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London open: Stocks drop as investors mull China data; UK jobs figures in focus
London stocks fell in early trade on Tuesday as investors digested weak Chinese data and eyed the release of key UK jobs figures.
At 0845 BST, the FTSE 100 was 0.5% lower at 7,202.84, while the pound was down 0.1% against the dollar and the euro at 1.2340 and 1.1163, respectively.
Sentiment took a hit as data from China’s National Bureau of Statistics showed that the producer price index fell 0.8% in August from a year earlier, marking the worst year-on-year contraction since August 2016. This was steeper than the 0.3% decline seen in July but better than consensus expectations for a 0.9% drop.
Neil Wilson, chief market analyst at Markets.com, said: “The fear is not just that it signals weakness in domestic and overseas demand, but that China is exporting deflation by cutting prices and making it even harder for central banks like the ECB to achieve their inflation goals. It could be a tough session in Europe.”
On home shores, UK Prime Minister Boris Johnson suffered another defeat on Monday evening as his second call for a snap general election was rejected by MPs, meaning an election before the Brexit deadline of 31 October is no longer on the cards.
“With Parliament prorogued it seems unlikely we will see meaningful direction towards no-deal before Oct 14th,” said Wilson. “This at least may give bulls some comfort the pound will be offered support in the low 1.20s. It does rather look like there is a floor under sterling for the rest of the month and into October. The question is whether the current momentum is enough to drive GBPUSD north of 1.25 in the near term.”
On the data front, the claimant count, ILO unemployment rate and average earnings are all due at 0930 BST.
In equity markets, Tesco was among the worst performers after a downgrade to ‘hold’ at HSBC.
Equipment rental company Ashtead was on the back foot even as it posted a 9% jump in first-quarter pre-tax profit, with traders suggesting it could be down to profit-taking after a decent run.
Bovis Homes was in the red as it said it is back in talks with Galliford Try over a potential merger with its housing business, and posted record first-half profits. However, Galliford shares surged to the top of the FTSE 250 on news of the potential £1.1bn merger.
JD Sports was the standout gainer on the top-flight index as the sportswear retailer reported a 6.6% rise jump in interim pre-tax profit and said full-year results should come in at the mid-point of expectations.
Cairn Energy racked up strong gains after saying it swung to a profit in the first half on higher oil and gas output, as it upgraded full-year production forecasts.
In other broker news, Diageo was upgraded to ‘market perform’ at Bernstein, while SSE was lifted to ‘overweight’ at Morgan Stanley. BHP was boosted to ‘buy’ at Goldman Sachs.
