LONDON MARKET CLOSE: Stocks fall after China factory gate prices soar

(Alliance News) - Stocks in London ended lower on Wednesday as inflation fears came back to haunt ...

Alliance News 9 June, 2021 | 5:10PM
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(Alliance News) - Stocks in London ended lower on Wednesday as inflation fears came back to haunt investors following the latest figures from China and ahead of US consumer price index data on Thursday.

China's factory gate inflation rose at the highest rate in over a decade last month, official data showed, as the world's second-largest economy worked to contain a surge in commodity prices.

Factories so far seem to be absorbing costs rather than passing them on to consumers as domestic demand recovers from the strict coronavirus lockdowns imposed last year.

The producer price index, which measures the cost of goods at the factory gate, exceeded expectations to spike 9.0% on-year in May, said the National Bureau of Statistics. This marks its highest jump since September 2008.

The FTSE 100 index closed down 14.08 points, or 0.2%, at 7,081.01 The FTSE 250 ended down 136.53 points, or 0.6%, at 22,758.97. The AIM All-Share closed 8.31 points lower, or 0.7%, at 1,249.56.

The Cboe UK 100 ended down 0.3% at 705.80, the Cboe UK 250 closed 0.7% lower at 20,523.30 and the Cboe Small Companies ended down 0.2% at 15,178.50.

In Paris the CAC 40 ended 0.2% higher, while the DAX 30 in Frankfurt ended down 0.4%.

"European markets have underperformed today with the FTSE 100 slipping back after the latest Chinese factory gate inflation numbers came in hotter than expected, increasing concerns that certain parts of the market are becoming complacent about rising inflation risks," said CMC Markets analyst Michael Hewson.

In the FTSE 100, British Airways parent International Consolidated Airlines ended the best performer, up 3.3%, despite a probe from the UK Competition & Markets Authority.

The regulator said it is probing whether British Airways and Ryanair have broken UK consumer law over ticket refunds. The CMA has opened enforcement cases into both firms over concerns that, during periods of lockdown across the UK, BA and Ryanair refused to give refunds to consumers that were lawfully unable to fly. The firms instead offered vouchers or the option to rebook.

The US on Tuesday eased its warnings against travel to dozens of countries including Olympics host Japan and much of Europe, raising hopes that widespread vaccinations will bring a return to normal travel.

Travel stocks were higher across the board with tour operator Tui rising 3.3%, and carriers easyJet, Ryanair and Wizz Air ending up 2.0%, 1.7% and 3.3%, respectively.

"Investors were more optimistic about the travel and leisure sector on increased hopes that many travel restrictions will be lifted soon. The US Centers for Disease Control & Prevention has relaxed travel advice for more than 110 countries and territories, thereby increasing the earnings prospects for companies that provide transport or accommodation," said AJ Bell's Russ Mould.

Royal Dutch Shell 'A' and 'B' shares ended up 1.3% and 1.2% respectively. The oil major has been ordered by a Dutch court to reduce its net carbon emissions by 45% by 2030, with Chief Executive Ben van Beurden saying that the energy company will "rise to the challenge".

On Wednesday, the District Court in The Hague ruled that by 2030 Shell must reduce its net carbon emissions by 45%, compared to its 2019 level.

"We all know we must urgently tackle climate change and achieve the goal of the Paris Agreement for countries to limit global warming to 1.5 degrees Celsius. The court ruling has not changed the fact that Shell is more determined than ever to play its part and lead in this global challenge," van Beurden wrote on LinkedIn on Wednesday, in reply to the court ruling.

Shell in February set out plans to reach net zero carbon emissions by 2050, while at the same time shrinking debt and maintaining a "progressive dividend policy".

Rolls-Royce closed up 1.0%. The jet engine maker said it has appointed Anita Frew as a non-executive director and chair designate. Frew is chair of chemicals firm Croda and a non-executive director at miner BHP Group.

Until recently, she was deputy chair and senior independent director at lender Lloyds Banking Group. She will join the Rolls-Royce board with effect from July 1, and succeed Ian Davis as chair at the start of October. Davis is departing after nearly nine years as chair.

On the political front, talks aimed at ending the deadlock over the implementation of the Brexit Withdrawal Agreement in Northern Ireland have ended without a breakthrough.

Following a three-and-a-half hour meeting with European Commission vice-president Maros Sefcovic, Brexit minister David Frost said they had had a "frank and honest" discussion and had agreed to continue the negotiations.

"There weren't any breakthroughs. There aren't any breakdowns either and we're going to carry on talking," he said.

The meeting took place against the backdrop of continuing tensions over checks on goods moving to Northern Ireland from the rest of the UK as required under the terms of the Northern Ireland Protocol in the agreement.

Frost refused to rule out the prospect that the UK could unilaterally delay the implementation of checks on chilled meats - due to come in at the end of the month - if there was no agreement before then.

"Brexit worries are back as the UK and EU square up over Northern Ireland, but while the debate has yet to reach the front pages of most UK newspapers the pound is coming under some pressure against the euro. While the discussions will lack the excitement of 'deal or no deal' from 2019, it is still something that could spark some volatility in an otherwise-quiet period," said IG Group's Chris Beauchamp.

The pound was quoted at USD1.4120 at the London equities close, down from USD1.4147 at the close Tuesday.

The euro stood at USD1.2186 at the European equities close, flat from USD1.2181 late Tuesday, ahead of the European Central Bank interest rate decision on Thursday afternoon.

The ECB Governing Council meets in Frankfurt, announcing its latest policy decision at 1245 BST on Thursday. This will be followed by a press conference with President Christine Lagarde at 1330 BST.

The central bank is widely expected to keep rates unchanged, as the debate around as when to rein in pandemic support rumbles on.

"[Taper] discussions will continue in the corridors (and maybe the minutes), but we believe the desire to secure an uneventful summer will be sufficient for most governors to agree on a continued dovish stance," said Societe Generale's Anatoli Annenkov.

Against the yen, the dollar was trading at JPY109.60 in London, up from JPY109.47 late Tuesday.

Stocks in New York were higher at the London equities close ahead of US inflation data and an ECB policy meeting as investors seek clues on the timing of higher interest rates which could hinder economic recovery.

The DJIA was up 0.1%, the S&P 500 index up 0.2% and the Nasdaq Composite up 0.3%.

In addition, markets were looking ahead also to the start Friday of a summit of the G7 wealthy nations. The gathering in England will be Joe Biden's first foreign trip of his US presidency.

UK Prime Minister Boris Johnson, host of the summit featuring leaders also from Canada, France, Germany, Italy and Japan, is set to urge the seven nations to vaccinate the whole world against coronavirus by the end of 2022.

Brent oil was quoted at USD72.36 a barrel at the equities close, up sharply from USD71.52 at the close Tuesday. The North Sea benchmark touched an intraday high of USD72.87 in afternoon trade - its highest level since late 2018.

Gold was quoted at USD1,890.50 an ounce at the London equities close, marginally lower against USD1,892.50 late Tuesday.

The economic events calendar on Thursday has US consumer price inflation readings and the latest jobless claims numbers at 1330 BST.

The corporate calendar on Thursday has annual results from hazard detection and life protection products maker Halma, digital automotive marketplace Auto Trader and from online spread betting firm CMC Markets.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
easyJet PLC 935.20 GBX 0.28
Rolls-Royce Holdings PLC 108.74 GBX 0.69
Ryanair Holdings PLC 16.10 EUR -0.22
International Consolidated Airlines Group SA 194.86 GBX 0.01
Royal Dutch Shell PLC B 1,427.00 GBX 0.06
Royal Dutch Shell PLC Class A 1,485.00 GBX 0.03

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