Equity investors started the new week in a risk-off mood, amid surprising scenes of protest in China over the weekend, though the dollar failed to benefit.
The FTSE 100 index was down 27.72 points, 0.4%, at 7,458.95 at midday on Monday. The FTSE 250 was down 201.94 points, 1.0% at 19,343.76, but the AIM All-Share was up 1.48 points, 0.2%, at 848.55.
The Cboe UK 100 was down 0.4% at 746.07, the Cboe UK 250 was down 0.8% at 16,769.31, and the Cboe Small Companies was flat at 12,970.02.
China’s western Xinjiang region eased some Covid restrictions in its capital Urumqi on Monday, after a fire in the city whose deadliness was blamed on virus controls sparked protests across the country.
People in the city of four million, some of whom have been confined to their homes for weeks on end, can travel around on buses to run errands within their home districts starting Tuesday, officials said at a press conference Monday.
Certain essential businesses in ‘low-risk’ areas could also apply to restart operations - at 50% capacity - while public transport and flights will start ‘resuming in an orderly manner’, officials said a day earlier.
Ten people were killed when a blaze ripped through a residential building in Urumqi on Thursday night, spurring crowds to take to the streets in multiple Chinese cities this weekend to protest against the country’s strict zero-Covid policy. Many social media users blamed Covid lockdowns in Urumqi for hampering rescue efforts, but officials have instead said private cars obstructed firefighters.
‘The situation in China remains fluid, but we would downplay any hopes of quicker reopening due to the growing protests,’ commented Brown Brothers Harriman.
In European equities on Monday, the CAC 40 in Paris was down 0.9%, while the DAX 40 in Frankfurt was 0.9% lower.
Despite the risk-off investor sentiment, the dollar weakened.
The pound was quoted at $1.2098 at midday on Monday in London, up slightly from $1.2090 at the London equities close on Friday. The euro stood at $1.0491, up against $1.0395 late Friday. Against the yen, the dollar was trading at JP¥137.80, down from JP¥139.22.
‘Of course, yen strength shouldn’t be surprising but euro strength is hard to justify in this current environment,’ BBH said. ‘At some point, the dollar should catch a bigger bid if risk off sentiment persists.’
The uncertainty about China’s reopening from localised lockdowns dimmed the outlook for oil demand. Brent oil was quoted at $80.96 a barrel early Monday, down sharply from $85.21 late Friday.
The lower price for Brent drove down oil stocks, with BP down 1.6%, Shell down 1.1% and Harbour Energy down 1.1%.
‘Against this background, unless [Organization of the Petroleum Exporting Countries] and its allies cut production, or the US decides to replenish its strategic reserves, there may be scope for further weakness in the price of oil,’ said ActivTrades’ Ricardo Evangelista.
OPEC+ will meet on Sunday in Vienna to decide on oil production quotas. In October, the producers group had agreed to cut production by two million barrels per day, in an attempt to prop up oil prices.
Gold fetched $1,759.96 an ounce, up from $1,750.96.
Elsewhere in the FTSE 100, Barclays rose 0.9%.
CEO CS Venkatakrishnan will undergo treatment for non-hodgkin lymphoma, a type of cancer that affects the lymphatic system.
In a letter to colleagues, Venkatakrishnan, known as Venkat, said he will undergo treatment for 12 to 16 weeks in New York, as doctors said his condition is curable with their prescribed regimen.
During this period, he will ‘continue to be actively engaged’ in managing the London-based bank, although he will work from home for some periods and will be unable to travel.
Persimmon shed 2.9%
UBS said the housebuilder was ‘losing its mojo’, and cut the stock to ’sell’ from ’neutral’.
‘We think Persimmon faces further downside risk as margins and returns start to revert to the sector mean over time,’ the Swiss bank said.
UBS also downgraded medical equipment manufacturer Smith & Nephew to ’sell’, with the stock losing 2.0%.
Rio Tinto was down 0.6%. The miner said it has agreed to create the Juukan Gorge Legacy Foundation after signing a remedy agreement for the destruction of two ancient rock shelters at Juukan Gorge in Western Australia by the miner in 2020.
Under the agreement, Rio Tinto will provide financial support to the foundation to progress cultural and social projects including a new keeping place for storage of important cultural materials.
‘This was one of a litany of ESG failings under the company’s previous management. Current CEO Jakob Stausholm may as well wear marigolds to every meeting as cleaning up messes seems to have been a key part of his role so far, and this latest move fits with the new approach,’ said AJ Bell’s Mould.
In the FTSE 250, abrdn fell 2.8%, as Redburn cut its view on the investment manager’s shares to ’sell’ from ’neutral’.
In London’s small caps, Superdry fell 6.5%. The clothing retailer confirmed it is in talks with a US hedge fund, as the business faces an uncertain future if it cannot secure a new lender.
Superdry last month said there was a ‘material uncertainty’ over the future of its business as a £70 million loan facility is set to expire in January.
Superdry confirmed a report in the Telegraph newspaper that it is trying to secure funding from Bantry Bay Capital, which is backed by US activist investor Elliott Advisors.
It added that there was no certainty of an agreement and it will make a further announcement ‘when appropriate’.
‘We remain in discussions with other lenders,’ Superdry added.
Meanwhile, AIM-listed drug developer C4X Discovery surged 28%.
C4X said AstraZeneca will develop and commercialise an oral therapy for the treatment of inflammatory and respiratory diseases, with a lead focus on chronic obstructive pulmonary disease.
The licensing agreement is worth up to $402 million, and C4X Discovery will receive pre-clinical milestone payments worth up to $16 million ahead of the first clinical trial, including $2 million upfront.
C4X said it is eligible to receive a further potential $385.8 million in clinical development and commercial milestones, and tiered mid-single digit royalties upon commercialisation.
AstraZeneca was up 0.2%.
Stocks in New York were called lower, with the DJIA down 0.5%, the S&P 500 index down 0.8%, and the Nasdaq Composite down 0.8%.
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