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London open: Stocks fall on China woes, geopolitical tensions, oil price slump
London stocks declined on Wednesday as Chinese service activity growth eased, oil prices continued drop and reports that North Korea has tested a nuclear weapon rocked markets.
Caixin’s purchasing managers’ index on China services fell to 50.2 in December from 51.2 the previous month. A reading above 50 signals an expansion while a level below that indicates a contraction.
The report follows weak manufacturing data on Monday, adding to concerns about a slowdown in the world’s second largest economy.
Worries in Asia escalated after North Korea said it had successfully carried out an underground hydrogen bomb test. If confirmed, it would be the country’s fourth nuclear test since 2006.
The news came after a 5.1 magnitude tremor was detected close to the nuclear test site at Punggye-ri, which monitors said was unlikely to be natural.
A slump in oil prices also continued to weigh on sentiment, with Brent crude down 1.98% to $35.71 per barrel and West Texas Intermediate down 1.2% to $35.51 per barrel at 0857 GMT.
“The dismal start to 2016 appears to have only intensified this Wednesday, with disappointing Chinese services data (sending the yuan to a 5 year low against the dollar even if the Shanghai Composite managed some counter-intuitive growth), a fresh 11 year low for Brent Crude AND reports of a fourth nuclear test from North Korea leading to an increasingly odious open from the European markets,” said Connor Campbell, financial analyst at Spreadex.
Still to come, services PMIs in the UK and the US will be released.
In the US, a report on factory orders is expected to show a 0.2% drop in November, compared to the previous month’s 1.5% increase.
The private payrolls report from ADP is forecast to reveal US employers added 198,000 jobs in December. It comes ahead of the official monthly non-farm payrolls report on Friday.
After the closing bell, the Federal Reserve will release minutes of its 15-16 December policy meeting, which will reveal more details behind the central bank’s decision to raise interest rates for the first time in almost a decade.
On the company front, mining stocks were under the cosh amid woes in China and geopolitical tensions. Rio Tinto, BHP Billiton, Antofagasta and Glencore were in the red.
Oil producers, including Nostrum Oil & Gas and Ophir Energy, slipped on fears about the further fall in oil prices.
Next reversed Tuesday’s decline after reporting disappointing sales in the final few weeks of last year.
Royal Mail continued to rally a day after Cantor Fitzgerald upgraded the stock ‘buy’ from ‘hold’ and raised the price target to 530p from 500p.
Your Morning daily London market report has December in the date not January.
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D Pembroke