London close: Economic data drags headline indices lower

Data from China and Germany, coupled with another oil market slump saw headline London indices start the week on a negative footing.

FTSE 100 closed 2.71% or 158.70 points lower at 5,689.36, while the FTSE 250 ended 3.15% of 504.29 points lower at 15,497.99, as a mild recovery in resource stocks was cancelled out by a lacklustre performance from banks and financial services players.

Earlier in the session, data released by the People's Bank of China indicated that the country’s foreign currency reserves fell by $99.5bn in January. Information published over the weekend also pointed to a decline of $420bn over the past six months as Beijing attempts to boost the valuation of its own currency - the yuan - and calm investor flight.

China’s current reserves, in the region of $3.23trn, are at their lowest since May 2012, but still remain the world’s largest chest of foreign currency holdings.

Schroders' chief economist Keith Wade said, “We see our exchange rate wars scenario (where China devalues by 20%, triggering a reaction from others), as increasingly likely. The Bank of Japan’s introduction of negative interest rates in January can be seen as a response to the sharp appreciation of the trade-weighted yen since the beginning of the year.”

Later in the session, Germany’s Sentix Institute revealed that investor confidence in Eurozone equities retreated from a reading of +9.6 in January to +6.0 for February; its lowest reading since April 2015.

According to Sentix, the majority of investors now consider a December 2015 interest rate hike by the US Federal Reserve to have been a mistake.

Negative market sentiment was exasperated further by another decline in oil prices. At 1610 GMT, the Brent front month futures contract was down 1.09% or 37 cents to $33.69 per barrel, while WTI fell 1.81% or 56 cents to $30.33 per barrel.

On the corporate front, shares in ITV fell before recovering ground as Deutsche Bank said the broadcaster was lagging the rest of the sector, which has kicked the year off strongly.

Anglo American was higher despite a warning from the company’s chief executive Mark Cutifani that miners should prepare for the most challenging year yet, as the commodities market slump looked set to continue. In addition, Anglo American Platinum – a unit of Anglo American - posted a slump in headline earnings to ZAR107m for 2015 compared with ZAR786m the year before.

John Wood Group was under the cosh after Goldman Sachs downgraded the stock to ‘sell’ from ‘neutral', while Amec Foster Wheeler was also lower after Nomura cut it to ‘neutral’ from ‘buy’.

Meanwhile, Rolls-Royce shares were under pressure amid reports management of the aerospace and defence group will cut the dividend this week for the first time in 25 years. The company, which has issued five profit warnings in the last two years, announced a “major restructuring” in November aimed at saving between £150m and £200m per year from 2017.

Positive story of the session belonged to Randgold Resources which led the FTSE 100’s gainers roster after it lifted its dividend and reported record production for 2015 despite a drop in profit. Production and costs were in line with the company's annual guidance, as it set a new production record of more than 1.2m ounces - up 6% on the previous year.

The firm reported strong cash flows from operations, boosting cash on hand by 158% to $213.4m, though profits for the year were down due to lower gold prices - to $212.8m from $271.2m a year earlier. Nevertheless, Randgold's board proposed a 10% increase in the annual dividend, which the board said reflected the strong cash flows generated by the business.