London close: Equities dragged lower by poor factory data
UK equities were in negative territory on Tuesday as poor manufacturing data out of China, the UK and the US weakened sentiment.
The official purchasing managers’ index for Chinese manufacturing activity fell to 49.7 in August from the previous month’s reading of 50. A figure below 50 signals a contraction in the sector while a level above that indicates expansion.
The Caixin PMI was unexpectedly revised upwards to 47.3 in August from the previous estimate of 47.1 but the figure still revealed a contraction.
“Concerns about Chinese growth as well as the prospect of a US rate rise have seen European markets come off their worst monthly performance since 2011, though that does have to be tempered somewhat by last week’s strong rebound, as China cut rates further while senior Fed official and new York Fed President Bob Dudley suggested a September rate rise was now ‘less compelling’ than previously thought,” said Michael Hewson, chief market analyst at CMC Markets UK.
International Monetary Fund managing director Christine Lagarde on Tuesday warned at the University of Indonesia that the slowdown in Asia could impact growth in emerging markets.
In the UK, Markit’s PMI on manufacturing fell from 51.9 to 51.5 in August, “well below” its average for the past two-and-a-half years. A persistent weakness in exports remains a crucial issue for manufacturing in the UK, said Howard Archer from IHS Global Insight.
"The survey indicates that UK manufacturers are continuing to find life very challenging as they are being held back, particularly by weak foreign orders," he said.
On the upside, UK mortgage approvals rose in July, reaching their highest level since February. According to the Bank of England, mortgage approvals for house purchases rose from 67,069 in June to 68,764 in July, a figure that exceeded analysts’ expectations, while net mortgage lending jumped by 2.709bn pounds, the biggest increase since July 2008.
Elsewhere, unemployment in the Eurozone fell to its lowest level since February 2012 in July, according to figures released on Tuesday by Destatis. The unemployment rate dropped to 10.9% from 11.1% in June, which was better than the unchanged reading economists had been expecting.
Markit’s Eurozone manufacturing PMI was unexpectedly revised down to 52.3 in August from an earlier estimate of 52.4.
Across the Atlantic, US construction spending in July hit its highest level since May 2008, according to the Commerce Department. Outlays for construction projects rose 0.7% in July to a seasonally adjusted rate of $1.08trn, the highest level since May 2008 and in line with expectations.
US manufacturers in August grew at their slowest pace in over two years, figures revealed. The Institute for Supply Management revealed its manufacturing index declined from 52.7% to 51.1% in August, falling below the 52.2% print analysts had been expecting.
Meanwhile, oil prices retreated on China concerns after Brent and West Texas Intermediate crude futures jumped by more than 8% in the previous session.
At 1640 BST on Tuesday WTI was down 7.3% to $45.82 per barrel, while Brent fell 7.7% to $50.26.
“Tuesday’s manufacturing weakness, from China to Europe to the US, appears to have contributed to the day’s oil slide, with Brent Crude giving back a notable chunk of the ground it had gained in the past few days of trading,” said Connor Campbell at Spreadex.
In company news, miners including Glencore, Anglo American and BHP Billiton, plunged following weak factory data and after coper prices edged lower.
Shire slumped as the company’s chief executive vowed to cut $1bn off costs if a deal to buy Baxalta goes through.
Astrazeneca was also lower as the company entered into a collaboration agreement with Valeant Pharmaceuticals International under which it will grant an exclusive licence for Valeant to develop and commercialise psoriasis drug brodalumab.
Rentokil Initial gained as it reached an agreement to buy US-based The Steritech Group for $425m in cash to accelerate the growth of its pest control business.
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