London midday: Stocks down but off lows as pound slumps; China data weighs

London stocks had pared losses by midday on Wednesday but the overall tone was still decidedly negative on the first day of trading of 2019, as disappointing Chinese manufacturing data sparked broad-based selling.

The FTSE 100 was down 0.7% at 6,679.70, off earlier lows as the pound fell 0.6% against the dollar to 1.2665 and 0.3% versus the euro at 1.1078.

Sentiment was undermined after China’s private Caixin/Markit manufacturing purchasing managers’ index released earlier showed a drop to 49.7 in December from 50.2 in November. This marked the first contraction in 19 months and missed expectations for a reading of 50.1. The figures confirmed a trend seen in the official PMI released on Monday, which slipped to 49.4 in December - its weakest level since early 2016.

"This is not a good indicator as we eye tariffs biting even harder in 2019 than they did last year,” said Neil Wilson, chief market analyst at Markets.com.

"On the whole, there is little to cheer about, unless you’re viewing this as a chance to snap up some bargains. Following the worst year in a decade for global equities, it’s little surprise to see a tentative start to 2019 and this does create opportunities, but investors should be prepared for more volatility ahead."

The weak Chinese data overshadowed news overnight that US President Trump was reaching out to Congress to help end the partial government shutdown. Trump has reportedly invited congressional leaders to a White House briefing on border security on Wednesday.

On home turf, meanwhile, UK manufacturers reported an uptick in activity for the last month of 2018 as customers stockpiled to prepare against a potential no-deal Brexit.

The IHS Markit/CIPS manufacturing purchasing managers' index rose to a six-month high of 54.2 in December from 53.6 the month before, well above the 52.5 the market expected.

A rise in new orders was key to the improved headline PMI. Manufacturers indicated the highest level of new orders since February, which was said to reflect stockpiling by clients at home and abroad in order to minimise disruption in the event of a no-deal Brexit.

"Any positive impact on the PMI is likely to be short-lived, however, as any gains in the near-term are reversed later in 2019 when safety stocks are eroded or become obsolete," said Rob Dobson, a director at IHS Markit.

Preparations for a no-deal Brexit drove the fourth-fastest rate of input buying in the survey's 27-year history, while stocks of finished goods rose at the second steepest pace during that time.

Otherwise, output for the fourth quarter was the lowest in five years, with output growing in December but at a slower pace. Manufacturers confidence about output for the coming 12 months was only slightly above November's 27-month low.

Despite the six-month high for the headline index, the data still suggests that the sector stagnated in the fourth quarter, said economist Andrew Wishart at Capital Economics, as the output balance, which has the best relationship with the official measure of manufacturing output, averaged 52.5 in the final three months of the year, consistent with flat manufacturing output.

Samuel Tombs, an economist at Pantheon Macroeconomics, said the pick-up in the PMI "suggests that preparations for Brexit are helping manufacturers to keep their heads above water during the current global slowdown".

If the government averts a no-deal Brexit, Tombs believes any revival in manufacturing output in the second quarter will be sluggish "because producers simply will run down stocks".

"As a result, December's PMI doesn’t alter our view that the manufacturing sector will struggle over the coming months and that GDP growth will be well below-trend in Q4 and Q1; we expect quarter-on-quarter growth of 0.2% and 0.3%, respectively."

Miners suffered heavy losses on the back of the Chinese data, with Glencore, Antofagasta, Anglo American and BHP the worst performers on the FTSE 100.

Energy shares were also under the cosh, with BP, Shell, Premier Oil and Tullow Oil all down as oil prices fell amid worries about oversupply. West Texas Intermediate was down 0.8% at $45.04 a barrel and Brent crude was 0.7% weaker at $53.44.

Oanda analyst Craig Erlam said: "Slower global growth is clearly a strong headwind for oil but I wonder whether the doom and gloom is a little overdone and with OPEC+ seemingly committed to bringing balance back into the market, the bottom may not be far away."

Smith & Nephew shares slid as JPMorgan cut the stock the to ‘neutral’ from ‘overweight’ and chopped the target price to 1,477p from 1,487p following outperformance.

On the upside, retailer Next was higher ahead of its trading update on Thursday. Independent retail analyst Nick Bubb said Next is seen as important within the sector, both generally and particularly this year because it is one of the biggest and best managed non-food retailers, it is always honest in its analysis and guidance - "no corporate double-speak" - and chief executive Simon Wolfson is a well-respected "economic guru".

"And it is important this year because the Next share price has been under significant pressure on fears that Next lost out badly by again refusing to take part in pre-Christmas discounting," he said.

Playtech reversed earlier losses after saying it would pay an extra €28m in tax to Israel after an audit covering the 10 years to 2017.

Egyptian gold miner Centamin was also in the green as it postponed the replacement of executive chairman Josef El-Raghy, who will now remain in the role as a non-executive director until 2020 as the company has not yet identified a suitable replacement.

Energean Oil and Gas rallied after saying it had signed a $900m, 19-year gas sales deal with IPM Beer Tuvia Ltd.

Market Movers

FTSE 100 (UKX) 6,679.70 -0.72%
FTSE 250 (MCX) 17,511.82 0.06%

FTSE 100 - Risers

Next (NXT) 4,139.00p 3.71%
GVC Holdings (GVC) 697.50p 3.49%
Ocado Group (OCDO) 813.40p 2.96%
TUI AG Reg Shs (DI) (TUI) 1,146.00p 1.82%
Smurfit Kappa Group (SKG) 2,108.00p 1.25%
Intertek Group (ITRK) 4,858.68p 1.22%
Rightmove (RMV) 437.05p 1.11%
Severn Trent (SVT) 1,835.50p 1.10%
Smiths Group (SMIN) 1,378.50p 1.06%
United Utilities Group (UU.) 743.74p 1.02%

FTSE 100 - Fallers

Glencore (GLEN) 276.95p -4.94%
Antofagasta (ANTO) 746.30p -4.71%
Anglo American (AAL) 1,670.60p -4.42%
BHP Group (BHP) 1,583.60p -4.12%
Evraz (EVR) 463.30p -3.58%
Rio Tinto (RIO) 3,611.00p -3.19%
Lloyds Banking Group (LLOY) 50.44p -2.72%
Melrose Industries (MRO) 159.70p -2.53%
Prudential (PRU) 1,367.00p -2.50%
Standard Chartered (STAN) 594.10p -2.49%

FTSE 250 - Risers

Vivo Energy (VVO) 133.82p 7.06%
Stobart Group Ltd. (STOB) 152.15p 5.37%
Energean Oil & Gas (ENOG) 660.00p 5.05%
Card Factory (CARD) 181.50p 4.67%
Euromoney Institutional Investor (ERM) 1,204.08p 4.34%
Clarkson (CKN) 1,978.00p 4.11%
Inmarsat (ISAT) 394.40p 3.98%
Rathbone Brothers (RAT) 2,416.04p 3.16%
Serco Group (SRP) 98.35p 2.88%
Hochschild Mining (HOC) 160.20p 2.66%

FTSE 250 - Fallers

Premier Oil (PMO) 61.50p -7.59%
Ferrexpo (FXPO) 182.10p -6.45%
Convatec Group (CTEC) 131.00p -5.72%
Intu Properties (INTU) 108.40p -4.41%
Hammerson (HMSO) 319.50p -3.01%
888 Holdings (888) 169.80p -2.97%
Kaz Minerals (KAZ) 516.40p -2.93%
Tullow Oil (TLW) 174.05p -2.82%
Just Group (JUST) 89.35p -2.62%
Fidelity China Special Situations (FCSS) 183.84p -2.53%