates expansion, but the reading signalled the slowest pace of growth since September 2016. The rate of growth has eased since July and remained notably weaker than seen on average in the first half of 2017, Markit said.

Survey respondents said subdued client demand and heightened uncertainty about the domestic economic outlook had weighed on business activity growth in August.

“Surprisingly sterling wasn’t too bothered about the dip, instead rising 0.2% against both the dollar, weakened by the North Korea issue, and the euro, which is facing the uncertainty of Thursday’s ECB meeting. This meant the FTSE lost whatever meagre momentum it had after the bell,” said Spreadex analyst Connor Campbell.

The pound was quoted at USD1.3020 at the London equities close, up from USD1.2953 at the same time on Monday. Sterling was also up against the euro at EUR1.0924 at London close, from EUR1.0878 late Monday.

The FTSE 100 index fell to close 0.5% lower, or 38.55 points, at 7,372.92. The FTSE 250 ended up 0.2%, or 28.92 points, at 19,726.83, and the AIM All-Share closed up 0.1%, or 0.92 points, at 1,011.31.

The BATS UK 100 ended down 0.5% at 12,538.69, the BATS 250 closed up 0.1% at 17,905.06, and the BATS Small Companies ended 0.2% higher at 12,275.46.

In mainland Europe, the CAC 40 in Paris ended down 0.3%, while the DAX 30 in Frankfurt ended 0.2% higher.

Eurozone private sector logged steady growth in August, Markit said. The services PMI slid to 54.7 from 55.4 in July. The flash score was 54.9. The composite output index came in at 55.7 in August, matching July’s reading but down slightly from the flash estimate of 55.8.

The bloc’s retail sales declined in July due to a fall in food sales, data from Eurostat showed. Retail sales volume decreased 0.3% month-on-month in July, partially offsetting June’s 0.6% increase. The pace of decline matched economists’ expectations. Year-on-year, retail sales growth eased to 2.6% in July, in line with forecast, from 3.3% in June.

The euro stood at USD1.1910 at the London equities close, down from USD1.1915 at the close on Monday.

Investors are awaiting the European Central Bank monetary policy meeting on Thursday, as the central bank will publish its latest economic growth and inflation forecasts. This meeting is when many analysts expect the ECB to lay the groundwork for reducing its bond-buying programme from January next year.

Investors will especially be looking for commentary from ECB President Mario Draghi on the single currency’s surge over the summer, and what that may mean for the central bank’s future quantitative easing tapering plans.

Meanwhile, stocks in New York were lower at the London equities close, with the Dow Jones Industrial Average down 0.8%, the S&P 500 index down 0.5%, and the Nasdaq Composite 0.6% lower.

Spreadex’s Campbell said Wall Street was “belatedly” reacting to North Korea’s escalation of nuclear tensions over the weekend, with US equities having been closed on Monday for the Labor day holiday.

Pyongyang said on Sunday it had tested a hydrogen bomb that can be loaded onto an intercontinental ballistic missile. The country’s sixth nuclear test since 2006 was its most powerful to date.

US President Donald Trump condemned the nuclear test in posts on Twitter, saying North Korea’s words and actions continue to be very hostile and dangerous to the US. Trump said the US is considering stopping all trade with any country doing business with North Korea in response to the test.

“Despite a lack of fresh news about the North Korean situation today, there is a clear feeling that the regular missile tests are set to continue and keep the whole region on edge. There’s little appetite for short selling the safe havens at the moment, and the likes of the yen and gold are attracting flows,” said IG analyst Joshua Mahony.

Gold was quoted at USD1,335.16 an ounce at the London close, hardly changed from USD1,335.65 at the close on Monday.

Traders are also keeping an eye on any developments in Washington, as lawmakers return following the August recess. Lawmakers are under pressure to raise the debt ceiling and pass a government spending bill before deadlines at the end of the month.

US lawmakers face a September 29 deadline to raise the debt ceiling and avoid a default on the national debt, which economists warn would be disastrous.

Government shut downs occur when laws authorising administration expenditures are not approved in due time. In this case, government activities are limited to the essential minimum until the law passes in Congress.

In US economic data, the Commerce Department released a report showing a sharp pullback in factory orders in the month of July, having reported a substantial increase in new orders for US manufactured goods in the previous month.

The Commerce Department said factory orders plunged by 3.3% in July after surging up by an upwardly revised 3.2% in June. Economists had expected orders to tumble by 3.2% compared to the 3.0% jump originally reported for the previous month.

The pullback in factory orders was primarily due to a steep drop in orders for transportation equipment, which plummeted by 19.2%. Excluding the sharp decline in orders for transportation equipment, the report said factory orders rose by 0.5% in July.

Meanwhile, oil prices rose on Tuesday amid hopes that US refineries could get back to normal by the end of the month. Hurricane Harvey and subsequent flooding have interrupted Texas refineries for the past few weeks, but signs indicate that regular operations will resume ahead of schedule.

Brent was quoted at USD53.52 a barrel at the London close, compared to USD52.43 a barrel at the close on Monday.

Back in London, AVEVA Group was by far the biggest gainer in the FTSE 250, closing up 27% at 2,446.60 pence. The stock touched a high of 2,493.00 in early trade, its highest level since late 2013.

The firm agreed to merge with the software arm of France’s Schneider Electric to “create a global leader in engineering and industrial software”, confirming press reports that the two were about to unveil the deal.

Schneider Electric will pay AVEVA GBP550 million in cash, equal to 858.0 pence per share, which, taken together with its contribution of the Schneider Electric software business, will mean that Schneider Electric will hold a majority of the enlarged business.

AVEVA shareholders will own around 40% of the enlarged business, with Schneider Electric owning the other 60%. The value of the consideration shares to be issued to Schneider Electric is approximately GBP1.7 billion based on the AVEVA’s closing share price on Monday of 1,919.83p.

The deal will be classed as a reverse takeover of AVEVA, which will remain head-quartered in Cambridge and listed on the London Stock Exchange after the deal.

FTSE 250-listed Redrow closed 4.0% higher after the housebuilder said that the demand in the new homes market in the UK has remained robust despite a reduction in overall housing transactions, reflected by Redrow’s raised dividend for its recently-ended financial year.

Acacia Mining was at the other end of the mid-cap index, closing down 6.0% at 189.98p after JPMorgan cut its target price for the gold miner to 200p from 330p.

On Monday, Acacia said it forced to take drastic action by downsizing operations and cutting expenditure at its Bulyanhulu mine, which has become “unsustainable” in light of the major ban on the export of concentrates out of Tanzania on Monday.

Since March 2, the day before the export ban was announced, shares in Acacia have plummeted 65% and around GBP1.4 billion has been knocked off its market capitalisation, which currently stands at around GBP768.1 million.

JPMorgan also cut fellow mid-cap gold miner Hochschild Mining‘s price target to 240p from 250p. The firm closed down 0.5% at 290.40p.

In the FTSE 100 index, Provident Financial was among the worst performers, closing down 1.2%. The subprime lender’s slide has continued since being demoted from the blue-chip index following the FTSE Russell index review results released last week. Provident will trade in the FTSE 250 from September 18.

The stock is down 70% so far in 2017, hit last month by a significant profit warning as its home credit business “substantially deteriorated”.

Blue-chip peer Reckitt Benckiser closed down 2.7%, the worst performer, after Exane BNP downgraded the household goods company to Neutral from Outperform.

Highlights in the corporate calendar on Wednesday include full year results from blue-chip homebuilder Barratt Developments, while mid-cap housebuilder Berkeley Group is due to release a trading statement, and easyJet its August traffic statistics.

Retirement development builder McCarthy & Stone, respiratory drugmaker Vectura, and floor coverings distributor Victoria are among a host of companies due to publish interim results.

In the economic calendar, German factory orders are at 0700 BST. In the afternoon, focus will turn to the US as MBA mortgage applications are due at 1200 BST, trade balance at 1330 BST, PMI data at 1445 BST, and the API weekly crude oil stock at 2130 BST.

By Lucy Heming; [email protected]

Copyright 2017 Alliance News Limited. All Rights Reserved.

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