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London close: Stocks finish lower on fresh China concerns

By Josh White

Date: Tuesday 20 Feb 2024

London close: Stocks finish lower on fresh China concerns

(Sharecast News) - London's stock markets closed in negative territory on Tuesday, with concerns over China's economic prospects exerting pressure on mining shares.
The FTSE 100 index closed at 7,719.21, marking a decrease of 0.12%, while the FTSE 250 index saw a larger decline, closing down 0.56% at 19,109.63.

In currency markets, sterling was last up 0.32% on the dollar, trading at $1.2634, while it managed gains of 0.02% against the euro, changing hands at €1.1688.

"Chinese stock indices saw a lacklustre reaction to the People's Bank of China cutting its five-year loan prime rate by a larger-than-expected 25 basis points to 3.95%, the first rate reduction since June 2023 and the largest since that rate was introduced in 2019," said IG senior market analyst Axel Rudolph.

"Following Monday's US holiday, European stock indices have been dragged down by their US counterparts as they brace themselves for Wednesday's FOMC minutes, Nvidia earnings and comments by several Fed officials.

"Monday's statement by the German Bundesbank that Germany is likely in a recession also didn't help the bulls."

Rudolph added that the Reserve Bank of Australia's minutes of its February monetary meeting showed that it did not rule out another rate hike.

"This had little impact on the Australian dollar, but falling US yields did on the US dollar, which depreciated.

"It didn't do so versus the Canadian dollar, though, as its currency slid comparatively more due to softer-than-expected inflation.

"USD-JPY fell back below the JPY 150 mark as Japan's finance minister Suzuki said he was 'monitoring' the currency's appreciation and the euro benefitted as well with EUR-USD rising."

PBoC cuts key interest rate more than expected

In economic news, the People's Bank of China (PBoC) implemented the first cut to its benchmark five-year loan prime rate since last June in a bid to support the country's struggling property market.

The decision reflected Beijing's efforts to rejuvenate the real estate sector amid ongoing economic challenges.

While the one-year loan prime rate, which influences most household and corporate loans, remained steady at 3.45%, the PBoC announced a 25 basis point reduction in the benchmark five-year loan rate to 3.95%.

The move exceeded market expectations, as most analysts had anticipated a more conservative reduction of between five and 15 basis points, according to Reuters polling.

China's loan prime rates, which are recalculated monthly based on input from 20 designated commercial lenders, typically align with the country's medium-term policy rate, which the PBoC opted to maintain for February.

The action also followed Beijing's recent reduction of reserve ratio requirements for banks by 50 basis points from 5 February, which injected CNY 1trn (£110bn) of long-term capital into the financial system.

"In our view, the combination of a cut to the five-year LPR today, a 25-basis point RRR cut in January, and non-moves to the one-year medium-term lending facility and LPR in recent months signals authorities' continued preference for targeted easing, and their desire to ramp up support for the property sector," said Oxford Economics lead economist Louise Loo.

"Today's move is also consistent with how we think authorities are diagnosing China's property problem, which will drive a managed 'staircase-shaped' correction path.

"[It is] Not just about housing delivery - a late-2022 to late-2023 policy focus - but also about cleaning up the excess inventory sitting on private developer balance sheets - and possibly transferring onto the government balance sheet - through a mix of monetary and fiscal easing."

On home shores, the Competition and Markets Authority (CMA) initiated a market study into the supply of infant formula, after an initial examination of the market in November.

The CMA said its intention was to conduct the market study "as swiftly as possible", with plans to publish the final report in September.

It said it aimed to gather additional evidence on consumer behaviour, drivers of choice, available information and advice for consumers, the role of regulatory frameworks, and supply-side features of the market.

Following the study, the CMA said it would assess whether there were issues in the market and, if so, consider potential actions, including making recommendations to Westminster.

The move by the CMA followed its 2023 report on price inflation and competition in the groceries sector, which highlighted a 25% increase in the average price of infant formula over the prior two years.

That report also indicated that families could save more than £500 over the first year of a baby's life by purchasing cheaper infant formula options.

Miners in the red, Superdry soars on deal chatter

On London's equity markets, Australian mining giant BHP faced pressure with a 3.45% decrease in its stock value.

The decline followed a reduction in annual profits attributed to challenges in its nickel operations and lingering financial impacts from the 2015 Samarco dam disaster in Brazil.

Weakness in metals prices weighed down other mining companies, with Anglo American down 3.28%, Rio Tinto off 3.34%, and Glencore 1.48% weaker.

National Express owner Mobico Group saw a substantial decline of 9.6% after announcing a delay in its results due to an accounting review and anticipated contractual provision increase.

Elsewhere, Plus500 reversed earlier gains to close lower by 4.42%, despite announcing plans for significant shareholder returns.

Similarly, Ferrexpo's stock declined by 6.3% after it filed appeals and applications in Ukraine's Supreme Court amidst legal challenges, although it maintained confidence in its position.

On the upside, Barclays jumped 8.59%, despite reporting a fall in annual earnings, as investors welcomed its strategic plans for a substantial capital return to shareholders and cost-cutting initiatives.

InterContinental Hotels Group was up 5.36% and Aviva added 3.14%, following positive performance and upgrades from both firms.

Antofagasta advanced 0.62% after a rise in full-year earnings, particularly in EBITDA and revenue, while Domino's Pizza Group jumped 5.88% after it received an upgrade to 'buy' from 'hold' at Jefferies.

Close Brothers Group surged 15.74% after a recent share price fall, as concerns over its dividend policy were offset by market confidence.

Superdry soared 17.38% amid reports of interest from a prominent US investor in a potential offer to take the struggling fashion chain private.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 7,719.21 -0.12%
FTSE 250 (MCX) 19,109.63 -0.56%
techMARK (TASX) 4,372.47 -0.62%

FTSE 100 - Risers

Barclays (BARC) 161.80p 8.59%
InterContinental Hotels Group (IHG) 8,334.00p 5.36%
Aviva (AV.) 443.80p 3.14%
Centrica (CNA) 133.40p 1.99%
Severn Trent (SVT) 2,589.00p 1.81%
Lloyds Banking Group (LLOY) 43.65p 1.80%
National Grid (NG.) 1,039.00p 1.71%
NATWEST GROUP (NWG) 228.80p 1.69%
Marks & Spencer Group (MKS) 241.90p 1.43%
Tesco (TSCO) 284.50p 1.21%

FTSE 100 - Fallers

Rio Tinto (RIO) 5,230.00p -3.65%
Scottish Mortgage Inv Trust (SMT) 770.00p -3.39%
Anglo American (AAL) 1,719.60p -3.28%
Airtel Africa (AAF) 93.75p -2.24%
AstraZeneca (AZN) 10,204.00p -2.05%
Rightmove (RMV) 539.20p -2.03%
Intermediate Capital Group (ICP) 1,839.00p -2.02%
BP (BP.) 466.55p -1.74%
Flutter Entertainment (DI) (FLTR) 16,600.00p -1.63%
Glencore (GLEN) 390.40p -1.26%

FTSE 250 - Risers

Close Brothers Group (CBG) 353.00p 15.74%
Domino's Pizza Group (DOM) 368.00p 5.88%
Octopus Renewables Infrastructure Trust (ORIT) 75.40p 3.86%
PPHE Hotel Group Ltd (PPH) 1,290.00p 2.79%
Currys (CURY) 65.20p 2.57%
Darktrace (DARK) 361.30p 2.39%
Baltic Classifieds Group (BCG) 236.00p 2.16%
Babcock International Group (BAB) 489.00p 1.87%
Dr. Martens (DOCS) 96.65p 1.63%
Drax Group (DRX) 429.20p 1.46%

FTSE 250 - Fallers

Mobico Group (MCG) 76.25p -9.60%
Ferrexpo (FXPO) 75.80p -6.30%
RHI Magnesita N.V. (DI) (RHIM) 3,382.00p -5.19%
Plus500 Ltd (DI) (PLUS) 1,750.00p -4.42%
PureTech Health (PRTC) 185.40p -4.04%
Tullow Oil (TLW) 29.50p -3.66%
Baillie Gifford US Growth Trust (USA) 183.80p -3.27%
FDM Group (Holdings) (FDM) 401.50p -3.25%
Kainos Group (KNOS) 1,088.00p -3.21%
Renishaw (RSW) 4,104.00p -3.21%

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