FTSE 100 drops as markets follow China lower

(MENAFN- ProactiveInvestors)Lunchtime Report London's main market slid today despite stronger than expected inflation data as concerns about China's economy weighed on the index. Chinese shares started on a cautious tone before aggressive sellers appeared in the afternoon. The Shanghai Composite plunged over 6% by the end of the session. 'The speculation that China will loosen its lending policies to try and spur business activity is causing more harm than good as it sends out the message that its economy is in dire need of stimulus and that is driving dealers towards the door' David Madden at IG said. 'All the news out of China recently has done nothing to restore confidence in its financial markets and the ripple effect can be felt in Europe.' Across Europe markets struggled with the French Cac40 and the Frankfurt-based Dax easing 14 points to 4970 and 10925 respectively. In the UK better than expected inflation figures provided a bit of excitement for the markets. 'Even though inflation only saw a mild increase from the expected zero to 0.1% coupled with a core CPI improvement from 0.8% to 1.2% if was more than enough to boost the pound which jumped against the euro and the dollar following the release of the figures' Connor Campbell at spread-betting firm Spreadex said. The FTSE 100 failed to rise on the news losing 30 points to 6520. Samuel Tombs at Capital Economics said the figures have little bearing on the timing of the first Bank of England interest rate hike. The BoE has a target of 2% for inflation before it says it will consider raising interest rates. Brent Crude below US$48.50 per barrel and copper hitting fresh 6 year lows meant the FTSE's oil and mining stocks returned to the red. Weighing heavily on the index were BP (LON:BP. down 1.2% to 374p Shell (LON:RDSB) which was 31p lower to 1780p and Rio Tinto (LON:RIO) which lost 51p to 2394p. Away from the index Cairn Energy (LON:CNE) was the biggest faller on the FTSE 350 as it reported unveiled widening losses for the first half. Shares dropped 8.5% to 141p. Elsewhere Daniel Stewart (LON:DAN) was a big riser as shares surged amid hopes that the former Quindell boss Rob Terry could look to up his stake in the broker. Shares were 20% higher at lunch to 1.74p. Mariana Resources (LON:MARL) jumped as the maiden resource estimate at the Hot Maden gold-copper project reckons it contains 4.7mln tonnes at 5.5g gold and 1.8% copper. That takes the grand total up to 3mln ounces at a gold equivalent grade of 11.2 grams per tonne. Shares were 16.85% to the good at 2.6p. Conversely APC Tech (LON:APC) was the biggest faller of the day after a trading update but broker Cantor still sees upside in the company. 'APC's trading statement is disappointing but still shows revenue on track in 2015'the broker said. While the nature of the business environment has delayed it becoming profitable 'it does not preclude it and we remain positive on APC' it added. Shares were 25% lower at 12.1p. MOST FOLLOWED Proof that Royal Dutch Shell is a truly global company comes in the form of coverage of news about its Arctic Ocean drilling plans. Newspapers from places as far afield as India and Chicago have covered the story along with for all I know the Arctic Enquirer. The Chicago Tribune reports that the federal government has given Royal Dutch Shell the final permit it needs to drill for oil in the Arctic Ocean off Alaska's northwest coast. The permit will allow Shell to begin drilling below the ocean floor. Environmental groups are predictably up in arms – or whatever the cliché is for peaceful protest – over the decision claiming that drilling will endanger the wellbeing of polar bears and that oil companies have yet to demonstrate that they can clean up an oil spill in water that is full of cracked ice. In other oil sector news oilfield support services firm Wood Group (LON:WG.) revealed it has shed 13% of its workforce after drilling activity eased off in response to the lower oil price. Around 5000 jobs were lost around 1000 of them in the UK. That news may or may not please the environmentalists but they are likely to be less equivocal about the news that Scotland's last coal-fired power station Longannet in Fife is to close at the end of March next year. The decision is not a massive surprise as management had already flagged up plans earlier this year to close the plant. Still with Aberdeen-based Wood Group cutting back and jobs set to go at ScottishPower's Longannet power station the employment situation is looking bleak in certain parts north of the border. In economic news Kristin Forbes a member of the Bank of England's Monetary Policy Making Committee has warned of the dangers of 'lingering too long in the sun'. There's not much danger of that happening north of the border but as it happens he is talking metaphorically about the perils of keeping interest rates artificially low for too long. The benchmark interest rate has been stuck at 0.5% for more than six years which as spells in the sun go is likely to leave a sunbather with skin like my old school satchel – doubly so if the sunbather has tattoos. 'Linger too long in the sun and your skin may take on a slightly pink glow" Forbes said in a piece for the Daily Telegraph. "While you probably won't want to move from your comfortable spot in the sun if you ignore the warning signs you may have a painful sunburn that evening." Finally it has been a strange old day for the share price of African Potash (LON:AFPO) the owner of the Lac Dinga potash project in the Republic of Congo. A fire was lit under the company's share price earlier this month when it announced a move into commodity trading that could secure it a revenue stream in the near future. The share price was on the move again this morning rising 20% at one point prompting the company to issue a statement saying it had no idea why the shares had started moving sharply again. By the time I had finished covering the news item the share price was down about 8%; then while I was typing that the share price was down 8% it moved to be up 5% on the day and then as I corrected my earlier share price comment the share price moved back into the red again at which point I decided to publish and be damned. For the record however the shares are now down 19.42% on the day and up 490% over the last month. LONDON OPEN London shares started Tuesday on the back foot after disappointing US economic data and as UK inflation rose slightly. The FTSE 100 Index fell 2 points to 6547 in the first hour of trading as Empire State manufacturing data came in well short of hopes on Monday. Together with last week's devaluation of the Chinese yuan the news sparked speculation that the US Federal Reserve may not hike rates as soon as some expected. Gold prices lifted by 0.05% to US$1119 an ounce as investors sought a haven from stocks and the dollar. Precious metal miners benefited with Randgold Resources (LON:RRS) advancing 25p to 4008p and Mexican silver miner Fresnillo (LON:FRES) gleaming a penny to 672p. But oil stocks were in the doldrums again as the price of a barrel of US light crude backtracked 0.7% to US$41.58 and Brent crude fell 0.6% to US$48.46. BP (LON:BP.) leaked 1.65p to 376.5p Royal Dutch Shell (LON:RDSB) lost 11p to 1801p and BG Group (LON:BG.) deflated 4p to 1073p. The UK Consumer Prices Index (CPI) grew by 0.1% in the year to July 2015 up from 0.0% in the year to June 2015. Nick Dixon investment director at Aegon UK said: 'Inflation is being held back by the strong pound and lower oil prices and is likely to remain minimal in the short term. The inflation figures also raise probability of the first rate hike since 2007 being after Christmas not before.' Analyst Craig Erlam at Oanda said: 'The recent collapse in commodity prices is likely to apply further downward pressure on inflation in the months ahead.' In a quiet session for corporate news Persimmon Homes (LON:PSN) retreated 26p to 2095p as traders digested the latest set of profit figures from the housing sector. Persimmon posted a 31% rise in half-year profits but cautioned about ongoing obstacles to growth in the market including a shortage of skilled labour. Oil services supplier Wood Group (LON:WG.) shed 12.5p to 567p as it outlined efforts to offset the impact of industry cutbacks due to falling oil prices. Newspaper distributor and airport ground handler John Menzies (LON:MNZS) backtracked 37p to 455.5p as aviation profits took a hit from restructuring costs and 2014 contract losses. MARKET PREVIEW Tuesday's open is expected to see the FTSE 100 a tad higher though many investors remain on edge. IG Markets which predicts the UK benchmark will start 11 points higher highlighted there were no new surprises in China as People's Bank's currency fixing was as expected 'With today's unsurprising CNY fixing volatility in the CNY appears to have been put back in its box' IG said in a note. 'However the internal dynamics of China's economy continue to flash warnings that this calm will not last.' Shanghai's Composite index was down around 3% at 3867 while Hong Kong's Hang Seng moved 0.6% lower at 23663. Japan's Nikkei dipped 0.2% to 20576. Australia's ASX 200 was about 1% lower at 5313. Meanwhile India's Sensex was among the few positive indices with a 0.3% rise to 27962. Previously Wall Street chalked up a positive start to the week. The Dow Jones was 67 points 0.4% better closing Monday's session at 17545 while the S&P 500 improved by 0.5% to 2102 and the Nasdaq gained 0.8% to 5991. Spot gold was slightly higher at around 1117. Brent crude dropped another 1.3% to US$48.55 while West Texas Intermediary futures were nearly 2% lower at US$41.75. In London the FTSE 100 is expected to open positively though much of the early attention will likely be on inflation as the updated consumer price index (CPI) is due and so the commentary will no doubt be dominated by interest rate chatter. City analysts are expecting the official figures to show CPI remained at 0% last month. Samuel Tombs of Capital Economics said: 'CPI inflation probably held steady at zero in July but the recent fall in oil prices suggests that the UK is likely to experience another bout of negative inflation before the end of the year. 'As a result the MPC should be able to take its time over raising interest rates next year.' London's scheduled corporate news highlights should include the following: Cairn Energy PLC (LON:CNE) Persimmon (LON:PSN) Chime Communications (LON:CHW) Menzies (LON:MNZS) H&T Group (LON:HAT) John Wood Group (WG.) Alpha Pyrenees (LON:ALPH).