London midday: China stimulus fails to lift stocks

London stocks declined as China’s latest stimulus injection failed to ease worries about the slowdown in the world’s second-largest economy.

The FTSE 100 fell 1.27% to 6,005 points at 1145 BST.

The People’s Bank of China on Wednesday said it would pump 140 billion yuan into the financial system through a short-term liquidity adjustment operation. The SLO loans, introduced in 2003 to reduce fluctuations in liquidity and stabilise interbank funding costs, will come with a 2.3% interest rate.

The move follows the central bank’s decision on Tuesday to cut interest rates for the third time since November. The PBoC lowered its benchmark lending and deposit rates by 0.25 percentage points, adding that the rate cuts will become effective on 26 August and are aimed at reducing corporate borrowing costs.

China's central bank also reduced its reserve requirement ratio by 0.5 percentage points, starting from 6 September.

“The string of events we’ve seen in China and global markets over the past few weeks can best be described as a negative spiral, whereby moves to stimulate the economy are received by markets as a signal of policymakers’ worries about China’s economic health, something that in turn sends the stock market plunging further,” said Cebr senior economist Danae Kyriakopoulou. “This short-term game however distracts attention away from China’s real problems.”

Kyriakopoulou said the root of the problem lies with China’s “incredible levels of debt”, particularly in local governments which stands at about 50% of GDP, according to the latest study by the Chinese Academy of Social Sciences.

Turning to news out of the UK, a report from the Council of Mortgage Lenders showed first-time buyers in London borrowed £2.67bn in the second three months of the year, representing a 12% increase from the previous quarter but a 10% year-on-year drop.

In another sign the housing market is thriving, BBA revealed mortgage approvals increased significantly in July. Overall mortgage approvals rose 15% year-on-year last month, while house purchases increased 11% from the corresponding period in 2014. Remortgaging applications jumped 29% year-on-year to reach their highest level in four years.

Across the Atlantic, a report on US durable goods orders is due at 1330 BST with analysts expecting a 0.4% fall in July compared to a year ago.

In company news, Range Resources plunged after the oil and gas explorer said the deadline related to its payment to Lind Asset Management had been extended.

WPP dropped despite reporting a 44.5% jump in first half pre-tax profit as revenues grew 6.8%.

Carillion slumped as it revealed flat pre-tax profits for the first half.

On the upside, Betfair advanced after posting a 15% increase in revenue for the first quarter and announcing that it has agreed in principle to a possible merger with Paddy Power.

Market Movers

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BHP Billiton (BLT) 1,038.00p +1.67%

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