Member Article

Miners suffers as China shows more signs of slowdown

Markets opened lower this morning, weighed down largely by two separate overnight announcements. The first came from China’s National Bureau of Statistics who reported that the country grew at an annual rate of 9.1% in the third quarter of this year, slightly below forecasts of 9.2% and lower than the 9.5% reading in the previous quarter. News that the Chinese economy grew at its slowest rate for two years negatively affected commodity prices which in turn weighed on those equities with greatest exposure to them, notably miners.

The second came in the form of a warning from Moody’s, the ratings agency suggesting that a negative outlook may be placed on France’s triple A credit rating if the costs for bailing out peripheral European countries, or its domestic banking system, puts too much pressure on its national finances. The spread between yields on German Bunds and their French equivalents (OATs) reached a eurozone high in response to the caution, suggesting investors are becoming increasingly concerned over the health of Europe’s second largest economy.

The aforementioned developments took around 50 points of the London market, which traded lower by around 1% slightly outperforming the French CAC40 but lower than the German DAX. UK inflation data didn’t help the FTSE 100, the market learning that inflation, as measured by Consumer Price Index, rose to 5.2% in the year to September, and 0.6% from the previous month. This increase meant pricing pressures matched the record highs seen in the same month of 2008, with an increase in energy prices responsible for most of the gains. Whilst the Bank of England’s 2% target looks unfeasible at present, economists predict that inflation will reduce going forward as one off measures such as January’s VAT rise will cease to factor into the equation from 2012 onwards.

It was unsurprising that the bottom of the index was populated by mining stocks and financials, Rio Tinto the worst hit with a 4.3% loss amid falling iron ore prices. On a more optimistic note, G4S was the best performer with a 9.8% gain following the dramatic sell-off in response to yesterday’s ISS acquisition announcement. In addition to some bargain hunting, sentiment was boosted by comments from S&P who estimated that the acquisition would have a neutral effect on the medium term credit worthiness of G4S, alleviating some concerns over the size of the deal. The FTSE finished the day 0.5% lower at 5410, strengthening somewhat into the close having touched lows of 5350 points at around midday.

This was posted in Bdaily's Members' News section by John Dance .