Investment market update
UK stocks are expected to open lower this morning, following falls in Asia and the US overnight, with weak economic data out of China bringing the bears to the fore once again.
Asian stocks extended declines after a China factory gauge unexpectedly fell. The preliminary Caixin manufacturing purchasing managers’ index (PMI) fell to 47.0 in September, below forecasts of 47.5 and down from 47.3 in August. A reading below 50 indicates contraction in the sector, while one above shows expansion.
US shares have closed lower with the auto sector particularly hard hit. Shares in suppliers to Volkswagen fell after VW admitted to deceiving US regulators over emissions tests. Fiat Chrysler fell 5.7%, Ford finished 2.8% lower, GM closed down 1.9%. Uncertainty about when the Federal Reserve will begin to raise interest rates is also unsettling the markets. Last week, the Fed kept rates on hold, citing worries over global growth prospects as a major factor.
The UK stock market fell, together with other European markets, with mining firms suffering after commodity prices declined. Mining shares led the falls after commodity prices continued to weaken. Copper prices hit two-week lows and oil prices dropped after rising on Monday. Among mining firms, Glencore fell more than 10.0% while Anglo American was down 6.7%. Commodity prices have been hit by the slowdown in the Chinese economy, which is a huge importer of raw materials.
Chinese President Xi Jinping has sought to reassure US business leaders, in a wide-ranging speech covering China’s economic reforms and cyber-crime. Speaking in Seattle, Mr Xi said foreign firms were welcome in China, and that Beijing would not manipulate its currency to boost exports. He also denied Beijing engages in hacking but said China would co-operate with Washington on the issue.
Chancellor George Osborne has set out an aim of making China the UK’s second largest trading partner by 2025, as he makes a controversial visit to a remote Chinese region. Mr Osborne said Britain must ‘raise its game’ to increase exports to China from £25bn (246bn yuan) to £30bn annually. UK exports to China have increased fivefold since 2003, raising China from ninth to sixth place in the list of the biggest markets for UK goods and services. The US is the biggest market.
Volkswagen is facing multiple investigations in the United States, including, reports say, a criminal probe from the Department of Justice (DoJ). They follow an admission by VW that it deceived US regulators during exhaust emissions tests. A DoJ criminal investigation would be serious, as federal authorities can bring charges with severe penalties against a firm and individuals.