China stimulus impatience keeps lid on sentiment

(Alliance News) - Equity prices in Europe were mixed heading into Monday afternoon, with a warning of the challenges facing the Chinese economy hurting investor sentiment at the start of a busy week of central banking action.

The FTSE 100 index was down 5.11 points, or 0.1%, at 7,658.62. The FTSE 250 was up 28.78 points, or 0.2%, at 19,229.23, and the AIM All-Share was down 1.71 points, or 0.2%, at 764.84.

The Cboe UK 100 was down marginally at 764.16, the Cboe UK 250 was up 0.1% at 16,877.79, and the Cboe Small Companies was down 0.1% at 13,686.41.

In mainland Europe, the CAC 40 in Paris was down 0.2%, though the DAX 40 in Frankfurt rose 0.2%.

China's top leaders said the country's economy was facing "new difficulties and challenges" in a meeting of the 24-person Politburo on Monday, state media reported.

"The meeting pointed out that the current economic operation is facing new difficulties and challenges, mainly due to insufficient domestic demand, operational difficulties for some enterprises, high risks and hidden dangers in key areas, and a complex and severe external environment," a readout of the meeting on state broadcaster CCTV said.

China's leaders meet annually at the end of July to review the country's economic situation before their traditional summer break in August.

AJ Bell analyst Danni Hewson commented: "China's post-Covid economic reopening is proving to be less robust than hoped at the start of the year, and now it seems that investors are growing tired of waiting for the Chinese government to announce new stimulus measures. There are concerns that the Chinese housing market will remain sluggish and that has weighed on sentiment towards all things related to real estate and construction, including miners over fears that commodities demand could weaken."

Stocks most-exposed to the Chinese economy struggled. Luxury fashion firm Burberry lost 2.5%, while miner Anglo American fell 0.7%.

Travel shares were also lower. Jet2 fell 2.9%, while Tui lost 2.0%. Tui confirmed that holidaymakers returned to the UK from fire-ravaged Rhodes on "three dedicated flights" overnight, with plans to bring more back "as soon as possible" in place.

Jet2 said a repatriation flight, carrying 95 passengers, landed at Leeds Bradford Airport on Sunday evening, before another three leave the Greek island later on Monday.

UK Foreign Office minister Andrew Mitchell said it is "peak holiday season", with between 7,000 and 10,000 Britons estimated to be on the island.

On the up, meanwhile, Ocado surged 10%.

The online supermarket is to be paid GBP200 million in a deal with Norwegian warehouse automation firm AutoStore, which accused it of breaching patents.

In a joint statement released on Saturday, Ocado and AutoStore said they have settled their long-running dispute over robot patents. A High Court judge ruled in March that AutoStore's "patents were invalid" and that, regardless, Ocado did not infringe them.

AutoStore is to pay Ocado GBP200 million in 24 monthly instalments starting in July 2023 under the new settlement.

Vodafone added 4.3%. Newbury, Berkshire-based firm reported growth in organic service revenue, backed yearly guidance but said there is "much more still to do" as far as its "action plan" goes.

Vodafone said its service revenue for the three months that ended June 30 was EUR9.11 billion, down 4.2% from the EUR9.51 billion at the same point the year before. On an organic basis, however, it rose 3.7% on-year.

Total revenue in the first quarter was down 4.8% at EUR10.74 billion from EUR11.28 billion the prior year, but also up 3.7% organically.

Full-year guidance for adjusted earnings before interest, tax, depreciation, and amortisation after leases was unchanged at around EUR13.3 billion.

Chief Executive Margherita Della Valle said: "We have delivered particularly strong trading in our business segment and returned to service revenue growth in Europe. Looking ahead, we have taken the first steps of our action plan focused on customers, simplicity and growth, but we have much more still to do."

BT rose 2.8% in a positive read-across.

Picture house operators rose after the releases of the Barbie film based on the eponymous fashion dolls and the Oppenheimer period piece led to a bumper weekend at the box office.

Cineworld jumped 11%, while Everyman climbed 1.8%.

The 'Barbenheimer' offering prompted the biggest weekend for UK cinema-going since 2019, according to the UK Cinema Association. They generated almost GBP30 million at the UK box office, the group, which represents the interests of UK cinema operators, said.

Cinema chain Vue said a fifth of its customers had purchased tickets to see both films in a double bill dubbed by social media as Barbenheimer.

More than 2,000 of Vue's Barbie screenings were sold out, according to the company.

Tim Richards, chief executive and founder of Vue International, told the PA news agency: "We knew it was going to be a big weekend based on the advanced bookings, which were also the biggest since the pandemic."

The pound was quoted at USD1.2837 early Monday afternoon in London, down from USD1.2852 at the London equities close on Friday. The euro stood at USD1.1091, lower against USD1.1121. Against the yen, the dollar was trading at JPY141.21, down from JPY141.64 late Friday.

Central bans take centre-stage later this week, starting with the Federal Reserve on Wednesday, the European Central Bank on Thursday and the Bank of Japan on Friday.

Quarter-point rate hikes are likely from both the Fed and ECB, Ebury analyst Matthew Ryan believes, though the tone of the two central banks will differ.

"The ECB continues to wrestle with its inflation problem. Going by the core index, the disinflationary trend evident in the US has yet to cross the Atlantic. Last week's slight upward revision to the June inflation number confirmed that the ECB still has work to do, so raising rates by another 25 [basis points] at its meeting this week is effectively a certainty. Traders will be paying close attention to the communications from the meeting, which will be key to the euro reaction," Ryan added.

"The Federal Reserve's latest policy meeting on Wednesday could yield the final rate hike in the current tightening cycle, although chair Powell and co. are unlikely to explicitly indicate as much. The most likely outcome is another 25 [basis point] hike, followed by some mildly hawkish rhetoric that will not change the narrative too much. On the one hand, the US economy continues to perform remarkably well, while on the other, the excellent news on inflation means that the Fed can take its foot off the gas and wait a few months for further developments."

Stocks in New York are called higher on Monday. The Dow Jones Industrial Average and S&P 500 are both called up 0.2%, and the Nasdaq Composite 0.3% higher.

Brent oil was quoted at USD81.29 a barrel midday Monday in London, up from USD80.41 late Friday. Gold was quoted at USD1,965.31 an ounce, higher against USD1,960.17.

Still to come on Monday's economic calendar is a US flash purchasing managers' index reading at 1445 BST. Numbers in the UK and euro area were underwhelming.

The headline seasonally adjusted S&P Global flash UK composite output index fell to 50.7 in July from 52.8 in June. Though remaining above the crucial 50.0 no-change mark which separates growth from contraction, July's reading was the lowest since January.

The eurozone PMI fell to 48.9 points in July from 49.9 in June, suggesting the private sector's slowdown deepened.

By Eric Cunha, Alliance News news editor

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