London close: FTSE ends lower on China slowdown worries

The FTSE 100 ended February on a low as bets of further quantitative easing from the European Central Bank failed to offset growing worries over China’s slowdown.

The Eurozone unexpectedly entered deflation in February, according to Eurostat. The consumer price index fell 0.2% year-on-year this month, compared to analysts’ expectations of 0% and January’s 0.3% gain. Inflation once again undershot the ECB’s 2% target, fuelling hopes the central bank will expand its quantitative easing at its 10 March policy meeting.

“Coming in at -0.2% (the first deflationary reading since last September) against the 0.0% expected, and the promising 0.3% last month, this latest inflation figure almost surely guarantees action from Mario Draghi when the ECB meets next Thursday,” said Connor Campbell, financial analyst at Spreadex.

Dragging on investor sentiment elsewhere, China’s government made no statement at the weekend's G20 meetings on concrete plans for stimulus measures to lift the flagging economy. Investors had been hoping for further action to be announced after People’s Bank of China chief Zhou Xiaochuan said on Friday there was more room for easing.

The PBoC guided the yuan lower for fifth straight session on Monday, adding to worries that China is using the manipulation of its currency as a major tool to help turnaround the economy.

China’s central bank also announced on Monday that it was cutting the reserve-ratio for banks by 0.5 percentage points. The ratio refers to the amount of cash China's lenders must keep as reserves.

“The People’s Bank paused monetary loosening in recent weeks apparently on concerns that it would worsen capital outflows,” according to Capital Economics.

“The government stepped up fiscal support instead. Today’s cut to the required reserve ratio (RRR) is therefore both confirmation that policymakers retain a bias towards easing and also a signal that they are less concerned about outflows getting out of control.”

On this side of the pond, the Bank of England revealed mortgage approvals reached a two-year high in January and consumer credit expanded at the fastest pace in a decade. Mortgage approvals for house purchases numbered 74,581 in January from 71,335 in December. Analysts had expected 74,000 approvals. Consumer credit increased 9.1% year-on-year in January or by £1.56bn, compared to analysts’ forecasts for a £1.3bn increase.

Across the Atlantic, an index measuring US pending home sales fell 2.5% month-on-month in January to a seasonally adjusted reading of 106 in January, the National Association of Realtors revealed. The drop was much worse than the 0.6% decline expected by analysts and reflected lower inventory and rising prices.

The Chicago Purchasing Managers’ index fell 8 points to 47.6 in February following a sharp increase to 55.6 the previous month. The data, released by the Institute for Supply Management, missed economists’ expectations for a reading of 53, led by significant declines in production and new orders. A reading below 50 signals a contraction in sector activity while a level below that indicates an expansion.

Meanwhile, oil prices gained as Saudi Arabia said it would work with other producers to limit oil market volatility.

"The kingdom (of Saudi Arabia) seeks to achieve stability in the oil markets and will always remain in contact with all main producers in an attempt to limit volatility and it welcomes any cooperative action," the Saudi cabinet said in a statement.

Saudi Arabia and several fellow OPEC members agreed with non-OPEC Russia this month to freeze output at January levels but Iran has remained the main obstacle at curbing an oversupplied market as it takes advantage of the recent lifting of its international economic sanctions.

At 1641 GMT, Brent crude rose 2.9% to $36.16 per barrel and West Texas Intermediate increased 2.7% to $33.72 per barrel.

On the company front, HSBC was in the red after Bernstein downgraded the stock to ‘underperform’ from ‘market perform’ and cut the price target to 380p from 550p.

Supermarket retailer Tesco was under the cosh after denying reports that it was planning to cut store staff numbers by 39,000 over the next three years, with news Amazon is entering the fresh food market also ramping up the industry pressure.

AstraZeneca was weaker despite announcing that it has entered into a licensing deal with China Medical System Holdings Ltd for the commercialisation rights in China to its hypertension medicine Plendil.

Heavily-weighted miners – which are dependent on demand from China – were the standout gainers on the index after the PBoC cut its reserve requirement ratio.

Shopping centre owner Intu Properties was on the front foot after Bank of America Merrill Lynch upgraded the stock to ‘buy’ from ‘neutral’.

Market Movers

FTSE 100 (UKX) 6,081.73 -0.23%
FTSE 250 (MCX) 16,579.48 0.08%
techMARK (TASX) 3,188.53 -0.19%

FTSE 100 - Risers

Anglo American (AAL) 480.25p 6.58%
Burberry Group (BRBY) 1,320.00p 4.02%
Glencore (GLEN) 133.25p 3.90%
Intu Properties (INTU) 299.20p 3.78%
Pearson (PSON) 859.00p 2.75%
Rio Tinto (RIO) 1,904.00p 2.34%
Ashtead Group (AHT) 924.00p 2.33%
Merlin Entertainments (MERL) 458.00p 2.03%
Barclays (BARC) 172.20p 1.83%
Sports Direct International (SPD) 404.60p 1.81%

FTSE 100 - Fallers

London Stock Exchange Group (LSE) 2,678.00p -4.93%
Shire Plc (SHP) 3,788.00p -2.80%
Capita (CPI) 1,004.00p -2.52%
Tesco (TSCO) 179.75p -2.39%
AstraZeneca (AZN) 4,107.00p -2.32%
Worldpay Group (WI) (WPG) 286.90p -2.12%
Berkeley Group Holdings (The) (BKG) 3,281.00p -2.03%
Centrica (CNA) 207.20p -1.89%
HSBC Holdings (HSBA) 459.15p -1.75%
DCC (DCC) 5,625.00p -1.75%

FTSE 250 - Risers

Vedanta Resources (VED) 274.50p 8.37%
International Personal Finance (IPF) 267.90p 6.39%
Morrison (Wm) Supermarkets (MRW) 199.00p 5.91%
Amec Foster Wheeler (AMFW) 380.70p 5.49%
Entertainment One Limited (ETO) 158.10p 5.47%
TalkTalk Telecom Group (TALK) 231.20p 4.76%
Aldermore Group (ALD) 201.40p 4.57%
Rightmove (RMV) 3,937.00p 4.40%
Evraz (EVR) 68.75p 3.93%
Northgate (NTG) 406.00p 3.81%

FTSE 250 - Fallers

Hiscox Limited (DI) (HSX) 970.00p -8.58%
Ocado Group (OCDO) 259.00p -8.12%
Ultra Electronics Holdings (ULE) 1,785.00p -5.95%
Assura (AGR) 50.00p -4.67%
Allied Minds (ALM) 303.20p -4.29%
Senior (SNR) 207.30p -3.54%
AO World (AO.) 154.00p -3.02%
Just Eat (JE.) 386.00p -2.99%
Cranswick (CWK) 1,950.00p -2.89%
Pendragon (PDG) 36.30p -2.68%