Synthomer Share News (SYNT)

LONDON (Alliance News) - UK and European stocks closed lower Tuesday, after the surprise decision by the Chinese central bank to devalue to the yuan weighed on commodities and the shares exporters to China.

The FTSE 100 index closed down 1.1% at 6,664.54, and the FTSE 250 ended down 0.5% at 17,666.96, while the AIM All-Share closed up 0.1% at 754.26.

European stocks also were sold, with the CAC 40 in Paris ending down 1.9% and the DAX 30 in Frankfurt down 2.7%.

In New York at the London close, the DJIA was down 1.3%, while the S&P 500 and Nasdaq Composite were down 1.0%.

The People's Bank of China set the value of yuan at 6.2298 a dollar, 1.9% lower than Monday's official fixing rate. This was the biggest one-day reduction in value since 1994 and was an attempt to make the official exchange rate more market-determined.

The People's Bank of China said the official fixing rate has deviated from the market-determined rate by a large margin for a long time, and this action was required to close the gap. It noted that market expectation of policy tightening from the US Federal Reserve has led to an appreciation in the dollar, to which the yuan is pegged.

The decision by central bank was intended to support the country's exports, which were reported at the weekend to have declined by more than expected. Figures from the General Administration of Customs showed Chinese exports declined at a faster-than-expected pace in July. Exports decreased 8.3% year-on-year in July, reversing the 2.8% increase in the previous month. Economists had expected exports to decline 1.5%.

The bank's action has raised concerns about the strength Chinese economy, as well as the possibility that it could start a currency war as countries try to protect their exports.

"The question now is whether other central banks will follow suit and devalue their own currencies in some way in an attempt to ring-fence their own export markets, something that could further harm US companies. They are already facing a battle to compete as a result of the strong dollar, which was likely to be further hampered by a rate hike from the Fed when it raises rates," said Craig Erlam, senior market analyst at Oanda.

Burberry Group closed amongst the biggest fallers in the FTSE 100, down 2.4%. China is a key market for Burberry, and it has already been hit by concerns of a slowdown in spending in the country. The devaluation of the currency will reduce Burberry's Chinese revenue in sterling terms and has increased investor jitters about Burberry's exposure to the market.

Other luxury goods stocks were similarly hit. In Paris, LVMH Moet Hennessy Louis Vuitton ended down 5.4%. In Frankfurt, BMW shed 4.5%. In Zurich, Swatch Group lost 5.1%.

Miners were sold in London as well with Glencore the worst FTSE 100 performer, closing down 3.6% and hitting a new all-time low in the process. BHP Billiton ended down 2.8% and Rio Tinto down 3.1%. The FTSE 350 Mining sector index closed as the worst performing sector, down 4.4%.

Concerns about China's economy had initially created demand for gold, the traditional safe-haven, but at the London close the metal had given up most of its gains to trade at USD1,109.04 an ounce.

Oil prices took a heavier hit, with West Texas Intermediate falling to a new five-month low at USD42.96 a barrel. Brent oil fell to a low of USD48.60 a barrel.

Oil prices were also pushed lower after Bloomberg reported that the Organization of Petroleum Exporting Countries pumped the most crude in more than three years in July, as Iran restored output to the highest level since international sanctions were strengthened in 2012.

Last month, Iran and six world powers reached a deal on limiting the country's nuclear programme in exchange for lifting sanctions.

The OPEC, responsible for 40% of world oil supplies, raised output by 100,700 barrels a day to 31.5 million last month, Bloomberg said, citing the group's monthly market report. This increase came even as Saudi Arabia, which often curbs output toward the end of peak summer demand, told OPEC it cut production by the most in almost a year.

Greece and its creditors struck a provisional deal on a new bailout for the near-bankrupt country, the two sides said, with EU finance officials set to meet Tuesday afternoon to consider giving political backing to the agreement. The breakthrough comes after two weeks of intense negotiations on what Athens will have to do in return for the three-year bailout, which is expected to total between EUR82 billion and EUR86 billion.

"What we have at the moment is a technical-level agreement reached by the staff of the [creditor] institutions and the Greek authorities," European Commission spokeswoman Annika Breidthardt said. "What we don't have at the moment is a political agreement."

The creditors have been under pressure to grant Greece access to bailout funds before August 20, when it owes a EUR3.2 billion debt repayment to the European Central Bank. Greece's Parliament is expected to vote on whether to accept the country's latest bailout deal on Thursday, Greek media reported citing government sources. Once approved by national parliaments, euro area finance ministers are expected to meet towards the end of the week to finalize the process.

Elsewhere on the London Stock Exchange, Prudential closed as the best FTSE 100 performer up 4.4%. The company's new Chief Executive Mike Wells said it is not about to change its strategy of targeting the growing middle class in Asia, the retiring baby boomers in the US, and the ageing population in the UK, as the life insurer posted an increase in operating profit and a key measure of sales that beat analyst forecasts for the first half of 2015.

Prudential's operating profit based on longer-term investment returns before tax increased by 24% to GBP1.88 billion in the six months to the end of June, beating the GBP1.74 billion analyst consensus estimates provided by the company. Annual premium equivalent sales increased by 20% to GBP2.73 billion in the half, also ahead of the relevant analyst consensus forecast of GBP2.50 billion.

FTSE 250-listed Synthomer ended as the best mid-cap performer, up 6.3%. The specialty chemicals company said its pretax profit rose in the first half thanks to margin improvements in its North American business and a good operating performance in Asia, which offset continued sluggishness in Europe and a hit the group is taking from the weak euro.

Synthomer said its pretax profit for the half was GBP36.8 million, up from GBP29.9 million a year earlier, despite its total sales falling to GBP468.7 million from GBP510.1 million, held back by euro weakness as volumes rose by 6.8%.

Just Retirement Group and Partnership Assurance Group said they have agreed to merge in an all-share deal to create a life insurance company worth almost GBP1.7 billion by market capitalisation.

The combination of the two companies is designed to create a stronger competitor in the defined benefit de-risking and UK retirement income markets. Known as specialist annuity providers, both Just Retirement and Partnership were rocked when new pensions rules in the UK removed the effective requirement on individuals to buy annuity products that guarantee income in retirement.

Just Retirement Group closed down 5.5%, while Partnership Assurance ended down 0.2%.

In the economic calendar Wednesday, there are the Bank of Japan's monetary policy meeting minutes at 0050 BST before Japanese industrial production at 0530 BST and Chinese industrial production and retail sales at 0630 BST. UK unemployment and earnings data are at 0930 BST, eurozone industrial production is at 1000 BST, and US Energy Information Administration crude oil stocks are at 1530 BST. After the close of London equity markets, there is the US monthly budget.

In the UK corporate calendar, outsourcer G4S reports half-year results, as does construction company Balfour Beatty, construction and support services company Interserve, gold miner Centamin, and property company CLS Holdings. Zoopla Property Group issues a trading statement, as does Volution Group.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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