Rolls-Royce advances but banks downgraded again

Economic data from China late yesterday made significant contributions to today’s trade. Firstly, investor learnt that China’s trade surplus narrowed in September to $14.5 billion, from $17.8 billion in August and $31.5 billion in July. The slowdown in export growth highlighted that the eurozone crisis and economic slow-down in America are being felt globally. Despite the reduction in the growth rate of exports, the value of China’s imports and exports are both near record highs in absolute terms.

In a different release form the world’s second largest economy, China’s Non-Ferrous Metals Industry Association announced estimations of its copper inventories yesterday. In an unprecedented release, the market learnt that inventories included 1.9 million tons as of 2010. The figure suggests that the actual demand for copper may be lower than it has appeared over the last few years, usage artificially boosted by imports that were directed towards inventories. With China accounting for more than 40% of the red metal’s global demand, its price fell by more than 3% today from already depressed levels. The combined data broadly impacted mining stocks, a handful of which suffered losses in the region of 5% and dragged the FTSE around 1% lower, a level it maintained for most of the day.  

Further cause for concern came in the form of a profit warning from the French Carrefour, Europe’s largest retailer announcing that it expected full year operating profits to fall by up to 20%, greater than the 15% decline estimated in a previous warning. The news provided further evidence of weak European economy, consumers struggling with inflating prices, depressed wage growth and government austerity measures.   

Rolls-Royce was the greatest gainer on the London market, sentiment lifted with the sale of its International Aero Engines joint venture to partner Pratt & Whitney, a unit of United Technologies. Pratt is to pay €1.5bn to take control of the consortium that makes engines for Airbus and Boeing. Concurrently, Rolls-Royce announced it was to enter into a new venture with Pratt and General Electric, to develop more efficient engines for single aisle aircraft. The shares gained 9.9% to finish at 688p, more than double the increase of the next best performer on the index. 

Whilst miners were under pressure following the Chinese data, Rio Tinto was a relative outperformer, investors reacting positively to its third quarter update. The Anglo-Australian miner recorded a 5% rise in iron ore output, the division that contributes more than two-thirds of the groups profits. Copper output was below expectations, but the company was notably upbeat stating that the group continues to operate at full capacity in its raw steelmaking commodities business. Shares in the company finished trade at 3284p, a loss of 2.3% for the day.

Banks were the other main drag on the index, struggling after the ratings agency Fitch downgraded RBS and Lloyds two notches from AA- to A. Whilst Barclays escaped a downgrade its AA- rating was put on negative watch. The re-rating follows a raft of Moody’s downgrades last week, once again citing a decreased likelihood of government support following a report by the Independent Commission on Banking last month. RBS and Barclays occupied the bottom two positions on the FTSE 100 with their respective 7.4% and 6.4% losses. The blue chip index finished the day 0.7% lower at 5403 points.  

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