Leading shares are ending the quarter on an uncertain note, but are still on track for their best three month performance since the start of 2013.
More stimulus moves from China with the easing of mortgage rules seem to have disappointed, giving little support to the commodity sector. Meanwhile concerns about Chinese consumer spending has hit the likes of Burberry, down 18p at £17.54, and Imperial Tobacco, 39p lower at £30.29.
Mining shares are also weaker, with Anglo American down 21p at £10.39 and Rio Tinto off 9p at 2807.5p. As well as the China concerns, the continuing fall in the oil price is also hitting the sector, with Brent crude down 1.7% at $55.33 a barrel as the deadline for nuclear agreement with Iran approaches. If a deal is agreed, further supplies of oil are likely to come onto the market, putting further pressure on prices.
An exception to the mining sector decline is Antofagasta, up 1.5p at 741p despite the copper miner denying reports it was in merger talks with Vancour-based Teck Resources. Citigroup said:
Our initial reaction to any potential deal is puzzlement, seeing no obvious benefits to Antofagasta. Operating synergies would be relatively small. Strategically we see no benefits to Antofagasta’s minority shareholders from diversification into coal and zinc (although this does hinge on long-term prices); plus risk of a major de-rating risk from losing the pure-play copper premium. The only good rationale would be if [Antofagasta’s copper mine] Los Pelambres really is at risk (in which case Teck would walk).
Overall the FTSE 100 is down 13.07 points at 6878.36, even though UK GDP numbers came in better than expected.
Tony Cross, market analyst at Trustnet Direct, said:
Burberry, BAT and Imperial Tobacco are all struggling and given news of the Chinese stimulus measures released overnight with the easing of mortgage rules, there could well be some read across here. Consumer demand is waning and it’s the aspirational or luxury brands that will be left most exposed. Furthermore, this round of stimulus from Beijing may have fallen short of expectations.
Elsewhere engineering group Meggitt is down 13.5p at 549.5p as Exane BNP Paribas began coverage with an underperform rating and 475p price target. The bank said:
Buoyed by bid speculation, the company has outperformed this past 12 months and trades close to its relative highs. However we don’t believe that the group’s earnings quality and increasing pressure on an already weak cash conversion support a takeout above the current price. We see a future where investment continues to rise, impacting cash generation, without sufficient offset from accelerating organic sales growth. An ending/slowing of the share buyback programme could be a catalyst for underperformance.
But B&Q owner Kingfisher has climbed 16.3p to 381.1p as it announced plans to return £200m to shareholders and shut 60 underperforming UK stores.
Among the mid-caps, Mitie has dropped more than 6% to 273.7p after the outsourcing group said full year profits were likely to be lower than expected, due to cuts in local government spending on home care and social housing.
