London Markets: FTSE 100 slides as China growth concerns weigh on mining stocks

U.K. stocks fell Thursday, as worries about slowing economic growth in China hit shares of mining companies and as investors prepared to find out whether the European Central Bank will reveal its time frame for winding down bond-buying.

The market is also assessing the latest monetary policy moves from the U.S. Federal Reserve, seen as taking a more hawkish tone than expected as it accelerated its outlook for interest rate hikes.

How markets are performing

The FTSE 100 index UKX, -0.65% dropped 0.5% to 7,663.87, with only the health care sector showing a small gain. The basic materials group, which includes mining stocks, led other sectors lower. On Wednesday, the blue-chip benchmark shed less than 1 point.

The pound GBPUSD, +0.4485% bought $1.3433, taking a step higher after the release of upbeat retail data, compared with $1.3377 late Wednesday in New York. Against the euro GBPEUR, +0.1939% sterling fetched €1.1340, little changed from €1.1346 in the prior session.

What’s driving markets

Mining stocks were knocked back by concerns about the economic health of China, the world’s largest buyer of copper and a major buyer of other industrial and precious metals.

Business activity in China slowed in May, and readings on industrial output, retail sales and fixed-asset investment from the National Bureau of Statistics fell short of expectations.

Investors also took notice of a decision by the People’s Bank of China to stand pat on interest rates, breaking a pattern of raising rates in the footsteps of the U.S. central bank.

As expected, the Fed on Wednesday lifted its benchmark federal funds rate by a quarter-percentage point — to a range of 1.75% to 2%. It also signaled it will raise rates a total of four times in 2018, compared with a previous outlook for three hikes. Wednesday’s rate increase was the second of the year.

Attention now turns to the ECB, which is discussing when to end its €2.5 trillion ($2.95 trillion) program of bond buying, or quantitative easing. Its policy statement is scheduled for release at 12:45 p.m. London time, or 7:45 a.m. Eastern Time. ECB President Mario Draghi will hold a press conference at 1:30 p.m. London time, in Riga, Latvia.

Read: Investors brace for ECB ‘close call’ on when to start winding down QE

And see: The ECB, not the Fed, is the match that will spark bond market volatility: analyst

What strategists are saying

“Domestically [in China], headwinds such as the increased trade friction with the U.S. have led policy makers to moderate the tightening of the macroeconomic policy stance,” wrote Louis Kuijs, head of Asia economics at Oxford Economics, in a note.

“As Fed chairman Jerome Powell acknowledges, the risk remains that officials overcook it and bring an end to the Trump trade once and for all. Achieving the ‘not too fast, not too slow’ Goldilocks approach to monetary policy will be key to extending the equities bull run,” said Lee Wild, head of equity strategy at Interactive Investor, in a note.

Michael Purves, chief global strategist at Weeden & Co., says the upcoming ECB meeting could be the biggest driver of volatility of the three central bank gatherings. “We think the ECB is the big kahuna,” he wrote in a note cited by The Wall Street Journal.

Stock movers

Among miners, shares of copper producer Antofagasta PLC ANTO, -2.22% lost 1.9%, Glencore PLC GLEN, -2.01%  gave up 1.7%, and BHP Billiton PLC BLT, -1.40% BLT, -1.40%  fell 1.9%.

Rolls-Royce Holdings PLC shares RR., +2.63% rose 2.8% after the British aircraft-engine maker said it will cut 4,600 jobs, in its latest round of job reductions.

Aveva Group PLC AVV, +12.95%  rallied 13%. The industrial-software company said it was maintaining its dividend even as fiscal 2018 pro-forma pretax profit fell 34%, stemming in part from reverse acquisition by France’s Schneider Electric SE SU, +0.19%

Economic data updates

Retail sales for the U.K. in May outstripped forecasts, as a stretch of good weather and Royal Wedding celebrations gave a fillip to spending in food and household goods stores.

Sales were up 1.3% on the month, compared with the 0.5% estimated. They were up 3.9% year-over-year, compared with the 2.4% expected in a FactSet consensus estimate.

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