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LONDON (Alliance News) - It has been a dismal start to 2016 for global stock markets Monday, with Asian equities plunging and the Shanghai market suspended after a 7% decline, leading to declines in Europe as well.
The Shanghai Composite index was down 6.9% when authorities invoked the circuit breaker rule, which was proposed after volatility on the Shanghai stock exchange sent tremors through global markets in the second half of 2015.
The slump in Shanghai came after a report showing China's manufacturing sector continued to contract in December on weak orders and a renewed fall in output. The Caixin Purchasing Managers' Index fell unexpectedly to 48.2 in December from 48.6 in November, survey data from Markit revealed. It was forecast to rise marginally to 48.9.
At the same time, the official manufacturing PMI came in at 49.7, slightly up from 49.6 in November.
Business conditions in China have worsened in each of the past 10 months, Markit said, but the deterioration in December was moderate overall.
Elsewhere in Asia, the Nikkei 225 index in Tokyo closed down 3.1%, and the Hang Seng in Hong Kong ended down 2.7%.
The declines in Asia sent shockwaves across Europe. In London, the FTSE 100 index was down 2.1% at 6,113.74 points, with its heavily weighted mining sector amongst the decliners due to dependence on Chinese demand. Anglo American was down 5.4%, Glencore down 4.6%, and Antofagasta down 3.4%. Burberry Group, also heavily exposed to China, was down 3.6%.
The mid-cap FTSE 250 traded down 1.4% at 17,184.38, but the AIM All-Share was up 0.5% at 738.88. The CAC 40 index in Paris was down 2.5%, and the DAX 30 in Frankfurt down 3.3%.
Oil prices jumped earlier in the day due to heightened tensions in the Middle East which disrupt oil supply. Saudi Arabia cut diplomatic ties with Iran on Sunday and ordered Iranian diplomats to leave the country amid tensions between the two regional powers over Riyadh's execution of a prominent Shiite cleric.
"The Kingdom of Saudi Arabia has decided to sever its ties with Iran and has requested all members of the Iranian diplomatic mission to leave within 48 hours," Saudi Foreign Minister Adel al-Jubeir said. He added at a press conference in Riyadh that Saudi diplomats had already left Tehran en route for home.
The move comes after angry Iranians stormed the Saudi embassy in Tehran protesting the execution of Saudi Shiite cleric Nimr al-Nimr, known for activism against the kingdom's Sunni rulers.
Brent oil spiked to a high of USD38.47 a barrel but has since come down to trade at USD37.35 a barrel just after the London open. West Texas Intermediate hit a high of USD38.26 a barrel but has fallen back to USD37.15.
Cairn Energy was by far the best performer in the FTSE 250, up 5.6% after it received positive results from tests carried out on the SNE-2 appraisal well offshore Senegal as the company moves onto its third and final well on the field before updating its resource estimates.
The oil company said drill-stem testing was carried out on the SNE-2 well over a 12.0 metre interval which produced a stabilised but constrained flow rate of 8,000 barrels of oil per day of high quality pay. The company said the result confirmed the "high deliverability" of the main reservoir in the well.
Further testing was carried out over a relatively low-quality 15.0 metre interval which produced a maximum flow rate of 1,000 barrels of oil per day, proving the lower quality reservoirs can still produce at a viable rate and contribute to resource volumes, said the company.
Importantly, testwork on the well has also confirmed the correlation between the reservoir units between the SNE-2 well and the SNE-1 well, and the data from SNE-2 also suggests the oil quality is the same as the SNE-1 well.
Grainger said it has struck a deal with Turbo Group Holdings to sell its Equity Release division for a total consideration of GBP325.0 million, including debt.
Grainger said the sale of its retirement products unit to Turbo, owned by Patron Capital Partners and FTSE 250-listed Electra Private Equity, will allow it to focus on its residential lettings business, following the sale of its wholly-owned and joint venture assets in Germany.
The sale consideration will include GBP175.0 million in cash and the transfer of GBP150.0 million in debt to the buyer and will cut Grainger's net debt position by an estimated GBP325.0 million. Grainger was up 1.9% after the news.
Irish corrugated packaging company Smurfit Kappa Group said it paid EUR186.0 million to acquire two packaging businesses in Brazil, strengthening its position in the Latin American market.
Smurfit bought Industria de Embalagens Santana and Paema Embalagens, two privately-owned integrated packaging businesses. The pair have three recycling containerboard mills and four corrugated packaging facilities between them and service the north and south of the country.
Smurfit Kappa shares were down 2.5% in early trading.
It is a busy day ahead in the economic calendar Monday. Markit manufacturing PMI readings for December due from Italy at 0845 GMT, from France at 0850 GMT, from Germany at 0855 GMT and from the wider eurozone area at 0900 GMT.
The equivalent UK reading is published at 0930 GMT, at the same time as UK consumer credit information and mortgage approvals data for November.
In the afternoon, consumer price inflation data for Germany in December are expected at 1300 GMT, with US personal income, personal spending and personal expenditure data due at 1330 GMT. December's reading of US Markit manufacturing PMI is scheduled for release at 1445 GMT, ahead of the US ISM manufacturing PMI reading and US ISM prices paid readings for December at 1500 GMT. US construction spending data for November also are due at 1500 GMT
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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